Down goes the Dow

Btw agip, even suburban and exurban single-family homes are now being bought by banks, REIT’s, and often by private equity.

Do you ever take any argument head-on? Why don’t you try addressing the most basic of issues, the seismic shift to multiple wage-earners per household. Later you can advance to other issues, such as what the indexes even purport to measure.

Maserati wrote:

Idiot, I remember 25 yrs ago when 32-foot lots in Pt. Grey were selling for 850k. People thought it insane, as did I. A friend was a homebuilder on those lots, even he thought it was nuts, and he had seen a lot, he was already 75 back then.

That was right near the end of a mini-bubble that burst (deflated a bit) when Hong Kong went back to China, as that had a significant influence on local pressures (a lot of Hong Kong money was being dumped into the market ahead of the change).

Looking back at Vancouver house prices over 40+ years (since 1977), it is a fairly volatile market with relatively regular cycles of shooting up followed by deflation. The chart here doesn't show the last couple of years bu it interesting:

I'm hoping (banking on) the chance that the current deflation has ended and we are embarking on the next fast upward leg. We'll know in a few years if this was a smart choice. :-)

Multiple issues with this. First, the CAPE10 is backward looking. Thus like recessions, it lets us know too late to do anything about it. Second, you seem to forget that correlation is not causation. That’s a mistake many amateurs make.

The Union Gap wrote:... correlation is not causation. That’s a mistake many amateurs make.

I'm reading a great book on the topic of teasing causation out of data, called the Book of Why by Judea Pearl. I haven't got to the juicy bits yet, so I don't know whether or how well it might address the relevance of Shiller's CAPE as a forward-looking tool.

I'm also reading Why Stock Markets Crash, by Sornette (Igy's recommendation). The chart I showed for Vancouver housing prices is a beautiful example of what he talks about when illustrating concepts of herding, and the interaction between "noise investors" (idiots like myself who treat any information or rumor as relevant to future instrument values) and informed traders (who are evidently better informed than the noise traders). I think we are all noise traders and the market reflects the chaotic interactions of all of us, each of us trying to maximize our returns, none of us with any "real" knowledge of the future, all of us guessing. But then again, I AM an idiot.

Maserati wrote:

Btw agip, even suburban and exurban single-family homes are now being bought by banks, REIT’s, and often by private equity.

Do you ever take any argument head-on? Why don’t you try addressing the most basic of issues, the seismic shift to multiple wage-earners per household. Later you can advance to other issues, such as what the indexes even purport to measure.

what do you want me to say about multiple wage earners per household? It's true, it's happened. It happened a few generations ago, to be honest - it's nothing new.

What is new is that one reason housing is more expensive to some is that Americans insist on more living space. Square foot per household member has gone up massively. Anyone who wants to live with the square foot per person of the 1970s can do so quite cheaply. Housing has barely exceeded inflation by that measurement.

The Union Gap wrote:

Ghost of Igloi wrote:

Via Robert Shiller the inventor of the CAPE ratio:

“C.A.P.E. reached 33 in January 2018 and is almost as high now, at 31. That number might seem meaningless in itself, but it is significant when you consider that it has been as high or higher on only two occasions: 1929, just before the 85 percent stock market crash ending in 1932, and in 1999, just before the 50 percent drop at the beginning of the new millennium.”

Multiple issues with this. First, the CAPE10 is backward looking. Thus like recessions, it lets us know too late to do anything about it. Second, you seem to forget that correlation is not causation. That’s a mistake many amateurs make.

You’ve used that argument (backward looking) before and it is nonsense. All data is from the past. CAPE 10 tells you that market is expensive, and as noted only this expensive two times in 140 years. The only question is whether it gets more expensive before it mean inverts.

Ghost of Igloi wrote:

The Union Gap wrote:

Multiple issues with this. First, the CAPE10 is backward looking. Thus like recessions, it lets us know too late to do anything about it. Second, you seem to forget that correlation is not causation. That’s a mistake many amateurs make.

You’ve used that argument (backward looking) before and it is nonsense. All data is from the past. CAPE 10 tells you that market is expensive, and as noted only this expensive two times in 140 years. The only question is whether it gets more expensive before it mean inverts.

I assume you meant “mean reverts”. The real question is how much higher the mean has and will become given these record highs we keep seeing. Or did you not realize that the mean changes in a positive direction every time we see a new high?

The CAPE10 is indeed backward looking. That is not nonsense. What do you think the “10” stands for? And if is such a great predictor, why hasn’t it predicted all of the other recessions and crashes of the last 140 years? Short answer: because it can’t.

You just showed how little you know about the subject. CAPE 10 has nothing to do with “recessions and crashes.” I meant mean invert.

It was an analogy. Surely you know what that is.

?

Ghost of Igloi wrote:

The Union Gap wrote:

Multiple issues with this. First, the CAPE10 is backward looking. Thus like recessions, it lets us know too late to do anything about it. Second, you seem to forget that correlation is not causation. That’s a mistake many amateurs make.

You’ve used that argument (backward looking) before and it is nonsense. All data is from the past. CAPE 10 tells you that market is expensive, and as noted only this expensive two times in 140 years. The only question is whether it gets more expensive before it mean inverts.

To me the question on valuation is whether the last 25 or so years have shown us that mean stock market valuations can safely be higher than they were in previous eras. Something happened that let the average PE be greater than 15 and the average CAPE be higher than whatever it was.

Could be accounting changes, could be tech, could be an anomaly that will correct sometime soon.

But any discussion of CAPE or PE that ignores that question just isn't dealing with the full story.

Maserati wrote:

Btw agip, even suburban and exurban single-family homes are now being bought by banks, REIT’s, and often by private equity.

Do you ever take any argument head-on? Why don’t you try addressing the most basic of issues, the seismic shift to multiple wage-earners per household. Later you can advance to other issues, such as what the indexes even purport to measure.

Was gonna say this. Firms like Blackrock and foreign investors are eating up homes faster and faster to turn them around and rent them out for huge monthly sums

agip wrote:

Maserati wrote:

Btw agip, even suburban and exurban single-family homes are now being bought by banks, REIT’s, and often by private equity.

Do you ever take any argument head-on? Why don’t you try addressing the most basic of issues, the seismic shift to multiple wage-earners per household. Later you can advance to other issues, such as what the indexes even purport to measure.

What is new is that one reason housing is more expensive to some is that Americans insist on more living space. Square foot per household member has gone up massively. Anyone who wants to live with the square foot per person of the 1970s can do so quite cheaply. Housing has barely exceeded inflation by that measurement.

This, I will admit. Because on one hand I'll complain that housing is too expensive and then on the other hand I ask myself if I can really live with a house that doesn't have a pool and a fenced in back yard.

The answer is no

Racket wrote:

Maserati wrote:

Btw agip, even suburban and exurban single-family homes are now being bought by banks, REIT’s, and often by private equity.

Do you ever take any argument head-on? Why don’t you try addressing the most basic of issues, the seismic shift to multiple wage-earners per household. Later you can advance to other issues, such as what the indexes even purport to measure.

Was gonna say this. Firms like Blackrock and foreign investors are eating up homes faster and faster to turn them around and rent them out for huge monthly sums

I wonder what % of the housing market is investors rather than traditional homeowners.

In theory I'd try to dig this up.

agip wrote:

Ghost of Igloi wrote:

You’ve used that argument (backward looking) before and it is nonsense. All data is from the past. CAPE 10 tells you that market is expensive, and as noted only this expensive two times in 140 years. The only question is whether it gets more expensive before it mean inverts.

To me the question on valuation is whether the last 25 or so years have shown us that mean stock market valuations can safely be higher than they were in previous eras. Something happened that let the average PE be greater than 15 and the average CAPE be higher than whatever it was.

Could be accounting changes, could be tech, could be an anomaly that will correct sometime soon.

But any discussion of CAPE or PE that ignores that question just isn't dealing with the full story.

The full story is that in the last 25 years there have been two mean inversions of the S&P 500 greater than 50%. Investors currently ignore GAAP earnings and stock buybacks. The market is expensive, anything else ignores facts. Look at other metrics if you like. The narrative of a new era has been repeated at the top of every bubble.

agip wrote:

Racket wrote:

Was gonna say this. Firms like Blackrock and foreign investors are eating up homes faster and faster to turn them around and rent them out for huge monthly sums

I wonder what % of the housing market is investors rather than traditional homeowners.

In theory I'd try to dig this up.

Found this on a quick search. Not comprehensive but good enough for now.

"Big private-equity firms, real-estate speculators and others that buy properties comprised more than 11% of U.S. home purchasers in 2018, according to data released on Thursday by CoreLogic Inc.

The investor purchases are the highest on record and nearly twice the levels before the 2008 housing crash. The investor interest poses a challenge for millennials and other first-time buyers who are increasingly looking to buy starter homes and are forced to compete with deep-pocketed cash buyers."

agip wrote:

Ghost of Igloi wrote:

You’ve used that argument (backward looking) before and it is nonsense. All data is from the past. CAPE 10 tells you that market is expensive, and as noted only this expensive two times in 140 years. The only question is whether it gets more expensive before it mean inverts.

To me the question on valuation is whether the last 25 or so years have shown us that mean stock market valuations can safely be higher than they were in previous eras. Something happened that let the average PE be greater than 15 and the average CAPE be higher than whatever it was.

Could be accounting changes, could be tech, could be an anomaly that will correct sometime soon.

But any discussion of CAPE or PE that ignores that question just isn't dealing with the full story.

Let’s use a star like Apple to illustrate how expensive the market is. We will compare the five year period by examining the Annual Reports of 9/30/2015 and 9/30/2019.

Net Income: $53.4 to $55.3 Billion

Liabilities: $91.4 to $142.3 Billion

Share Count: 5.8 to 4.6 Billion shares

Stock Price: $110.30 to $223.97

So Net Income is up 4%, Liabilities up 60%, Share Count 20% lower and stock price double. Bottom line, investors are willing to pay more.

It’s basic economics: supply and demand. The question is, however, does it matter? Stock valuations have been high for several years, but so far without consequence.

Ghost of Igloi wrote:

Bottom line, investors are willing to pay more.

Yes, that is the starting bottom line. Then the questions come—who, why, for what, for how long, how much more, how are they paying, etc.