Further to the ideas that I have been posting (which are constantly and directly contradicted by many including agip and Igy (“nothing but a claim on a future income stream”))”, consider the concept of risk.
There is no question that at the moment, market participants are willing to pay steadily increasing prices for the same securities. It is also true that a handful of flagship companies accounts for a large proportion of the gains. It is also true that maybe a third of companies make no money, and haven’t for a while.
Conventional wisdom seems to be that “investors” are currently willing to take on more “risk” than in the recent past; equities are known as “risk assets”, after all. But wait: what happened to the idea of “risk premium”?
To begin an investigation , consider this question: risk of what? Conventionally, risk that equity returns under-perform debt returns. With price supports and volatility suppression, such risk is decreased.
Also, what if it has decreased to the point where equities are now purchased with a view to wealth preservation? This is precisely the idea behind retirement accounts, which permit equity investments—and increasingly, it is also the intention of investors, many of whom are international and are looking for currency hedge vehicles.
As I have said, such investors don’t need “returns”, they need a place to park money. Forget returns, they are even willing to pay for this service. Look at housing in desirable places worldwide: much of it sits vacant, the owners foregoing rental income, and sometimes incurring fines. Look at Swiss gold vault storage: they charge a fee. Look at Swiss, German, etc bonds—negative yield is the equivalent of a storage fee. Etc.
It doesn’t matter that these things cost them money, the same as, in theory, a money-losing company—because it is not about gain, it is about preservation. Never mind that the underlying asset price is rising, even as that asset might be deteriorating—like worsening company financials, or a house rotting in the elements. (Btw metals, jewelry, etc are interesting in this respect.)
This preservation idea rests squarely upon a foundation built of public policy: that the Fed will continue liquidity injections, that the PPT will continue smoothing, that the gov will continue to fudge numbers in its favor, that the Can gov won’t tighten its money-laundering investigations and that there will be no look-back provisions, that the Chn gov will not ramp up vapital controls significantly, etc.
Gov has created everything in the current system, even for the wealthy and powerful. One needs to look at the reasons for key policies to get an idea of whether they will change or not. Look at Van RE: the whole wealth of the province rests on it, including members of the gov, anf gov function. Same thing in TO, and next Mtl. There are zero provincial or national economic incentives to change.
Look at US inflation numbers: the minute they rise, all COLA benefits are increased, and there are many; also rate increases would be in order. Gov has zero econ incentive to accurately report inflation.
Etc etc etc etc.
As long as the govs that matter stay more-or-less the same, the resulting policy stability means that US equities will continue to be seen as a safe haven. How long can it go on? Anybody’s guess. With RE in certain places, it has gone on for a half-century already, and is still going strong.
There is little use in hand-wringing. You have to see what is happening, and try to explain it. All purchases are speculative, but sometimes you just don’t care what happens, because it is a bet worth taking. I have done it myself. We all have, on smaller scales—but what one must realize is that there is a lot of money around these days. If a rich entity makes bets with the same proportion of its assets as do you, that ends up being a big number.
Some guy worth 100M buys a place that costs 5M, he can “afford” to never sell it and thereby realize that loss. You know what people will eventually do? Instead of selling to get some money, they will take a loan, collateralized by their stock portfolio. It already happens, even at the consumer level in a way, with people selling life insurance policies. That is nothing but a portfolio mediated by an intervening contract.
Why sell if you don’t have to, and if borrowing rates are so low, esp relative to cap gains? Add to that the potential tax benefits of not ever selling, such as step-up basis.
Dow up around 160 today.
Oh and Igy, in addition to all the things that are factually different this time, you can add this: the longest bull market in history. You may argue that it is different in quantity alone and not in quality, but that would be incorrect in view of the other factors that I have detailed in the past.
Lol I hope somebody gets something from reading these posts—I must get something from writing them. One thing you can be sure of is that I am not trying to sell you anything, otherwise my posts would appear in different places, and they do not. With the exception of Igy and maybe gente and agip, nobody here seems to be in the industry.
And Idiot, even though LR can be a cesspool, this thread might be worth wading through the noise, for that fact alone. I enjoy it because everyone is willing to challenge me at every turn, which can put things into needed perspective.