When all assets are overvalued

[OldShooter]

Todd also seems to be making the rounds of the mentor group/FI blogger circuit. It’s all about fake it till you make it.

Not just a chattering monkey, a huckster monkey!

 

[RenoJay]

His context (vast resources and a very long term view) is quite different from a retiree living on their investable assets. He admits that in the short term stocks are riskier. A retiree has to strike a balance between short term and long term which is why most of us own some of both.

I understand this. But Buffett pointed to an example where hi bonds were effectively yielding less than 1%, and that was during a period of falling rates. Now that we are in a rising rate environment (bond values move down when rates go up) why own bonds at all? Why not own short term CDs that yield just a much?

 

[Chuckanut]

Nothing sells books better than predictions of impending financial disaster - especially if he turns out to be right!

Speaking of predictions of impending financial disaster.... How many people remember this one:

BusinessWeek: The Death of Equities - The Big Picture

Further, this “death of equity” can no longer be seen as something a stock market rally—however strong—will check. It has persisted for more than 10 years through market rallies, business cycles, recession, recoveries, and booms.

 

[Bikechuck]

Not just a chattering monkey, a huckster monkey!

Wow, this is a tough crowd. I enjoyed reading his post and I have visited his site off and on over the past few years as I prepared for my 2017 retirement.

I do not plan to purchase his course but I do find his writing thought provoking and it along with the analysis of others helped me to settle on my 50/50 asset allocation.

His writing also has me considering whether I should move at least some of my fixed income allocation to CDs rather than bonds.

I appreciate Darrow Kirkpatrick for posting a link to his blog and giving me something(s) to think about that might help me improve my portfolio at the margins.

Thank you Darrow and thank you Todd!

 

[audreyh1]

I understand this. But Buffett pointed to an example where hi bonds were effectively yielding less than 1%, and that was during a period of falling rates. Now that we are in a rising rate environment (bond values move down when rates go up) why own bonds at all? Why not own short term CDs that yield just a much?

I think many folks here have bought CDs when they were yielding as much as the equivalent bond duration.

They aren’t always available. At the moment the 5 year treasury has almost reached 2.7%, running neck-and-neck with most of the best 5 year CD offerings. Although it looks like two places are offering 3% again.

One can also quibble whether locking in a 5 year CD during a period of rising rates is a good idea. Hopefully find one with minimal penalties. 365 days of interest is typical though.

 

[Bikechuck]

I think many folks here have bought CDs when they were yielding as much as the equivalent bond duration.

They aren’t always available. At the moment the 5 year treasury has almost reached 2.7%, running neck-and-neck with the best 5 year CD offerings.

One can also quibble whether locking in a 5 year CD during a period of rising rates is a good idea. Hopefully find one with minimal penalties.

A three year ladder might make sense in the current environment. Or perhaps a four year with the second and fourth year rungs composed of Ally's "raise your rate" CDs.

 

[audreyh1]

Perhaps. More work than I am willing to deal with, probably.

 

[gayl]

3/22/18 I sold all 880 sh of my SCHA and bought 2000 SPLB, another CD, & cash. No idea if it was right or wrong but hey, figured the increased dividends would be more beneficial than potential growth in SCHA. Plus I hadn't made a trade in March. Lousy reason

 

[flintnational]

From the article - "As of this writing, the only time the U.S. market has been more overvalued as measured by the CAPE ratio is the narrow window of months preceding the final 2000 top. "

Or we could just use a different metric and everything looks better. As of mid-afternoon yesterday the forward PE for the S&P was a little over 16. Problem solved. (calculated using Yardeni's 2018 consensus earnings of $157)

Yes, I know the problems with using forward PE as a metric. But, all valuation metrics have problems. "The problem with valuation metrics" is my point.

 

[Bikechuck]

3/22/18 I sold all 880 sh of my SCHA and bought 2000 SPLB, another CD, & cash. No idea if it was right or wrong but hey, figured the increased dividends would be more beneficial than potential growth in SCHA. Plus I hadn't made a trade in March. Lousy reason

What in Heaven's name are SCHA and SPLB?

 

[jazz4cash]

Ticker symbols in threads is one of my pet peeves These are Schwab small cap and an S&P ETF fund.

 

[pb4uski]

+1

 

[gayl]

SCHA = Schwab small cap etf
SPLB = SPDR Long Bond etf

Point is that when even long equity only investors are skitish, are we closing in on a bottom or cliff?

 

[CyclingInvestor]

Stocks as a group are overvalued at times, but there are always individual stocks that are not - at least since 1993 when I started paying attention. I have never had trouble finding reasonably priced stocks to invest in.

In 2000 when the market had stratospheric valuations, most REITs were paying well-covered dividends of 6-10% growing 4-10% annually. They became over-valued around 2005.

Currently, forward P/Es at big pharma (ABBV 10.5, AMGN 11.8, JNJ 14.6, PFE 11.4) and P/DCFs at pipeline companies (ENB 9.5, KMI 7.3, TRP 11.5) do not look overvalued.

 

[OldShooter]

Wow, this is a tough crowd. I enjoyed reading his post ...

Tough? Maybe, but I"m going from very simple logic:

Every one of these chattering monkeys is in the same situation. If any of them actually had any skill, what would they be doing? They would be using their skill to make themselves rich. They would not be typing away on the internet desperately hoping to make a living from advertiser clicks, Amazon sales commissions, or selling training courses. And for sure they would not be publishing the recipe for the secret sauce so that everyone could use it. The surest thing in investing is that any publicly known trick that works will eventually be useless as the hoards try to take advantage of it.

What keeps things going is first that people want to believe in skill and luck. That's why the casinos and lotteries will never go out of business. But second, when something happens there are so many monkeys that one or a few of them will have predicted it. They will then be anointed genius monkeys and sit in that throne until their next few pronouncement turn out to be busts. Since there are always genius monkeys many people always have the hope of finding the genius monkey ahead of time. If they do, it is pure luck, but they will conclude from that luck that they, too, are geniuses.

 

[redduck]

Every one of these chattering monkeys is in the same situation. If any of them actually had any skill, what would they be doing? They would be using their skill to make themselves rich. They would not be typing away on the internet desperately...

I'm becoming confused: Are the chattering monkeys the same monkeys as the typing monkeys and where do the dart-throwing monkeys fit-in? So many monkeys, so little time.

 

[samclem]

A three year ladder might make sense in the current environment. Or perhaps a four year with the second and fourth year rungs composed of Ally's "raise your rate" CDs.

I bought Ally "Raise Your Rate" CDs for my MIL, but my reservations about them have only increased. You can only ask for a bump-up in the rate if Ally offers a higher rate for that same product. And guess what: they have a bunch of customer money in these 2 and 4 year CDs and they haven't been raising the rate for these products as they increased their other rates (they appear to have caught up a bit recently). While they remained static and below the going rate, nobody who owned them could ask for a higher rate. I predict next they'll let them lag again, but to capture more [-]suckers[/-] inflows of new money, they'll offer Raise Your Rate CDs with terms of 18 and 36 months at attractive rates (higher than the 24 and 48 month products now on the street) and then do the same thing to those people. Next, it will be 12 months, 30 months and 42 months. Etc. The game will go on until folks wise up.

 

[googily]

I bought Ally "Raise Your Rate" CDs for my MIL, but my reservations about them have only increased. You can only ask for a bump-up in the rate if Ally offers a higher rate for that same product. And guess what: they have a bunch of customer money in these 2 and 4 year CDs and they haven't been raising the rate for these products as they increased their other rates (they appear to have caught up a bit recently). While they remained static and below the going rate, nobody who owned them could ask for a higher rate. I predict next they'll let them lag again, but to capture more [-]suckers[/-] inflows of new money, they'll offer Raise Your Rate CDs with terms of 18 and 36 months at attractive rates (higher than the 24 and 48 month products now on the street) and then do the same thing to those people. Next, it will be 12 months, 30 months and 42 months. Etc. The game will go on until folks wise up.

I wandered through here today specifically with the intent of seeing what people were saying about CD ladders in the current environment. I have a decent amount of cash on hand that I don't expect to need access to for the next year, and was thinking about an Ally high-yield 12-month CD (2% for $25k but early withdrawal penalties).

I actually wondered about laddering their high-yield CDs but on a short-term basis, to not be caught in long-term CDs with rates probably rising. The 6 month high-yield CD for $5k-$24,999 is 1.6%, 9-month is 1.65%, 12 month is 1.85%. Is it just silly to do anything like that? Otherwise it's sitting at Ally (and AmEx) currently earning 1.45%.

 

[samclem]

I actually wondered about laddering their high-yield CDs but on a short-term basis, to not be caught in long-term CDs with rates probably rising. The 6 month high-yield CD for $5k-$24,999 is 1.6%, 9-month is 1.65%, 12 month is 1.85%. Is it just silly to do anything like that? Otherwise it's sitting at Ally (and AmEx) currently earning 1.45%.

It's not silly if the (slight) hassle of setting it up is worth it to you. Just make some assumptions about where interest rates will go and plug in your amounts to see if it is worth your time.

Another option: Their $25K 11 month no penalty CD yields 1.5% right now, which is >slightly< better than their 1.45% rate on savings, and if you buy the CD at least the rate won't go down on you, as it >could< with the savings account (not a big risk IMO, but stranger things have happened and I'm a bit less sure of my assumptions as everything seems to be getting more skittish of late). If rates go up, you could move your whole stash to the higher-rate CD (incl a ladder) without needing to wait.

 

[OldShooter]

I'm becoming confused: Are the chattering monkeys the same monkeys as the typing monkeys and where do the dart-throwing monkeys fit-in? So many monkeys, so little time.

Sorry. I probably miscategorized the OP's favorite monkey. I think he is more a typing monkey than a chattering monkey. It is the chattering monkeys who appear on televison, youtube, etc. Chattering and typing are not mutually exclusive though; some monkeys do both.

Interestingly, Nate Silver in his book "the signal and the noise" reports that chattering monkeys are generally more dramatically wrong than typing monkeys. This is because getting the chattering gigs depends on the monkey being dramatic.

The dart-throwing monkeys are mostly employed by people who conduct stock picking competitions. They are hired for their hand/eye skills and do not claim any market expertise. This modesty differentiates them from the chattering and typing classes.

 

[jazz4cash]

Ticker symbols in threads is one of my pet peeves These are Schwab small cap and an S&P ETF fund.

So I screwed the 2nd one up which is a long bond ETF, not S&P.

 

[gayl]

The point I was making is that I've always been 100% Equity ETF and individual equities. But since January I've been slowly moving away from those and into CDs and a long-term Bond Fund. I now have got a bond ETF, a bond fund and six CDs

 

[HFWR]

The point I was making is that I've always been 100% Equity ETF and individual equities. But since January I've been slowly moving away from those and into CDs and a long-term Bond Fund. I now have got a bond ETF, a bond fund and six CDs

Neither chattering, nor typing, nor dart-throwing, but is now the best time for a long bond fund?

 

[redduck]

Sorry. I probably miscategorized the OP's favorite monkey. I think he is more a typing monkey than a chattering monkey. It is the chattering monkeys who appear on televison, youtube, etc. Chattering and typing are not mutually exclusive though; some monkeys do both.

Interestingly, Nate Silver in his book "the signal and the noise" reports that chattering monkeys are generally more dramatically wrong than typing monkeys. This is because getting the chattering gigs depends on the monkey being dramatic.

The dart-throwing monkeys are mostly employed by people who conduct stock picking competitions. They are hired for their hand/eye skills and do not claim any market expertise. This modesty differentiates them from the chattering and typing classes.

I'm impressed. I'm willing to bet that you know more about monkeys than most early retirees. Much more. However, I neglected to include in this list a fourth type of monkey https://youtu.be/VNcqV_dC_gE. Wanna' guess which of three types of monkeys (chattering, typing, dart-throwing) has the most in common with this fourth type of monkey? The answer is revealed at about 1:15 into the video.

 

[NW-Bound]

... a fourth type of monkey https://youtu.be/VNcqV_dC_gE...

I had forgotten about this band.

But these are the monkeys that I know.