When all assets are overvalued

[kevink]

This post from Todd Tresidder came my way via Darrow Kirkpatrick's excellent "Can I Retire Yet?" site and newsletter. The author (IMHO) makes a pretty compelling case for both equities and bonds both being dangerously overvalued (and do check out his piece on the bond market from 2013 linked to within the article if you still think of bonds as the safe part of your portfolio).

The author's discussion of the psychology driving the Bitcoin craze may be the best part of the piece. His evaluation reminds me of Harry Browne, founder of the (in)famous Permanent Portfolio.

Towards the end there's a small list of possible ways to hedge against risk. I also found the comments worthwhile and suspect this piece will be getting a lot more play.

https://financialmentor.com/investment-advice/risk-management-plan/bubbles-everywhere/21479

 

[REWahoo]

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

 

[bw5972]

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

+1

I'd love to see how many times and for how long the same guy has predicted disaster.

 

[OldShooter]

+1

I'd love to see how many times and for how long the same guy has predicted disaster.

+2

I'd also love to see a scorecard comparing his predictions to actual results. When pigs fly, of course.

There are enough chattering monkeys that when something exciting happens, one of them will have predicted it. He will then be anointed "genius monkey" until he misses predicting the next event, at which point his title will be passed to another monkey.

I clicked on the thread out of curiosity because last fall the Economist had a cover story on "The bull market in nearly everything." Their discussion was much more reasoned and nuanced than what the monkey said, of course: https://www.economist.com/news/lead...-end-it-best-tread-carefully-asset-prices-are

Anyone posting here on economic topics is IMO missing the boat if they are not subscribing to the Economist. (If you are motivated to do so, make sure you subscribe to both the print and the digital editions. Some of the cheaper subscription offers are for only the print edition.)

 

[haha]

This post from Todd Tresidder came my way via Darrow Kirkpatrick's excellent "Can I Retire Yet?" site and newsletter. The author (IMHO) makes a pretty compelling case for both equities and bonds both being dangerously overvalued (and do check out his piece on the bond market from 2013 linked to within the article if you still think of bonds as the safe part of your portfolio).

The author's discussion of the psychology driving the Bitcoin craze may be the best part of the piece. His evaluation reminds me of Harry Browne, founder of the (in)famous Permanent Portfolio.

Towards the end there's a small list of possible ways to hedge against risk. I also found the comments worthwhile and suspect this piece will be getting a lot more play.

https://financialmentor.com/investment-advice/risk-management-plan/bubbles-everywhere/21479

If you agree that all assets are importantly overpriced, the remedy is to put money into that which is the currency with which all these overpriced assets are priced-IOW cash zero maturity, or close enough, 13 week treasury bills.

For somewhat better returns with little price risk, look at fairly good rate 1 year CDs such as 1.95% at Synchrony Bank.

Ha

 

[Nemo2]

the currency with which all these overpriced assets are priced

......and, if said currency is overvalued, why we just......

 

[kevink]

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

If you actually read both the most recent article and this one on the bond market

https://financialmentor.com/investment-advice/investment-strategy-alternative/bond-bubble/9064

or even peruse the author's bio on the site you'll see that while he absolutely doesn't claim to be a market forecaster he has a lengthy track record of getting out of bubble markets before they burst thanks to exactly the kind of sound math employed in these articles.

It never ceases to amaze me how many people comment on articles without reading them.

 

[adrift]

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

If you google Mr. Tresidder, on his web site, you'll find he got rich "through investing – not marketing – unlike many other financial gurus who made their money through marketing courses and books". While you're there you can also buy his course for $875.

 

[audreyh1]

Well cash isn't overvalued.

I've been invested a very long time, through ups and downs, so if things pull back from here both in bonds and stocks - well, I enjoyed the ride up, and sometimes you have to experience a ride down.

But I rebalanced on the way, so whichever asset class gets hurt more than the other will get more money next time I rebalance. That's the best I can do, so I don't worry about it.

 

[OldShooter]

If you google Mr. Tresidder, on his web site, you'll find he got rich "through investing – not marketing – unlike many other financial gurus who made their money through marketing courses and books". While you're there you can also buy his course for $875.

Let's see .... he got rich through investing? He has a track record of successfully identifying bubbles? And he is screwing around hawking books and training on the internet? For 20 years?

I guess if he wrote it on the internet, we have to believe it all, right?

 

[NW-Bound]

...
But I rebalanced on the way, so whichever asset class gets hurt more than the other will get more money next time I rebalance. That's the best I can do, so I don't worry about it.

When everything is overvalued, and then next everything goes down, there's nothing to rebalance between...

Well cash isn't overvalued....

Then, one needs to have a lot of cash as an asset class to rebalance to. How much does one need? 20%? Or as high as 50%?

If it is true that both stock and bond are overvalued, a pitiful 5% cash set aside is not going to cut it.

 

[gcgang]

I probably got further than most, but this apocalyptic drivel lost me at the "5000 year credit cycle".

 

[Another Reader]

Too much money is chasing too few assets worldwide, so all asset classes are "overvalued." The trouble is there is no place to hide. Until there is less money, i.e. liquidity is withdrawn from the world's markets, this condition will persist.

If everything decreases in value as money disappears, then we will likely have deflation. Cash, as in U S dollars, might be the place to be, as long as it isn't somehow devalued more than the assets it can buy.

 

[RobbieB]

Me thinks Todd Tresidder is overvalued.

 

[audreyh1]

When everything is overvalued, and then next everything goes down, there's nothing to rebalance between...

That's not true. Asset classes do not go down exactly the same amount. One could go down 5 to 10%, another 30-40%, for example. Rebalancing is still warranted.

And the timing is not perfectly synchronized either. It could well be that by the time stocks finally take a strong beating, bonds will have completed their beating, and be rising in value again as people run for cover.

Then, one needs to have a lot of cash as an asset class to rebalance to. How much does one need? 20%? Or as high as 50%?

If it is true that both stock and bond are overvalued, a pitiful 5% cash set aside is not going to cut it.

I keep cash as an asset class. And short term high quality bonds. Together they are 15%.

Yes, they do help in rebalancing as I well remember in 2008/9.

 

[Hamlet]

I’m at about 30% short-term Treasuries.

I see too much madness in too many markets to be fully invested at these valuations. It feels an awful lot like 1999 to me.

 

[HadEnuff]

I probably got further than most, but this apocalyptic drivel lost me at the "5000 year credit cycle".

This makes me glad I didn't bother.

 

[cooch96]

If all assets are overvalued, wouldn’t the smart thing to do be acquiring durable goods? Things you buy once and will last decades? New roof, new car, tweed jacket and felt hat? Or if you have all your material goods already, then buy life experiences: cruises, plays, concerts.
Doesn’t seem it’d be too hard to enrich your life while looking for bargains.

 

[Sunset]

If all assets are overvalued, wouldn’t the smart thing to do be acquiring durable goods? Things you buy once and will last decades? New roof, new car, tweed jacket and felt hat? Or if you have all your material goods already, then buy life experiences: cruises, plays, concerts.
Doesn’t seem it’d be too hard to enrich your life while looking for bargains.

Yep, I worked with a fellow who sold all his stocks to buy a house, just before the last great Recession, he knew he just lucky at the timing.

 

[Sunset]

I do wonder how all those folks who are just now hitting their numbers, and wanting to retire will fare. I feel a little more comfortable having been retired for 3 years, as the market has gone up quite a bit since then, so the first ~25% drop in value will return me to when I decided to retire.

But folks just making their numbers could end up quite a bit lower, if things go south.

 

[audreyh1]

This makes me glad I didn't bother.

Me too! Thanks for the snipet gcgang.

 

[Jerry1]

I do wonder how all those folks who are just now hitting their numbers, and wanting to retire will fare. I feel a little more comfortable having been retired for 3 years, as the market has gone up quite a bit since then, so the first ~25% drop in value will return me to when I decided to retire.

But folks just making their numbers could end up quite a bit lower, if things go south.

This is my worry (one of them). Therefore, I'm going into retirement with a heavy weighting of cash and short term bonds. Haven't figured out all the particulars yet because this year is somewhat of a practice year (retired but received a year severance), so I'm taking this year to get everything in order. Main goal is to have enough to live on for 5 years (maybe more) without having to touch the equities if they go down significantly. As for bonds, no interest in a bond fund, but working on a bond/debt strategy to hold short to med length bonds/debt with the goal of this part of the portfolio holding value and producing income.

 

[RenoJay]

The Berkshire Hathaway annual report came out last weekend, and for what it’s worth, Warren Buffett was very negative on bonds. (And implicitly negative on stock prices, essentially saying Berkshire has $116 billion in cash but can’t find anything decent to buy.) I doubt anyone can denounce Buffett’s track record the way that some are trashing the author of the article.

 

[audreyh1]

The Berkshire Hathaway annual report came out last weekend, and for what it’s worth, Warren Buffett was very negative on bonds. (And implicitly negative on stock prices, essentially saying Berkshire has $116 billion in cash but can’t find anything decent to buy.) I doubt anyone can denounce Buffett’s track record the way that some are trashing the author of the article.

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.

 

[dixonge]

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.