Jason Zweig says this time it is different

haha

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https://blogs.wsj.com/moneybeat/2017/08/04/this-market-really-is-different-this-time/

Jason says that wide acceptance of target date funds and asset allocation espoused and carried out by commonly employed FAs cancels old pattern of retail money as dumb money.

Interesting idea, and if it remains true will make markets behave quite differently at least in the near term.

What I am wondering- if retail buying is not pushing equities up, and insider buying is not pushing equities up (it is not), what is responsible? I guess corporate buying, like purchases to balance shares given as compensation, and also equity capitalization shrinkage.

What might end this? One possibility might be higher interest rates, or even relative decrease in available credit.

Comments?

Ha
 
Article seems to require WSJ subscription.
 
All that stimulus money has to go somewhere, and lots wound up in stocks. As the stimulus is unwound the cost of borrowing will increase and bond rates will rise. Once the 10 year Treasury gets high enough (4% to 5%) more money will rotate to bonds at the expense of stocks.
 
GrayHare said:
All that stimulus money has to go somewhere, and lots wound up in stocks. As the stimulus is unwound the cost of borrowing will increase and bond rates will rise. Once the 10 year Treasury gets high enough (4% to 5%) more money will rotate to bonds at the expense of stocks.
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Maybe so, but who is creating the excess equity demand?
 
haha said:
https://blogs.wsj.com/moneybeat/2017/08/04/this-market-really-is-different-this-time/

Jason says that wide acceptance of target date funds and asset allocation espoused and carried out by commonly employed FAs cancels old pattern of retail money as dumb money.

Interesting idea, and if it remains true will make markets behave quite differently at least in the near term.

What I am wondering- if retail buying is not pushing equities up, and insider buying is not pushing equities up (it is not), what is responsible? I guess corporate buying, like purchases to balance shares given as compensation, and also equity capitalization shrinkage.

What might end this? One possibility might be higher interest rates, or even relative decrease in available credit.

Comments?

Ha
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I know you are a fan of Jeremy Grantham, who was just interviewed by Charlie Rose, and said much the same thing as Zweig. https://charlierose.com/videos/30816 He attributes this to corporate use of cash to buy back their own stock instead of investing it to grow. The GMO quarterly letter was just published and makes a similar case.

As long as corporations don't need the cash for anything else and can borrow as much as they want, this can continue. It changes direction when corporation margins decline, cash generation falls, and they have to invest, or their debt / equity ratios get too high.
 
haha said:
What I am wondering- if retail buying is not pushing equities up, and insider buying is not pushing equities up (it is not), what is responsible? I guess corporate buying, like purchases to balance shares given as compensation, and also equity capitalization shrinkage.

What might end this? One possibility might be higher interest rates, or even relative decrease in available credit.

Comments?

Ha
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More people buying than selling. More people employed, means more 401K investments and less distributions to pay mortgages and less 401K loans to stay afloat.
 
I particularly like Jason's book "Your Money and Your Brain".
 
Scuba said:
Yes, as long as markets have existed there have been "experts" saying "it's different this time." Hasn't turned out to be true.
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You must be kidding, Every time is different. While some instances follow a common script, many do not.

I believe that markets will move toward the mean, it is not possible to know for sure, or when.

Ha
 
This thread caused me to go back to my plot of the ICI funds data and update it. Here is the plot through June 2017:



Yes, the US fund inflows are down but the total equity 6 month moving average is high. I'm following ICI's lead in plotting the 6 month moving average. Probably a result of funds (mutual funds + ETFs) inflow into international stocks.
 
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The Market Really Is Different This Time | Jason Zweig

That catch phrase is usually used in a pejorative sense in the financial world, to mean something akin to "and trees grow to the sky." Of course, trees fall down for various reasons.

However, in his article, Jason Zweig is using the phrase to describe investors moving towards more balanced investments. This behavior is different than what was seen before recent recessions.
 
Just my two cents on this issue........

I think the recent increase (over the last few years) in stock prices and PE Ratios and trading volumes is directly related to the recently (in the last few years) implemented laws/regulations that allow employers to "automatically enroll" employees into a 401k. Soon after that was done, the concept of "automatically" increasing the employee's contribution percentage was introduced. In only a few years you had millions upon millions of "new investors". Most of these people are just "plowing money" into their accounts. Most of them pick their funds by the "fund name". e.g. Blue Chip, Value Growth, Retirement 20XX, etc, ad nauseam!?!?

In addition to those two changes, the early wave of the boomers is now turning 70.5 and RMD's are being forced out of the system. In a lot of cases, the boomers do not really need the money, and so they place it back into the market at whatever price is current in the market.

The total of individuals (and their money) in these three categories is enormous, and, in most cases, none of them are trying to place a "value" on the market price of the stocks/bonds they are buying.

There are very few "market makers" left to value and set the market price for most stocks. I believe this current condition will persist for at least the next 10 or 20 years. At that point, the "new kids" who were auto-enrolled will start asking questions regarding their retirement years. I do not think they are going to like the answers.

For now, and the next few years, there will be a constant upward slant to the value of the overall market.

I am probably wrong, but, for now, this is my two cent view of the market.
 
Scrapr said:
Huh...I tried 2 different browsers and got locked out. Probably my cookies
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I got locked out too, but I was able to get to it by searching using the text of the title in FB and the reading it from there. (I didn’t know about the blog post at the time.)
 
Scuba said:
Yes, as long as markets have existed there have been "experts" saying "it's different this time." Hasn't turned out to be true.
haha said:
You must be kidding, Every time is different. While some instances follow a common script, many do not.

I believe that markets will move toward the mean, it is not possible to know for sure, or when.

Ha
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Click to expand...
Of course the specific details are different each time, but the outcome is what has never really changed yet. The market will always overreact up and down, and 'move toward the mean though it's impossible to know when or what will trigger the inevitable big shifts.' That's what I've always taken 'it's never really different to mean.' Even when there seem to be obvious indicators, the market can stay up, or down, beyond all reason for quite a while (years). There are gurus every cycle who get it right, and others who get it wrong, or their timing is way off - and few if any are right all the time. But you know all that...
 
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