Market Correction in Retirement

[haha]

Thanks. Am parking in cash although quite lucky it seems that I have access to savings accounts yielding 1.6% (in EUR though).

Also have some legacy CDs yielding 3.4% or so. All are government insured. Not renewing them though (new CDs at 5 year yield 2.4%).

What I don't understand is the following

• Equity seem to be high priced
• Bonds are high priced
• Houses in most countries were seriously overpriced, now fairly priced

This should imply that some asset somewhere is undervalued by a large margin. Where is it?

Or are we finally experiencing such a capital glut that investing no longer will be highly rewarded in the future? Last one could make sense, debt deleveraging and all.

I think you identified the issue. Too much available liquidity.

Ha

 

[NW-Bound]

I think you identified the issue. Too much available liquidity.

Are we playing "The Greater Fool" game here? I shudder at the thought.

 

[Lsbcal]

It's funny, you look at market history and are convinced that these crashes can be predicted. I look at market history and conclude that they aren't predictable at all - at least not enough to be actionable within a reasonable time frame. It's way too easy to take action too early. Thus I stick to my rebalancing strategy.

I am going to amend my comment above. There are some market declines that I agree are not predictable because they are not preceded by extreme valuation differences versus bonds and/or the Fed is not in tightening mode. These drops are not part of a business recession roll off.

Here are the ones I'm thinking about (since the 1950's):
1) The 1962 Flash Crash, down -11% in 3 months
2) The 1998 August drop of -15%
3) The 2011 European debt crisis drop of -17% in 5 months
All were followed by sharp rises that erased the declines.

Also there are many sharp down months along the way to good returns.

Audrey, thanks for your comment as I had to go back and rethink things a bit. I do not claim to walk on water but wish I could.

P.S. When I was looking into the 1962 decline during the Kennedy administration, I came across this YouTube clip of a very young Warren Buffet discussing the situation: