EdwinSm wrote:It is interesting that the resident Aunty Doomers (oops, should I have written Anti-Doomers?
) are willing to attack Pstarr for saying that an elevate R/E ratio will lead to a collapse, but not one of them has addressed the point of the P/E ratio.
There could be an argument that the ratios are not too high, but if there is a bubble somehow the excess will have to disperse - so will it be a Crash, or a slow long drawn out leak, or are we (like the claim in the 1990s
) living in a new dynamic where past economic lessons no longer apply?
SINCE WHEN is a typical stock market correction or bear market ANYTHING approaching "crash"?
(And using the word "collapse" instead of "crash" for high PE's deserves criticism. If pstarr doesn't like that, he should stop with the hyperbole).
Even corrections involving a meaningful pullback in the stock market aren't a crash, if they last for years. They're no fun for bulls, but during the latter months of them they tend to be a great buying opportunity. And even if we have a "crash" of 25% or so, so what? It's not the end of the world. A stock market INVESTOR needs to be prepared to accept several such crashes over a career of investing, or they shouldn't be in stocks.
And this is one good reason for diversification. (I tend to only have about half my investments in stocks. It helps me sleep much better, and I can live with the lower returns. Everyone has to decide this for themselves. (Best NOT to learn this at the bottom of a crash)). For example, the current clown in the white house AND US stock market valuations caused me to shift a meaningful chunk of my stocks from US stocks to international stocks in 1Q17, given my perceived risk/reward. (Even though this meant taking a significant capital gain, and having to pay an estimated 21% income tax on those gains in state and local taxes. And I harvested some offsetting losses in some commodity stocks (like copper) I've held as an inflation hedge. After all, I can always buy those back at low prices after the wash sale window). With average holding times in the decades, an investor (as opposed to speculator) can do some productive (and very legal) tax planning.
Or are you going to tell us the P/E ratios, etc. are way too high in, say, European and developing markets (generally) too? (Because that isn't credible, IMO).
Edit: Corrected earlier mistake, as I somehow misread "Crash" as collapse.
Edits: Corrected a bunch of minor typos and errors, such as my likely total capital gains tax rate for TY 2017.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.