Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Six-oh:
I have been wrong many times. And indeed, I said I was wrong about a deep economic collapse in Spain. It ultimately did not happen within the time frame I predicted. I have been wrong about many other things. The question is whether the reward/risk ratio was good between mid 2011 and mid 2012. I don't think it was. I could be wrong. But the mere fact that the market went up in price is not, per se, the only criteria for judging whether a call was correct or not. That is my point.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Southgent:
I replied earlier, I believe. But the gist of it is that one posits a range of scenarios and assigns probabilities to each. You are correct that there is some approximationn involved, but it is a discipline that forces one to explicitly rank the relative probability of different outcomes. Of course, one can be wrong about these assignments, but the point is to think through it fully.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
helikid:
There are signs of wage inflation in certain industries and this is an example of what I mean by relative price distortions. There is no general wage inflation. But there is actually wage deflation in some sectors and wage inflation in others.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Six-oh:
If people think that going all in on stocks in late between July 20111 and August of 2012 was a great investment call, then so be it. I have explained clearly why it was a really bad investment call. My rationale is public and there for all to see.
Reasonable people may disagree. But people that call it "sophistry" or say it was "wrong" because the market rose only demonstrate that they have no understanding of the basic principles of expected return that underlie all serious investment work.
I make no apologies. Not because I do not believe in apologies or because I don't think I can ever be wrong. I make no apologies because none are required; I stand by my analyses published at that time and my subsequent reviews of them.
Why A Stock Market Bubble Is Forming Right Now [View article]
tdoherty:
In the article and the comments, I draw a distinction between the formation of a bubble and a bubble that is fully formed. Some people have been confused by this; I have tried to clarify in the comments.
For the record, since August of 2012, I have been saying that probabilities favored stocks continuing to rise. That position has been reiterated continually during 2013, since my 2013 outlook piece.
Here, I am upping the intensity of this outlook, saying stocks are likely to rise sharply.
Thus, while current valuations are not indicative of a bubble, I believe a bubble may be in the process of formation. This means I believe stock prices may rise to very high levels that ultimately become unreasonable.
Readers should recall that during my bearish calls between July 2011 and August 2012, I was never bearish based on valuation. In fact, I went out of my way to say on many occasions that stocks were not overvalued. I was bearish based on various other factors; not valuation. In fact, for most of that time, I emphasized that stocks were at or slightly below normal levels in terms of valuation.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
I was pretty much the most bullish analyst in print in March of 2009. I discussed probabilities at that time. Essentially, I said that unless one believed risk of catastrophic failure of the US and global economy were at the level of WWI, the Great Depression or WWII, reward/risk ratios were massively in favor of long equity investment.
I always discuss my predictions in terms of probability distributions.
Any kind of prediction must be framed in terms of probabilities. Any pretense or expectation otherwise is misguided.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Hi Lawrence:
I think we are generally on the same page.
Aside from consensus thinking on the issue, I do happen to think that it is more likely than not that the economic data will improve moving into the 4Q. Perhaps, quite substantially. That would tend to drive a buying panic as the skeptics regarding the recovery (including much of the general public) throw in the towel. As you point out, skepticism is still high and I see that as a potential fuel for a final phase of this rally. Of course that assumes that the data actually improves substantially, as is my base case.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Varan:
I don't expect a person like you to understand, but there is something called "expected return." All serious investment analysis must be based on it.
For serious people that are interested in the subject, this is the idea: If you invest in an outcome that has a 40% chance of occurring and which has more risk than reward, you will still make money 40% of the time. However, the person was not "right" to have invested in the low probability and low reward outcome. And the person that refused to invest in that circumstance was not "wrong."
Thus, any real "falsification" must be of the analysis of relative rewards, risks and probabilities that was made. Not on a particular outcome in a given case. That is the only type of rational analysis that is appropriate
But please go back to your "right - wrong" world of false dichotomies and report back 20 years from now and we'll see how you did.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Lawrence:
1. Bubbles generally occur within the context of good news; not bad news.
2. The public is not participating massively, which is one reason I believe the danger of a bubble is high. I believe there is a good chance that the public will get sucked into this rally as they have in the past. That is one of the elements that will turn this into a bubble.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Six-oh:
There are some people that believe that if someone predicted the market would go up and it did that they were "right." These same people believe that if someone predicted the market would go down and it didn't that the person was "wrong." These sorts of people will never understand what I just said or what I said before -- and they will never be successful in this business.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Valueable:
You clearly do not know what you are talking about.
I called the bottom in March of 2009 and was massively bullish at that time. I turned bearish in July of 2011 at a major top (after having been massively bullish since late 2010) when the S&P was in the 1340s. I remained bearish until August of 2012 -- a fact which I have absolutely no regrets about. Since August of 2012 (over 200 S&P points ago), I have been saying the market would rise, and it has.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
I have been wrong many times. And indeed, I said I was wrong about a deep economic collapse in Spain. It ultimately did not happen within the time frame I predicted. I have been wrong about many other things. The question is whether the reward/risk ratio was good between mid 2011 and mid 2012. I don't think it was. I could be wrong. But the mere fact that the market went up in price is not, per se, the only criteria for judging whether a call was correct or not. That is my point.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
I replied earlier, I believe. But the gist of it is that one posits a range of scenarios and assigns probabilities to each. You are correct that there is some approximationn involved, but it is a discipline that forces one to explicitly rank the relative probability of different outcomes. Of course, one can be wrong about these assignments, but the point is to think through it fully.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
There are signs of wage inflation in certain industries and this is an example of what I mean by relative price distortions. There is no general wage inflation. But there is actually wage deflation in some sectors and wage inflation in others.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
If people think that going all in on stocks in late between July 20111 and August of 2012 was a great investment call, then so be it. I have explained clearly why it was a really bad investment call. My rationale is public and there for all to see.
Reasonable people may disagree. But people that call it "sophistry" or say it was "wrong" because the market rose only demonstrate that they have no understanding of the basic principles of expected return that underlie all serious investment work.
I make no apologies. Not because I do not believe in apologies or because I don't think I can ever be wrong. I make no apologies because none are required; I stand by my analyses published at that time and my subsequent reviews of them.
Why A Stock Market Bubble Is Forming Right Now [View article]
In the article and the comments, I draw a distinction between the formation of a bubble and a bubble that is fully formed. Some people have been confused by this; I have tried to clarify in the comments.
For the record, since August of 2012, I have been saying that probabilities favored stocks continuing to rise. That position has been reiterated continually during 2013, since my 2013 outlook piece.
Here, I am upping the intensity of this outlook, saying stocks are likely to rise sharply.
Thus, while current valuations are not indicative of a bubble, I believe a bubble may be in the process of formation. This means I believe stock prices may rise to very high levels that ultimately become unreasonable.
Readers should recall that during my bearish calls between July 2011 and August 2012, I was never bearish based on valuation. In fact, I went out of my way to say on many occasions that stocks were not overvalued. I was bearish based on various other factors; not valuation. In fact, for most of that time, I emphasized that stocks were at or slightly below normal levels in terms of valuation.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
I always discuss my predictions in terms of probability distributions.
Any kind of prediction must be framed in terms of probabilities. Any pretense or expectation otherwise is misguided.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
Thanks for all of your contributions.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
I think we are generally on the same page.
Aside from consensus thinking on the issue, I do happen to think that it is more likely than not that the economic data will improve moving into the 4Q. Perhaps, quite substantially. That would tend to drive a buying panic as the skeptics regarding the recovery (including much of the general public) throw in the towel. As you point out, skepticism is still high and I see that as a potential fuel for a final phase of this rally. Of course that assumes that the data actually improves substantially, as is my base case.
Cheers
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
I don't expect a person like you to understand, but there is something called "expected return." All serious investment analysis must be based on it.
For serious people that are interested in the subject, this is the idea: If you invest in an outcome that has a 40% chance of occurring and which has more risk than reward, you will still make money 40% of the time. However, the person was not "right" to have invested in the low probability and low reward outcome. And the person that refused to invest in that circumstance was not "wrong."
Thus, any real "falsification" must be of the analysis of relative rewards, risks and probabilities that was made. Not on a particular outcome in a given case. That is the only type of rational analysis that is appropriate
But please go back to your "right - wrong" world of false dichotomies and report back 20 years from now and we'll see how you did.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
1. Bubbles generally occur within the context of good news; not bad news.
2. The public is not participating massively, which is one reason I believe the danger of a bubble is high. I believe there is a good chance that the public will get sucked into this rally as they have in the past. That is one of the elements that will turn this into a bubble.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
There are some people that believe that if someone predicted the market would go up and it did that they were "right." These same people believe that if someone predicted the market would go down and it didn't that the person was "wrong." These sorts of people will never understand what I just said or what I said before -- and they will never be successful in this business.
Beware Long-Term Damage From Stock Market Bubble Forming Now [View article]
You clearly do not know what you are talking about.
I called the bottom in March of 2009 and was massively bullish at that time. I turned bearish in July of 2011 at a major top (after having been massively bullish since late 2010) when the S&P was in the 1340s. I remained bearish until August of 2012 -- a fact which I have absolutely no regrets about. Since August of 2012 (over 200 S&P points ago), I have been saying the market would rise, and it has.
Alan Abelson Died: Lives On Through A Generation He Defined [View article]