Are We In a Bubble?

[Gregmal]

^ Yup. Dont think its that crazy at all. Everyone is saying higher rates and we're now at 1.30 on the 10 year. This holds.....and soon we're gonna be talking about how crazy it is that new-build PHX/Austin/Tampa MF is selling at 2 caps and how its a bubble...which will continue to miss the point. The rent growth for these well located assets is insane. Anyone surprised can go check out the CAGR for Phoenix 1/2/3 br rents. Then ask yourself why any half sensible institution or family office would waste their time with a bond yielding 0-2% vs buying one of these bad boys. 

 

That said, given some of the stuff I own, seeing a 1980s apartment style complex sell like this makes me feel pretty good. 

[Cigarbutt]

2 hours ago, wabuffo said:

Let's paraphrase:

What you describe does not make any sense.

wabuffo

OK, maybe.

Let's try again.

 

1-Treasury deficit spending increases private net worth.

2-Treasury deficit spending does not increase total net worth.

It seems both 1- and 2- can be reconciled but (IMO) that's not the key underlying question.

 

The Treasury-acting-like-a-financial-intermediate analogy was to underline the role in central financial intermediation (both now and across time periods). The Treasury-Fed financial complex has engineered a massive balance sheet expansion movement (Fed balance sheet, but also big banks balance sheet and the systemic balance sheet). There is just so much more government debt and offsetting cash floating around. The excess cash within the system may move around but will not magically disappear or transform into wealth. The excess cash will disappear only when the underlying debt will be retired. There is nothing wrong per se with balance sheet expansion but one has to try to see what it means under present circumstances. The key is what the debt (and offsetting cash) is used for.  

With all this bu**le talk going on now, it seems that ultra-low interest rates have been a determinant factor in the recent evolution in the growth of money supply versus underlying economic growth (and the related change in the ratio of base money and loans backing deposits at large commercial banks) and this trend (which accelerated lately) has been firmly in place since the GFC. It has been said that ultra-low interest rates may represent a sign of financial and societal sophistication but the contrarian side in me suggests that it could represent a sign of stupidity, especially the managed part. Of course, it could be somewhere in between and that's what i'm trying to figure out.

BTW, i really appreciate reading your thoughts because it allows me to see perspectives that are not within my basic mental models. i understand that this is likely not proportionally reciprocal and this may represent my habit of choosing stronger opponents. 

CF

[wabuffo]

CB - I always respond to your posts because they are thoughtful and we both are striving to learn more about this stuff.

 

wabuffo

 

 

 

 

 

 

[Munger_Disciple]

Cigarbutt,

I have learned a lot from your posts. They are always thoughtful, respectful, well reasoned and analytical. Moreover you are trying to teach others (like me) with your posts. Please keep them coming!! IMO you are one of the best contributors to the board. 

 

-MD

Edited July 8, 2021 by Munger_Disciple

[Cigarbutt]

@Munger_Disciple

Here's more reasoned content then:

---) Your conclusion is wrong. 

 

-i started out (the investing thing) wanting to have core holdings (index-like) and a few marginal relative winners and ended up (because of intrinsic and extrinsic circumstances, most of which outside my control) being unusually contrarian, concentrated and opportunistic which makes my participation useless at least 99% of the times here but i'm trying to improve.

-i think this site should move more towards a VIC-style (focus on individual names, impersonal and factual analysis etc) of content but then you'd lose the meeting place aspect. It's a tough act to balance.

-i tend to be a real jerk in real life but, contrary to most, anonymous participation in on-line discussions has a moderating effect on me. i've discovered that i even enjoy discussions in forums (elsewhere) where inputs are superficial in content, low in analytical power and littered with inappropriate statements. Humans are fascinating.

-There is a topic (relevant to bubbles, macro and individual names) i've been working on and i may share some of the conclusions.

 

----) Back to: Are we in (one of the most interesting periods in history for investing) a bubble?

[DooDiligence]

13 hours ago, Munger_Disciple said:

Cigarbutt,

I have learned a lot from your posts. They are always thoughtful, respectful, well reasoned and analytical. Moreover you are trying to teach others (like me) with your posts. Please keep them coming!! IMO you are one of the best contributors to the board. 

 

-MD

 

Agreed.

 

4 hours ago, Cigarbutt said:

@Munger_Disciple

Here's more reasoned content then:

---) Your conclusion is wrong. 

 

-i started out (the investing thing) wanting to have core holdings (index-like) and a few marginal relative winners and ended up (because of intrinsic and extrinsic circumstances, most of which outside my control) being unusually contrarian, concentrated and opportunistic which makes my participation useless at least 99% of the times here but i'm trying to improve.

-i think this site should move more towards a VIC-style (focus on individual names, impersonal and factual analysis etc) of content but then you'd lose the meeting place aspect. It's a tough act to balance.

-i tend to be a real jerk in real life but, contrary to most, anonymous participation in on-line discussions has a moderating effect on me. i've discovered that i even enjoy discussions in forums (elsewhere) where inputs are superficial in content, low in analytical power and littered with inappropriate statements. Humans are fascinating.

-There is a topic (relevant to bubbles, macro and individual names) i've been working on and i may share some of the conclusions.

 

----) Back to: Are we in (one of the most interesting periods in history for investing) a bubble?

 

I believe most of us have a slightly different personality / style, depending on the venue. Personally, I've been trying my best to respect the CoBF society by reserving my inane rants for Twitter & Reddit.

 

IRL, I vacillate between personas with varying degrees of control.

 

Never meet your heroes.

 

Back to blowing bubbles...

[adesigar]

Junk Bonds at 3.9%. 

 

https://www.cnbc.com/2021/07/14/the-junk-bond-market-is-on-fire-this-year-as-yields-hit-a-record-low.html

[TwoCitiesCapital]

50 minutes ago, adesigar said:

Junk Bonds at 3.9%. 

 

https://www.cnbc.com/2021/07/14/the-junk-bond-market-is-on-fire-this-year-as-yields-hit-a-record-low.html

 

Anyone want to take a guess as to what the real return on junk bonds will be over the next 5-years? 

 

I have no idea what the default rate is presently, but Ackman pointed out it was like 5-6% in CDX HY index a few months AFTER the Federal Reserve/Treasury injected trillions. Can't imagine a world in which 3.9% compensates you for the credit risk AND inflation....

[maplevalue]

Gundlach discussing Fed stimulus' impact on stocks near the start of this video.

 

 

US10Y real yields back plumbing the lows of -1.08%.