Longest Bull Market in History

[Sarenco]

I don't remember feeling particularly bearish last December. I certainly didn't change the asset allocation within my pension fund, which is predominantly invested in global equities - and I don't see that changing anytime soon.

However, I think I might now dial back the allocation to equities somewhat and marginally bump up the allocation to bonds. Nothing too dramatic.

I certainly won't be investing in PMs.

I'm not sure I agree that there is a lack of euphoria in the US markets at the moment - the pricing of some recent IPOs would suggest otherwise.

Why you think I have no risk on the table is beyond me.

 

[joe sod]

Presumably if you are putting more in bonds, you are choosing very short dated ones.

Warren buffet had a great quote recently, the more time you invest money in stocks, the less risky they become, but the longer the time frame on a bond the more risky they become.

Basically investing money in long dated bonds in this ultra low interest environment is madness. It also explains why Irish treasury management are trying to get as much long dated bonds out there now.

 

[moneymakeover]

When the idea of bonds was suggested, was that in relation to US corporate bonds?

Because with European rates so low it's hard to see any point in investing in European bonds

 

[RedOnion]

When the idea of bonds was suggested, was that in relation to US corporate bonds?

Because with European rates so low it's hard to see any point in investing in European bonds

You realise investing in USD bonds, but hedging your FX exposure, you're no better off than investing in EUR bonds?

 

[galway_blow_in]

Presumably if you are putting more in bonds, you are choosing very short dated ones.

Warren buffet had a great quote recently, the more time you invest money in stocks, the less risky they become, but the longer the time frame on a bond the more risky they become.

Basically investing money in long dated bonds in this ultra low interest environment is madness. It also explains why Irish treasury management are trying to get as much long dated bonds out there now.

If investing in long duration bonds is a bad idea, why do you think there is so much demand?

Bonds have been in a bull market since the early eighties

 

[joe sod]

If investing in long duration bonds is a bad idea, why do you think there is so much demand?

Bonds have been in a bull market since the early eighties

Correct they have , and the Fed and the ecb are not able to get interest rates back up for this very reason, because so much money is already invested in them, they dwarf the global stock markets in money invested. Also the over indebted countries of the world, like Ireland need to be able to roll over their bonds as they mature. That process hit a big roadblock in 2009.
Why is there such a demand for them, because of their perceived safety, the global stock markets barring the US have not had the great returns that they historically had in comparison. The bonds were not defaulted on by and large in 2009, the central banks saved the day and created a huge artificial demand for them. That added to their "safe haven" status. If the bonds of the European governments or European banks were defaulted on back then, I doubt people would be piling in to them as "safe havens" now. They will only be safe havens once interest rates stays low and there is no inflationary shock, 2 big ifs.

 

[Sarenco]

Presumably if you are putting more in bonds, you are choosing very short dated ones.

No, not particularly.

The bond funds within my pension pretty closely reflect the aggregate, investment grade Eurozone bond market as a whole. Last time I checked, that has an effective duration of around 7 years and a yield-to-maturity of around 0.5%. I don't see any point in speculating on future interest rates - short or long-term.

I'm not looking to the fixed-income side of the portfolio to provide a meaningful return - I'm simply trying to deleverage the equity portfolio somewhat.

 

[RedOnion]

I don't see any point in speculating on future interest rates - short or long-term.

Why not? Surely the largest, most liquid asset class has been completely mispriced by the entire market, and you know better than them?...

 

[joe sod]

Why not? Surely the largest, most liquid asset class has been completely mispriced by the entire market, and you know better than them?...

All markets can be mispriced, it maybe the biggest most liquid asset class, because interest rates have fallen since 1982 essentially, 1 trillion has moved from global equity funds to global bond funds since 2008 because people were so spooked by that and because very few bonds were actually defaulted on, but that was very close!
The bond markets have not been tested since the 1970s which is beyond the memories of the financial participants of today. The oil shock and rising interest of that era were bad for stocks but very bad for bonds. At least you can wait for stocks to recover, a 30 year bond at 1.5 percent or whatever will not recover because it will always only pay 1.5 percent , not good in a high interest rate , high inflation era. Nobody predicted the oil crisis of the 70s. Nobody knows what could cause an inflationary shock, maybe a trade war with China getting out of hand

 

[Sarenco]

Corporate debt is at fairly unprecedent levels at the moment.

So how would an unanticipated spike in interest rates affect stock prices? It would hardly be positive.

I don't hold long-term bonds in isolation - I hold long-term bonds in accordance with their market weight.

I've told you my modest plan of action. What would you recommend?

 

[Andrew365]

I generally just purchase x amount each month and get the ups and the downs though recently it has been a lot more ups than downs on a monthly basis over the last 5 years.


The market is a very different place vs the pre-financial crisis and in true crisis terms they are generally unforeseen. My view is that it is likely to be some form of cyber security fraud and liquidity issue that sees the markets roil again.

 

[joe sod]

The market is a very different place vs the pre-financial crisis and in true crisis terms they are generally unforeseen. My view is that it is likely to be some form of cyber security fraud and liquidity issue that sees the markets roil again.

it maybe in a different place, however if you strip out the US market, the global stock markets have not performed that great at all and still are not at 2008 valuations , for example the Vanguard World ex US ETF was worth $61 in 2008, it is now valued at $50. Yes the US is a large part of the global economy but what about China, the enormous growth, the mega cities that were built, the 100s of millions that became middle class in the last decade, yet the stock markets do not reflect that. Even the vanguard emerging markets etf which would have a bigger china component is not at 2008 levels and is off by the same amount.
In fairness the US dollar was worth a lot less in 2008 than today

 

[galway_blow_in]

Pretty rough month gone by, very predictable though, run since Xmas was incredible

 

[joe sod]

Pretty rough month gone by, very predictable though, run since Xmas was incredible

if you strip out the big sell off at christmas and the subsequent recovery, the market has been doing nothing really. Also if you exclude the US market it has been not been good investing. I think there is alot of socialism and political interference going on , look at the UK energy companies at multi year lows due to fears that corbyn ,god forbid, if he gets near power will re nationalise everything

 

[galway_blow_in]

if you strip out the big sell off at christmas and the subsequent recovery, the market has been doing nothing really. Also if you exclude the US market it has been not been good investing. I think there is alot of socialism and political interference going on , look at the UK energy companies at multi year lows due to fears that corbyn ,god forbid, if he gets near power will re nationalise everything

It's often better in my opinion to invest a small amount but trade, was quite predictable that we would not see five months straight of gains, also predictable that trump would shoot his mouth off at the Chinese

European markets are a perpetual loser

 

[EmmDee]

it maybe in a different place, however if you strip out the US market, the global stock markets have not performed that great at all and still are not at 2008 valuations , for example the Vanguard World ex US ETF was worth $61 in 2008, it is now valued at $50. Yes the US is a large part of the global economy but what about China, the enormous growth, the mega cities that were built, the 100s of millions that became middle class in the last decade, yet the stock markets do not reflect that. Even the vanguard emerging markets etf which would have a bigger china component is not at 2008 levels and is off by the same amount.
In fairness the US dollar was worth a lot less in 2008 than today

The Vanguard FTSE World ex US ETF (VEU) - as opposed to the Vanguard World ex US - is tracking the FTSE World index rather than being a broader representation of world markets - had a high of $59 in 2008 and a low of $26 so you could equally say that you could have doubled your money if you invested in 2008. You also haven't included dividends in your calculation. VEU paid approx. $1.5 in 2018 for example ($8.5 in last 6 years - as far back as I have ready access to).

Sticking with Vanguard - If you put $100 in at launch with the Vanguard World ex US ("VAU") when it launched in May 2009, it would be worth approx. $210 now

I'm not sure which emerging market ETF you are referring to - the Vanguard FTSE Emerging Market ETF ("VWO") has a reported 10 year cumulative total return of 58%

 

[galway_blow_in]

The Vanguard FTSE World ex US ETF (VEU) - as opposed to the Vanguard World ex US - is tracking the FTSE World index rather than being a broader representation of world markets - had a high of $59 in 2008 and a low of $26 so you could equally say that you could have doubled your money if you invested in 2008. You also haven't included dividends in your calculation. VEU paid approx. $1.5 in 2018 for example ($8.5 in last 6 years - as far back as I have ready access to).

Sticking with Vanguard - If you put $100 in at launch with the Vanguard World ex US ("VAU") when it launched in May 2009, it would be worth approx. $210 now

I'm not sure which emerging market ETF you are referring to - the Vanguard FTSE Emerging Market ETF ("VWO") has a reported 10 year cumulative total return of 58%

Irish investors cannot buy those etfs anymore

 

[EmmDee]

Irish investors cannot buy those etfs anymore

I wasn't really suggesting them - the issue raised was on the relative performance of world markets. I was just cautioning on the use of ETF's as a proxy to measure that and if so, being careful to avoid "data mining" and bias confirmation.

 

[joe sod]

The Vanguard FTSE World ex US ETF (VEU) - as opposed to the Vanguard World ex US - is tracking the FTSE World index rather than being a broader representation of world markets - had a high of $59 in 2008 and a low of $26 so you could equally say that you could have doubled your money if you invested in 2008

yes i agree, that you are still doing well in VEU if you invested in 2008/2009, but thats a theoretical point because very few investors were investing in 2008 in any asset, an awful lot of people were selling shares, some were just sitting tight but very few buyers. The people that sat out 2008 have recovered their money by now ( but only because of dividends and lots of patience and nail biting, oh and you you also had to pay more taxes on those dividends)
The topic of this post "the longest bull market in history" only applies to the US and actually only to small number of FAANG stocks, evertyhing else from europe to asia to emerging markets has been a very slow anemic recovery. The quantitive easing euros created by ECB havn't gone into the stock markets but into the bond and property markets, We are very far away from 1990s return on stocks and shares

 

[Sarenco]

Here's the original post -

I think it's worth noting that as of yesterday, 22 August 2018, the S&P500 recorded its longest bull market in history - 3,453 days without a correction of 20% or more.

Very clear what index was being referenced.