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Interesting point. The 45 -64 age bracket grew 31% from 2000 to 2010 making up 26% of the 2010 population. This age group would probably favor wealth preservation as that age group is pushing 50 - 70. The change in age demographic might contribute to higher allocations to money market but some of that should have already happened. It's possible that one percentage increase in money market yield will pull a significant amount of cash. I'm curious to see what will happen with a couple % interest increase on the ten year
The last time the US has seen low interest with high valuations was 6 years after the great depression.
i would like to see the data on those years . according to BLANCHETT we have never had anything this similar.
" We are in a historic situation, according to new research by David Blanchett, the head of retirement research for investment research company Morningstar, Michael Finke, a professor of financial planning at Texas Tech University, and Wade Pfau, professor of retirement income at the American College.
"There are no historical periods in the United States where comparable low bond yields and high equity valuations have occurred simultaneously, "
Comparing companies from different time periods is difficult because of inflation estimates, almost completely different accounting standards and tax codes.
no question yields were low however stock valuations were lower at the same time. in fact the 1950-'s saw historically low rates.
but this is the only time in history low rates and high stock valuations coincided together. this is uncharted in history and can be a terrible combination going forward for quite a while.
Stock valuations are higher in part because of different accounting standards and tax codes.
Stock valuations tend to be based on financial statements which companies prepare by abiding by the current accounting standards and tax codes. An identical company would have a different financial statement depending on which time period and accounting standard it is exposed to. Same company, same cash flows, different business environment, codes, and standards...and ultimately different valuation. See the link below AAII: The American Association of Individual Investors.
Last edited by bigboibob; 06-13-2015 at 07:31 AM..
We can agree our market is fully or overvalued. You're making an assertion that low interest rates and high stock valuations never happened before without taking consideration the difference in business environment. The pe ratio in the mid 1930s was 23. That seems like a high valuation to me considering a 23 then could be equivalent to 27 today.
It seems pretty ignorant to say that high valuations and low interest rates never happened before while ignoring valuation method and factors that could materially affect said valuations over a span of 100 years.
Furthermore, academia has had an overall poor track record in financial theory with the exception of Graham and Greenblatt.
the consumer price index fell 18% from the great depression , dividends were double digits. so in dollar terms it wasn't that high. markets actually recovered from the great depression era in only 5 years time in dollar terms .
you really need to remember how much things had fallen in dollar terms to put that time frame in to perspective.
Last edited by mathjak107; 06-13-2015 at 08:10 AM..
It still doesn't support the it hasn't happened before assertion. Assuming an apples to apples comparison (which it isn't), the market fell 90% but earnings fell too. The market recovered and by mid 1930s price recovered more than earnings leaving the market 'overvalued'.
Last edited by bigboibob; 06-13-2015 at 08:17 AM..
The Great Depression was a period of deflation not a year by year.. The consumer price index in 1936 was 18% cheaper than it was in 1929.
If you had $100 in 1929 and $82 in 1936, you still had the same purchasing power. You really lost nothing. It was a deflationary period. The $18 fluctuation was meaningless. Your purchasing power is identical.
in october 1929 stock valuations were high and the discount rate was 6% which was high. by october 1930 stocks fell and interest rates fell so no the time frames are quite different from now.
Last edited by mathjak107; 06-13-2015 at 08:32 AM..
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