Are We Being Forced to Buy Stocks
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 23 September 2020
⏱️ 29 minutes
🧾️ Download transcript
Summary
How ultra-low interest rates support higher stock market valuations but also make the investment environment more challenging. Is there a stock market bubble?
Topics covered include:
- How expensive are stocks on an absolute basis and relative to bonds
- What are examples of individual investor enthusiasm for stocks
- Why stock valuations and prices increase when interest rates fall
- Why lower interest rates make it more difficult for central banks to support stocks during a downturn
- Why TIPs might be a better choice for a long-term bond allocation
- Why deglobalization is a reason to increase the geographic diversification of stock portfolios
- How investors can make invest decisions without having an informational edge
Thanks to Masterworks and Policygenius for sponsoring the episode.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. |
| 0:09.0 | From your host David Stein, today's episode 315. It's titled, Are we being forced to buy stocks? |
| 0:17.0 | Last week in the Insider's Guide email newsletter, I pointed out the expensive valuation of U.S. stocks. Specifically, I showed that the |
| 0:27.7 | forward price to earnings ratio, the PE based on earnings estimate over the next year was 22.9. |
| 0:36.0 | That's three standard deviations above its average of 16 times going back to 2003. That's data from Ned Davis research. In reply to that email |
| 0:47.7 | Andrew wrote regarding stocks being expensive on a forward PE, true, but there's no alternative. |
| 0:56.1 | What do you do with bond yields near zero, and the Vanguard Total Stock Market Index Fund |
| 1:01.4 | yielding 2%. |
| 1:03.0 | Buy Vti, the Vanguard Total Stock Market, E.T. |
| 1:08.5 | He also forwarded to me a paper by Bridgewater's |
| 1:11.0 | Sosuits, which I'll discuss in more detail later in this episode. |
| 1:15.0 | I had a similar question from a Plus member in the Money for the Rest of Us Plus Member forums. |
| 1:21.0 | He wrote, so the Fed signals that it wants to keep rates low for three more years. |
| 1:26.0 | Canada's pension fund is re-evaluating bond holdings, and you've got an army of small and |
| 1:30.3 | large investors bidding up companies like Tesla and Snowflake to absurdly high PEs. |
| 1:36.4 | All this combines to make me think are we as individual investors now forced to buy equities? |
| 1:42.6 | Is this the mother of all bubbles in which there's literally no other things suitable for purchase? |
| 1:49.0 | There is a lot of speculation in stocks right now. |
| 1:53.2 | Jim Bianco, Abianco Research, pointed out that small traders are dominating the options market. |
| 1:59.9 | They are most of the trades right now, and 75% of that volume is in option contracts that |
| 2:05.8 | expire in two weeks so short-term bets. We can look at South Korea an article |
| 2:12.2 | from Bloomberg, |
... |
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