The US Is Now in the Longest Bull Market in American History

http://thesoundingline.com/the-us-is-now-in-the-longest-bull-market-in-american-history/

by Four_Star • 8 years ago

62 80 8 years ago

jdhn• 8 years ago

While my 401(k) is thankful, I'm wondering how much longer this can go on. Obviously the stock market got a big boost due to the tax cuts which lead to companies repatriating a bunch of overseas profits, but what happens next year when there's a lot less money to bring back?

jpatokal• 8 years ago

Serious Q: if you expect the stock market to crash (but aren't sure enough to start shorting it) and think housing is also overvalued, what should you invest in?

stevenmays• 8 years ago

Bonds because of inverse correlation with the stock market. Or cash.

yasp• 8 years ago

Incidentally, if there is a crash, how is the Fed going to respond, since interest rates are practically as low as they can go? Will we see negative interest rates and asset purchases of equities and perhaps even real estate?

mdorazio4• 8 years ago

It's more accurate to say that bonds are uncorrelated with the stock market. You can verify this yourself by plotting a broad bond ETF like BND against the S&P 500 or DJIA. You won't get a magic bump in bonds when the market goes into a recession, you just won't lose a bunch of money, either.

ghobs91• 8 years ago

i guess save up cash so you can buy housing when it bottoms out?

brutus1213• 8 years ago

This is really hard to do btw .. all you are saving for is the down payment. I think housing in Toronto is overvalued big time and have not invested. That thesis seems to be materializing but it will likely take some years to play out. The issue is that the high end of the market has fallen more than the low end - the low end has even got up. So saving cash was a bit pointless. Unless I save enough to buy the whole house in case (impossible), I will end up having to get financing at a higher interest rate. I did the math and it is frankly worse to buy a low end house in Toronto today than it was when the bubble was in full swing (mainly because interest rates are higher now).

Lesson learned ... next time, get in on the start of the bubble.

astura6• 8 years ago

Not so easy!

I thought my peers who were buying houses in 2009-2010 were "buying at the bottom." And I was a bit envious, honestly. Turns out, prices dropped for 2-3 more years after that and the bottom was Q1-2012. Some of my 2009 friends ended up selling their houses for less than they bought them for.

Of course, this illustrates perfectly why your house isn't an investment - your life circumstances determine when you buy and when you sell, not the market.

mangix• 8 years ago

Gold

mbesto• 8 years ago

This is not investment advice.

Get Short ETF's: https://www.stocktrader.com/inverse-short-etfs-bearish-etf-f...

DenisM3• 8 years ago

Not until you understand the concept of ETF decay. It’s a fine bet maybe for a week or two, but anything longer and you’re in for a rude surprise.

robjan• 8 years ago

Short ETFs are for day traders. The prospectus usually states that it's intended that holders close their position at the end of each trading day.

astura6• 8 years ago

If you're super conservative, there are high interest savings, checking, and money market accounts, just requires a little homework to find the right one (and meet requirements if it's a checking account). I'm currently getting 2.26% in a money market account.

PeterStuer• 8 years ago

What happens if there is a real systemic crash? As I understand it the FDIC reserves will fail but the FED will start "printing" money for them so you'll eventually ('as soon as possible') will get your up to $250.000 back, but at that point, what would that still be worth?

jonny_eh• 8 years ago

We wouldn't need to do research if you just told us which money market you chose to invest in.

briandear5• 8 years ago

2.26%? Why not just get an index fund and have reasonable stop losses? 2.26% is essentially putting money under the mattress. Hedge with some muni bonds. On $100k 2.6% is $2,600 per year before tax. Hardly worth it.

bradleyjg• 8 years ago

It depends on timing. Suppose the market were to crash 8% on Monday, then another 9% on Tuesday, then another 5% through the end of the week for a total peak to trough drop of 20%.

That’s a big correction in historical terms, but it only sets the market back to summer of 2017. We could easily have been having this conversation in the summer of 2017.

That said, if you have decent conviction you probably want cash and close case substitutes (e.g. short term high quality debt) so you can take advantage of any big drop as a buying opportunity.

rfinney• 8 years ago

Bond returns have a low correlation with stocks. Short term and international bonds are sometimes negatively correlated. Commodities have a low but positive correlation with stocks. Some observers suggest that commodities boom before recessions.

The Goldman Sachs Commodity ETF (symbol GSC) is an easy way to invest in a diverse set commodities. Many other funds are targeted (eg, oil or gold).

iShares Core U.S. Aggregate Bond ETF (symbol AGG) is the largest bond ETF. There are many others.

You can always stuff cash in your mattress.

As others suggest, you can also short the market. Shorting housing for a small investor is not super easy.

Diversified long term buy and hold investing in stocks regardless of current conditions has historically been a great bet.

beamatronic• 8 years ago

Pay off your debts instead

chrissnell2• 8 years ago

Indeed. I read somewhere in the Wall Street Journal this week that the Millenial generation is the most debt-laden generation ever. I don't know if that cuts across all economic strata of their generation or if it includes the average younger HN reader but your suggestion is a solid one and will leave you on much firmer ground if things go south in the future.

briandear5• 8 years ago

Best answer. The best hedge against a crash is to not owe anything and be ready to buy when the crash does come.

knocte• 8 years ago

Bitcoin

gniv• 8 years ago

This is the question that everybody is asking nowadays, which means there are no easy answers.

The only answer I heard that is non-trivial is "skills". Not very satisfying, I know. But investing in skills that the future me might use, regardless of what the market does, is probably worthwhile.

derekp7• 8 years ago

That is a good strategy, as long as you can find people to pay for those skills in the future. So you'd have to pick the right area. The general strategy I follow is to invest in things that produce more things (skills being one of them). For example, if you invest in something like gold, it doesn't produce anything -- your only hope is that someone down the road will buy it from you for more than you paid for it. For company stocks, I like to pick ones that have a regular history of paying dividends (even if their value isn't going up that much), instead of non-dividend stocks that only increase in value. Another example: you can buy real estate, and rent it out. While technically not producing more stuff, it still gives you income outside of normal appreciation. The trap is that you need to be able to rent it out for more than what taxes, maintenance, and potentially interest costs you.

DenisM3• 8 years ago

There is probably a diminishing return on that, and there might still be enough cash left afterwards.

It’s a good point overall though.

apo4• 8 years ago

Your choices, in no particular order:

- real estate

- gold

- US treasuries

- corporate bonds

- municipal bonds

- bitcoin

- cash

I'd suggest that the number you should be concerned about isn't a stock market index, but inflation. Inflation drives everything else. Inflation is also complex and hard to measure.

Some will tell you to invest in "bonds," but be careful. What they usually mean is "treasuries."

During recessions, interest rates usually fall. But the yield on your treasury remains constant. As a result, your treasury increases in value if you decide to sell. Or you can hold and enjoy a higher-than-market interest rate. This effect is amplified the longer the maturity of the treasury. For example, a 30 year bond will increase in value much more steeply than a 5-year bond given the same relative drop in rates. This effect plays a role in "yield curve inversion."

Treasuries are generally considered the least risky bet, but they aren't without risk. It wasn't too long ago that US debt was downgraded by S&P during a nasty debt ceiling brawl. (Ironically, treasury bond prices shot up in response, but that's another topic altogether.) The debt hawks have been quiet, but that can change given the current political volatility in Washington.

Corporate bonds should be considered a different animal, with a large spread in risk. The worse off the company, the worse its bonds will generally perform. Or you may end up with a total loss in extreme cases. Buying corporate bonds requires the same skill and attention to detail as buying stocks, but potentially more so. Your return is tied to the company's path through the recession. Not for the casual investor.

Municipals are also different. Cities can't print their way out of recessions like the US federal government can. Ditto states. When the economy goes south, so does the tax base and tax revenue. The risk of default increases even as the advantage of a relatively high yield also increases.

Gold's performance in recent recessions has been so-so at best. It skyrocketed in the late 70s recession, but that one was coupled to high inflation.

Cash has the advantage of being highly-liquid. But you can still lose money holding cash due to the inexorable march of inflation.

Bitcoin is currently untested in a US recession. However, its performance in financial meltdowns around the world in the last 5 years has been lackluster at best.

DSingularity2• 8 years ago

I don’t agree with cash at all.

DSingularity2• 8 years ago

Hard to answer. Do you have more cash than you need for 6 months if you went jobless? Do you have debt? Are you young?

All in all, cash is not an investment. So this is a matter of spreading the risk appropriately. This depends on a lot of things.

briandear5• 8 years ago

Put options on QQQ.

Youden• 8 years ago

Just because others haven't brought it up, you can buy options. Unlike shorting, purchasing an option (or spread) has limited risk. Unlike shorting, options have much higher leverage, so the potential for profit is much higher.

SPY, the largest S&P 500 ETF right now is at $287.51. For $2335 today, you can buy the right to sell 100 shares of SPY for $285 in December 2020. That means that if the price in December 2020 (or any date in between) is less than $261.65 ($285 minus the cost of the option itself), you can exercise your option and make $100 for every $1 the price falls below $261.65. If say, the price falls to $230, you make $3100, or 32% on your investment.

If you're fairly sure the price will say above $200, you can simultaneously sell the option to sell at $200 on the same date for $505 and discount your total trade to $1835. This would become what's called a put "spread". If you purchased this spread and the price fell to $230, you'd make ($285 - $18.35 - $230) * 100 = $3665, for a 100% return. However if the price fell to $150, you'd only make ($285 - $18.35 - $200) * 100 = $6665 rather than ($285 - $18.35 - $150) * 100 = $11665, as you'd have to pay the person who bought the $200 option from you the difference.

If the price goes up, all you lose is the cost of your option, which is unlike shorting, where you lose $1 for every dollar above your sell price the stock moves.

If you buy an option (or spread) with a closer expiry, you'll pay a lot less but of course have a lot less time to be right. You can also sell an option much closer to your own, for example a $245 option for $1200, in which case you'd pay $1335 for your $285 option.

thisisit• 8 years ago

It depends on what is your risk profile and time horizon.

Safest bet and something which doesn't require any expertise - hold cash.

The other extreme is to buy LEAPS [1]. They are a cheap alternative to protecting your downside.

Now obviously both these two things are not full proof and have their ifs and buts.

Cash will lose value due to inflation. But at a slower rate than losing in a crash.

LEAPS are mostly 2-3 years out so if the crash doesn't happen you will lose your premium. But again a small price paid to save your downside.

There is one thing to stay away from is Bitcoin or cryptocurrency.

Gold has gone down in last 5 years. So, it still maintaining a slight negative correlation to stock bull market runs.

On the other hand, the supposed gold like bitcoin has gained lot of it's value in the last bull run. So, I am not convinced that there is an argument that bitcoin will hold when we start going into a crash.

[1] https://en.wikipedia.org/wiki/LEAPS_(finance)

maxxxxx5• 8 years ago

Do the people who still want more tax cuts really think this can go on forever? It's really scary that deficits are going up while the market is booming. In the 90s at least the deficit went down during the bubble.

drb913• 8 years ago

Depends if we plan on invading somewhere or not to my eye—it’s how our ridiculous level of defense spending will actually provide returns.

achamayou• 8 years ago

The last few invasions have not exactly helped with the deficit, have they?

whatshisface• 8 years ago

You could probably read through the speeches of some historical dictators to find a good way to express the idea of "the real politics is what things fall apart in to when order breaks down." Sure, the national debt exists on one level higher than the stuff the defense spending is buying, but so is our trade with other countries and most of our livelihoods. If the civility of our relationship with, say, China breaks down to the point that it's obvious we won't pay our debts, a lot of other things will break down along with it - perhaps enough to qualify as a gigantic disaster.

The US will be able to keep foreign soldiers off its territory but you and I could be out on the streets with a whole lot less.

Someone1234• 8 years ago

Defense spending is largely a jobs program. The only question is, if you're going to have a trillion dollar jobs program if the rate of return on investment isn't higher in e.g. infrastructure spending than defense.

chrissnell2• 8 years ago

Extremely unlikely that we would unilaterally invade another country under President Trump. That Bush-era hawkish interventionist doctrine is pretty much dead. The diplomacy with North Korea is a good example of the new way. I'm quite certain that we would be fighting some kind of conflict with them if people like Paul Wolfowitz and Dick Cheney were in the White House today.

Say what you want about Trump and his policies but the America-focused policies of his administration aren't going to squander this economy by starting a new fraudulent and unnecessary war on the other side of the world.

onetimemanytime• 8 years ago

Invade to spend trillions more on that country? No thanks. Gone are the "to the winner go the spoils" days. Frankly, I think we're blamed for the deaths and mess in Iraq and maybe Libya (not invaded but...). Democracy is great, in theory, in reality they have seen their lives turned upside down.

dgzl• 8 years ago

I don't agree with how our taxes are spent, and I don't agree that we're being taxed for said expenses.

dantheman• 8 years ago

It's not a taxing problem, it's a spending problem.

aaronblohowiak• 8 years ago

Two sides of the same coin.

maxxxxx5• 8 years ago

Somehow it seems the anti tax people always stop at cutting taxes and never get to the cutting spending part. Looking at Reagan, Bush and now Trump they even increase spending substantially with the military.

briandear5• 8 years ago

I actually would like spending cuts to go along with tax cuts. The deficit certainly matters, but raising taxes isn’t the only way to address it.

apo4• 8 years ago

...As the following chart from Statista shows, the current bull market is now ‘older’ than the previous record holder, the 1990’s bull market and Dot-com Bubble.

The boom is just capitalism's way of setting up the next bust. Too few people seem to understand this.

The current bull market and tight labor market were amplified by the largest outpouring of easy money by the world's central banks in history.

All eyes on the yield curve.

novaRom• 8 years ago

There is a significant increase in overall productivity in last few years. Expectations of continuing growth are pushing market higher. Better automation of many processes, faster unlimited access to any information, connectivity. The first iphone was released 11 years ago, Android 10 years ago. A lot of disruptive innovations since then.

orev• 8 years ago

But many of those innovations have the potential to reduce large numbers of jobs, like taxi and truck drivers. When people aren’t earning money, they can’t spend money, and it’s the movement of money through the economy that makes it function. I don’t think productivity gains will offset that loss.

redleggedfrog• 8 years ago

Shhhh! You're going to jinx us!

I am very curious where we are in the curve. I've made a lot of money off stocks, but I'm getting anxious that nothing ever goes on forever.

The US Is Now in the Longest Bull Market in American History

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