21k and Rising: Record-Breaking Dow Jones

No I haven't been saying that, nor would I agree with it. I think the lack of corrections is due to low interest rates (people forced to go into equities for return) and the feeling that the fed will bail out the market. The run up is about projecting the impact of tax cuts and lower regulations. Btw a bubble to me means a major 25+ percent drop is coming.

 

Exactly. If taxes are lower, earnings are higher just by the math, let alone the effect of that on the economy.

 

Your profession is being phased out, unfortunately. That's why I stopped pursuing the education business at the college level. Of course, it looks like so is environmental science so the joke is still on me.

 

Many changes in regulations are really just socializing unintended and indirect consequences. An individual company can have higher profit by avoiding having to deal with downstream effects to others. We've learned this the hard way and are now going to have to learn it again, apparently.

The same farmers who are celebrating the death of the EPA and the avoidance of some admittedly flawed water regulations will be quickly complaining about the decline in water quality if they're downstream from their colleagues. Hell, most "farming" is corporate, so it will just be the little guys who were "hurt" the most by regulation who get hurt the most from not having the regulation.

 

You know it is possible there are some regulations that are not needed or have their own unintended negative social consequences. It's not as though this country doesn't have a history of passing the occasional dumb regulation.

 

ya, I just mentioned a set that were flawed. Getting rid of them entirely will have consequences. Ignoring climate change is already having consequences.

 

Isn't trading done based on regulations (taxes, interest rates, etc) also a bubble, given the fact that regulations can change in a whim or a shift in government?

If it is based on some kind of policy, and not smart valuation, I lean toward it being a bubble.

I just saw your 25%, so... that kind of makes it hard to be able to predict a bubble, if you cannot say it's a bubble until after the drop hits 25%.

 

Valuations are fundamentally based on profitability/returns. If a tax policy or regulation changes the company's profitability, then stock price should follow. That isn't a bubble - the value actually changes.

 

If it was easy to predict when it was a bubble, there wouldn't be bubbles.

 

It seems pretty probable that a republican congress will put through these reforms. But yeah if it doesn't happen that would tank the market. Trading is done based on the best information available and the stock market is always a leading indicator, not lagging or current.. Every major recession the market has bottomed months before the economy did.


Valuations aren't at bubble levels. They are on the high end of fairly valued historically. I think you'd have to see a legit recession for a major drop which seems unlikely given the consumer confidence numbers since the election.

Corrections are a natural part of a bull market and economic expansion. Bubbles are recessionary. And yeah predicting bubbles isn't easy. Generally speaking they don't happen until no one believes the market will drop.

 

Got it

 

Over a beer, I could rant about so many regulations and how they are broken or outdated. So many. And yet these same ones I would complain about are preventing worse stuff. I am all for regulation reform, but it would have to be surgical and it would need to be done with all stakeholders at the table and with some shared vision of what things could look like-- which isn't going to happen with some things, but could with others.

For example, the pipeline stuff: is there any solution that would please everyone? No. Are there compromises to be made on water and wetland protection? I honestly believe that, yes, there could be. But it would be a lot harder than dumping money into special interest groups to lobby and bribe Congress in a tug-of-war, because it would concede the possibility of total victory.

 

A company that continually invests into infrastructure will have billions in assets and show very little "profit" at the end of quarters, because it all went back into assets.

And you are saying such a company would be valued lower than one that showed huge profits and little assets?

That's a company that could very well be pissing it all away soon, depending on their management.

 

Indeed? So because we can predict to some degree climate change, climate change doesn't happen anymore?

 

The first company is still paying taxes on that capital tied up in assets but on a schedule. That asset base's value automatically goes up if the taxes on D&A go down.

Also the companies you describe likely have a higher cost of capital anyway if they are actually as risky as you suggest meaning their profits will be muted somewhat by their risk.

Usually EBITDA is a good way to compare companies without these differences being as significant. But the point is that even with the same EBITDA there is more money left at the end of the day in a different tax situation (nationally).

Whether revenue actually decreases because growth doesn't offset the tax cut and whether or not this is bad (or to what degree it is bad) are bigger questions than whether or not the inherent value of the companies increases.

 

its all about expected earnings in the future. this is why Tabacco companies have a lower price to earnings ratio than Facebook

 

Your analogy doesn't work. Detecting bubbles would alter behavior that is causing a bubble. Predicting climate change means **** all. See: right now.

 

I don't agree. The human desire to make money cannot be underestimated. "I'll get out just in time" will be the mantra. And there will always be deniers.

 

Bubble phychology is interesting. You know it's a problem when people will bet their life savings on the bubble continuing as we saw in 2000 and during the real estate bubble. If we saw people going on margin because of the trump rally I'd start to worry. There are some inverse indicators out there, but those can become self fifulling

 

The self-fulfilling nature seems to what makes a bubble. Eventually a tipping point is reached that overrides the dominant self-fulfilling behavior.