On the website of Grantham, Mayo, Van Otterloo, Peter Tarlie has an interesting white paper that, essentially, makes two points:
- The stock market was in a bubble in 2017-2018; and
- The bubble is bursting.
Assume he’s right. Whatever breast-beating there has been about public pensions to date, you ain’t seen nothing yet. If this is start of a prolonged bear market, quite a number of city and county governments will go bankrupt. May even a state. Maybe even Illinois.
If it was in a bubble in 2017-2018, it was in a bubble for quite awhile preceding. I don’t know if it’s bursting. I do know that one of the reactions of some pensions and endowments, my customers, is going to be to march up the risk ladder into greater allocations to alternatives. As an insider, I know this is very unwise.
I also have to just shake my head at public policy idiocy. Government has made a shambles of the public pension systems. And education. So hey, how about Medicare for all? Makes sense.
No such thing as bubbles. “Bubble” assumes stocks have some objective value from which a market deviates. They don’t.
Nothing does.
“Bubble†assumes stocks have some objective value from which a market deviates.â€
Sure they do. You confuse precision with relative standards, established largely by investment alternatives. Would a DOW of 569,457 be a bubble?
BTW – The so called Efficient Frontier represents a series portfolios that define the objective standard, and the real world deviations from those are due to “bubbles,” risk seeking (yield chase), inability to freely lend and borrow at the risk free rate etc. Go read about it.