Conspiracy theory or legitimate explanation?

Username999

Oh the good old days.
Inflation above 10%, negative equity, mortgage rates above 10%, council/new town houses, only the rich buying stocks (till Maggie told us all to buy BT).

Thrugelmir

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

What about 6%+ interest rate savings accounts? 

Which ones in particular? 

You can just Google it, the bank of england base rate was bouncing between 6% and 16% between 1955 and 1991. No look at it, 0.1% it's pathetic! 

No need. My mortgage interest rate was in double digits for many years............
Remember getting a 21% pay rise once. Trouble was that inflation wasn't far behind. Not really any better off. 

CreditCardChris

Thrugelmir said:

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

What about 6%+ interest rate savings accounts? 

Which ones in particular? 

You can just Google it, the bank of england base rate was bouncing between 6% and 16% between 1955 and 1991. No look at it, 0.1% it's pathetic! 

No need. My mortgage interest rate was in double digits for many years............
Remember getting a 21% pay rise once. Trouble was that inflation wasn't far behind. Not really any better off. 

Oh I kinda forgot about that. So you were getting good savings rates but the price of goods and services was rising a lot faster than what they are now is what you're saying.

Hmm interesting. So without allowing your age to influence your option, do you honestly believe the younger generation (under 30's) have it better in terms of housing, price of goods and services and the stock market than under 30's in the 1970's or whatever?

eskbanker

CreditCardChris said:
do you honestly believe the younger generation (under 30's) have it better in terms of housing, price of goods and services and the stock market than under 30's in the 1970's or whatever?

But more to the point, so what if they do?  Why try to make comparisons between very different circumstances?

CreditCardChris

eskbanker said:

CreditCardChris said:
do you honestly believe the younger generation (under 30's) have it better in terms of housing, price of goods and services and the stock market than under 30's in the 1970's or whatever?

But more to the point, so what if they do?  Why try to make comparisons between very different circumstances?

Because I want to know if I'm being "hard done by" so I can sulk and complain about it without being wrong.

Thrugelmir

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

What about 6%+ interest rate savings accounts? 

Which ones in particular? 

You can just Google it, the bank of england base rate was bouncing between 6% and 16% between 1955 and 1991. No look at it, 0.1% it's pathetic! 

No need. My mortgage interest rate was in double digits for many years............
Remember getting a 21% pay rise once. Trouble was that inflation wasn't far behind. Not really any better off. 

Oh I kinda forgot about that. So you were getting good savings rates but the price of goods and services was rising a lot faster than what they are now is what you're saying.

Hmm interesting. So without allowing your age to influence your option, do you honestly believe the younger generation (under 30's) have it better in terms of housing, price of goods and services and the stock market than under 30's in the 1970's or whatever?

Very different era. You can only build experience on what you encounter during your own lifetime. Whatever that throws at you. Life is a rollercoaster at the best of times. 

LHW99

I remember looking in a shop window at the first video players (VHS / Betamax) in the late 1970's. They cost around 5 months (of my) wages each. I think you can get a DVD player for a lot less than that these days.

CreditCardChris

LHW99 said:

I remember looking in a shop window at the first video players (VHS / Betamax) in the late 1970's. They cost around 5 months (of my) wages each. I think you can get a DVD player for a lot less than that these days.

That's totally different, brand new technology is often crazy expensive. Then as the production process increases and the technology gets cheaper to produce the price of the product also comes down, unless you're buying an apple product xD

afis1904

There's a decent amount of evidence that it is more difficult for young people to make strides, especially on the property market and especially for people who have entered the workforce in the last 10-15 years as rents have been rising much stronger than wages. (and house prices have been rising much quicker for even longer).

One of the big issues is also that suitable housing for most people in their late 20s - early 30s simply hasn't been built even close to enough for it to be affordable.

Alexland

CreditCardChris said:

Because I want to know if I'm being "hard done by" so I can sulk and complain about it without being wrong.

What's the point sulking and complaining about it either way? Each generation had their struggles which would have been relatively the hardest stuff they had to worry about at the time. If you read Orwell he describes people who had terrible lives which seem barely worth living but they just got on with it and did the best they can.