Are US stocks over-valued?

[~bs]

I just came across an interesting & reasonable article about what might lead to the next downturn.

https://venturebeat.com/2020/01/18/the-next-global-recession-why-this-time-it-is-really-different/

The basic idea is that there is simply too much free cash, driven by historically low borrowing costs over the last decade, and at some unknown tipping point, banks & investors will simply say "that's enough" and start restricting (or pulling out) their money from these companies that are using super-cheap debt to make acquisitions, stock buybacks, and heavy R&D.

Net result: Borrowing costs climb, companies are forced to grow slower, stock prices sink/bond prices climb, and the economy takes a moderated tumble toward lower productivity & growth.

Obviously, this is just another prognosticator, and no one really knows what will happen. But this sort of echos my general thoughts (though far more clearly stated), so I figured I would share.

by "banks & investors", you mean the US government right? You do know they're a large driving force of investing in the US markets right? Providing ultra low interest rates so companies buy back shares to pump stock prices and buying financial instruments directly.

I'm not so bold as to predict its downfall or that we're entering another 10 year expansion, but I do think that if you're riding the sidelines and the economy doesn't crash, youre going to be much worse off. It's easiest to just KISS, maintain a reasonable investment allocation and EF, and not worry about what the market is doing day to day.

[kork13]

by "banks & investors", you mean the US government right? You do know they're a large driving force of investing in the US markets right? Providing ultra low interest rates so companies buy back shares to pump stock prices and buying financial instruments directly.

I'm not so bold as to predict its downfall or that we're entering another 10 year expansion, but I do think that if you're riding the sidelines and the economy doesn't crash, youre going to be much worse off. It's easiest to just KISS, maintain a reasonable investment allocation and EF, and not worry about what the market is doing day to day.

Yep, totally understand that dynamic, and agree that it's a poor idea to sit on the sidelines out of fear. Not changing what I'm doing at all based on the markets, merely sharing an opinion about what might feasibly occur.

What I'm saying (and what I understood of the article) is that eventually the banks & investors (I mean actual banks, institutional investors, and even private investors) will at some point decide that all of the businesses that have grown, expanded, consolidated assets, etc. are overextended & overvalued with all of the low-cost debt, and will sell off stocks, pull out investments from over-leveraged businesses, etc. That will lead to a market & economic contraction that the Fed will have relatively little control over through further lending rate reductions or buying up debt, because the excess outstanding debt floating around is what caused the contraction in the first place.

As I said, the author explains the thought process better than I can. And maybe I misinterpreted the article completely. That's just my view.