The Worst Risk-Reward Setup Ever?
MarketWatch: The ‘Buffett Yardstick’ may be signaling the worst risk-reward setup ever
According to this measure, Felder says investors are paying such a high price for stocks that they are likely to receive basically nothing in return in the coming decade, and that includes dividends.
“At the same time that potential returns look so poor, the potential for risk may be greater than it has been in generations,” he wrote, pointing out that investors have been piling on margin debt lately to increase their exposure to an overheated market.
Comparing this rising margin debt to the size of the economy, Felder says, shows that investors haven’t been this greedy since 1929.
“All of this leveraged speculation must at some point be unwound, usually via forced selling during a bear market,” he wrote.
"The last two times it came even close to the current level the stock market suffered 50% declines.”
Felder warned that this time around, the pieces are in place for an even bigger drop. “In all, long-term investors are risking roughly a 60% decline to try to capture a 0% rate of return over the coming decade in the stock market, one of the worst risk-to-reward setups in history,” he wrote in a blog post.
[Click link above for more, including charts.]
According to this measure, Felder says investors are paying such a high price for stocks that they are likely to receive basically nothing in return in the coming decade, and that includes dividends.
“At the same time that potential returns look so poor, the potential for risk may be greater than it has been in generations,” he wrote, pointing out that investors have been piling on margin debt lately to increase their exposure to an overheated market.
Comparing this rising margin debt to the size of the economy, Felder says, shows that investors haven’t been this greedy since 1929.
“All of this leveraged speculation must at some point be unwound, usually via forced selling during a bear market,” he wrote.
"The last two times it came even close to the current level the stock market suffered 50% declines.”
Felder warned that this time around, the pieces are in place for an even bigger drop. “In all, long-term investors are risking roughly a 60% decline to try to capture a 0% rate of return over the coming decade in the stock market, one of the worst risk-to-reward setups in history,” he wrote in a blog post.
[Click link above for more, including charts.]
posted by C. Guinness @ 4:27 PM
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