San Diego Housing Market News and Analysis
Asset inflation and mean reversion
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Submitted by carlsbadworker on August 16, 2019 - 9:56am
I am reading Rich's latest article, "Shambling a tiny, halting step towards affordability".
One of the key premise seems to be that "valuation always falls back to mean" (mean reversion). This is the bedrock of any value investing. Yet, even Jeremy Grantham GMO starts to questioning that in the past few years, that "the market can stay irrational longer than you can stay solvent".
Here is my observations:
2. Internet is creating wealth inequality. World bank says so and I completely agree: https://www.fastcompany.com/3055498/the-...
So it sounds like to me that mean reversion is not going to happen anytime soon:
Will it ever be back to mean? Sure, if you have infinite time horizon, all asset bubbles will eventually collapse, but in both stocks and housing, we are not above 2-sigma level yet, it is hard to call for an asset bubble burst...at least not in U.S. (Maybe in China, but it doesn't look like they have an asset bubble bursting soon. Tariff just basically re-allocates products through global supplier chain with little impact to the global supply and demand. i.e. China buys more soybean from Brazil while other countries (e.g. Japan) who bought soybean from Brazil now buys from the US.
Therefore, in the near future, this bull market will not end with a massive pullback. Q.E.D.
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