the .com bubble was based on anything that said .com and not the underlying foundation of the company since most people dint know a damn thing about the interwebs, that is not the case today
Posted on 08/06/2018 12:07:26 PM PDT by Wuli
"Here are the stock indicators with enviable track records - and the cautionary tale that they tell".
..........
"Bubble Flashbacks" "The only other time it was more bearsih (...since 1951...) was at the top of the internet stock market bubble".
[areas that are] "Overvalued by Almost Any Measure" "Ratio of S&P 500's current reading to average since 1954" "Household Equity Allocation" "Price/sales ratio" "Price/book ratio" "Q Ratio" "Buffet Indicator" "Dividend Yield" "Shiller P/E (CAPE)" "Price Earnings ratio"
.........
(Excerpt) Read more at wsj.com ...
I just accepted the 32 number from the chart at post #2.
When I checked, the current PE for the S&P 500 is more like 24, based on trailing earnings (50% over average price, rather than 100%).
The bottom line is that it is that earnings could catch up to prices in a year or two (assuming we already have one in the bank, because it was based on trailing earnings), in a booming economy. It also means that the potential losses in a correction or bear market are a lot less, than if it was 32.
“I was in two Wal-Marts yesterday.” Shoppers were happily putting stuff in their baskets.”
On credit or in cash?
https://tradingeconomics.com/united-states/households-debt-to-gdp
The graph assumes familiarity with Dr Schiller’s work. See post #22 if you wish to learn more about it.
Another indicator is that we are coming off of the incredibly low interest rates that were part of “quantitative easing.”
On the other hand we do have the positive of massive dergulation and there is a lot of room to grow.
One of my big questions is how the hell government spending gets counted in GDP as if say spending on regulatory work is of the same kind of value as investment in a steel mill or buying an automobile or some such.
Note that currently 2 factors are boosting corporate earnings.
1. Drastic reduction in regulations.
2. Biggest monetary stimulus in history in form of huge tax cuts especially corporate taxes.
Fly in the ointment is zero spending cuts, which means piling on more national debt. We are already paying $1 Billion every day (x 365 for year) in interest to service the national debt.
There are no bigly other stimuli possible to rev up the economy. Tariffs going to zero on both sides of trade would be the stimulus. But that will take some time and perseverance by law makers.
Finally the Schiller PE is now higher than before the 1929 crash. Invest with caution.
Thanks. Sorry that I missed the list you had thoughtfully included in your initial post.
Prices are high for stocks, and that is going to have to be unwound over time. How much, how long, and how soon are all subject to other variables. The least painful way is to grow, grow, grow.
Part of the price rise was built up over a few years of money pumping and extraordinarily low interest rates and inflation. Part of it was the 25% forward-looking run up when Trump policies came in.
Bottom line: It would take spectacular growth to normalize P/Es while still getting a good return on stocks - but that kind of growth is actually possible with low taxes (a structural break with CAPE data - tax cuts are dollar for dollar boosts to earnings), deregulation, exploding energy production, and trade adjustments.
Banks are finally starting to get smart and offer CDs at so-so rates for $1,000 rather than $10,000 minimums as they used to demand.
We got labels...and warnings...and bubbles..and cheering...and hand wringing.
That about sum it up?
“Biggest monetary stimulus in history in form of huge tax cuts”
Tax cuts are not monetary stimulus. Monetary stimulus is increasing the money supply, like the Obama Administration did with quantitative easing.
Tax cuts directly improve corporate earnings - structurally. CAPE data (10 year average) is based on the old tax rate. Dropping the corporate tax rate from 35% to 21%, gave all of corporate America a 14% boost in after-tax earnings, for every year going forward. The Net Present Value of that additional stream of earnings should be incorporated into stock prices. The Cyclically Adjusted P/E itself, needs to be adjusted to this new baseline.
“Fly in the ointment is zero spending cuts, which means piling on more national debt.”
Government revues have set records (they strongly tend to go up when taxes are cut, and this tax cut was particularly efficiently designed). Debt to GDP declined last quarter.
“There are no bigly other stimuli possible to rev up the economy.”
The stimulative effect of the tax cuts alone will extend over 3-5 years, as corporations repatriate profits, and make capital investment decisions.
The re-orientation of manufacturing supply chains back to the USA from China, can be as big of an effect as it was going the other way - and it can happen more quickly. A generational shift, compressed into 5-10 years.
Energy production in the USA is exploding. This year the USA becomes the world’s single largest producer of oil, and the world’s single largest producer of natural gas. Multiple new Natural Gas export facilities are coming online, in each of the coming years. More than a million additional barrels of oil are being produced each year - more than an additional $25 billion new income stream each year. The Trump Administration has opened the largest areas for leasing in US history, including ANWR and almost the entirety of our off-shore waters. Those areas will produce oil for decades, once developed.
There is of course also technology and innovation, but those are hard to predict/quantify.
“How much of the CEO compensation is based on stock price vs earnings?”
Every company can structure compensation differently. Some (like tech companies) go really heavy on stock options. Other companies (like banks) tend to strongly skew bonuses toward earnings (or dollar volume). They are all over the map.
If I followed his advice the last two years I would have missed a big market move up!
Tax cuts = more money in pockets of individuals and corporations to spend. The federal budget deficit is flirting with 1 TRILLION for year, made up largely by printing money in one form or another. Only the silly people do not see it as stimulus (monetary, cash, greenbacks, money, credit, whatever one calls it, does not matter).
But the main reason I have turned cautious on the market is the scary looking Schiller graph. To get back to normal valuation, corporate earnings would have to double within a couple of years. I do not see that happening. Odds (based on 33/35 past elections) are the ruling party (GOP) will lose bunch of seats, have a cushion of only 24 seats. If democrats take over the House, lord save the markets.
Yes, talk to the people who were making money hand over fist in Nasdaq during the Internet boom for several years. Or talk to the people flipping houses and making money hand over fist during the housing boom before 2010, for a decade. Our private golf club had dozens of new members join, most were in housing business.
Any mania does not end suddenly. Greed always exceeds prudence. I do not know the date on which bear market will begin. It could be 2 months, 2 quarters, 2 years or 2 decades. Only thing I can guarantee is it will be painful for those caught holding the bag.
the .com bubble was based on anything that said .com and not the underlying foundation of the company since most people dint know a damn thing about the interwebs, that is not the case today
“Only the silly people do not see it as stimulus (monetary, cash, greenbacks, money, credit, whatever one calls it, does not matter)”
“Only silly people”
You insult me, by calling me silly, when you were the one who was glaringly, and demonstrably wrong.
THAT is silly.
Tax cuts are not monetary stimulus - not remotely, not by any means. Drop the pretension and get a clue.
Trump tossed the shiller graph on the trash heap.
Have a enjoyable evening! And good luck...
Most of my risk money is in REITS. At my age nearing 80, I am more interested in return of my money, not return on my money. I also like variable annuities because taxes are deferred on all income until they are cashed out.
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