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I think Google and Microsoft results have done a lot to soothe investor concerns. Even Meta results were good and it was only the guidance that spooked investors a bit. We all know that Big Tech are investing heavily in AI. And the payoffs from those investments are uncertain and could be far down the line. But so long as the core businesses continue to grow strongly and there are some signs of incremental earnings growth from AI offerings then investors will be patient and continue to load up on Big Tech stocks. And it is a virtuous cycle (that could turn vicious)-the capex of companies like Microsoft, Google, Meta is the operating cash flows of NVIDIA and other hardware companies. For now the operating cash flow growth of chip companies gets rewarded by markets who extrapolate it far into the future (with no consideration over the fact that eventually capex spend will moderate or will get in-sourced to some degree). And the heavy capex spend (and resulting deterioration in FCF) of Big Tech is ignored or even welcomed by the market because optimism over AI means the expected payoff is supposed to be both imminent and high and the core businesses are still growing fast. And with Big Tech representing 1/3 of the market the considerations above are going to dominate the macro even if below the surface for the average stock the combination of stagflation and higher for longer interest rates and geopolitical tensions is a major headwind. The Mag7 index has gone up about 150% since the nadir in autumn 2022. The rest of the S&P 500 and other global stock markets have only started to see a meaningful recovery over the last six months as a result of central banks teasing a pivot and the emergence of some grass shoots in Europe and general optimism over AI.

If a company has a conservative capital structure such as a debt/equity ratio of less than 50% then P/E and P/FCF should work just fine. As for the OP's original question I've always felt you should anchor on what is real i.e. reported earnings. These should then be normalized for one-offs, cyclical factors etc. And then you consider qualitative factors such as growth prospects, competitive position etc in deciding what an appropriate multiple should be. Or if you have confidence in predicting the next few years earnings you can go a few years out and then apply an appropriate multiple. But as others have suggested better to come up with your own forward estimates rather than rely on Wall Street estimates as Wall Street isn't interested in accurate valuation it is interested in selling stocks. and no one sells stocks by indicating they are overvalued and forward multiples are great at making the valuation of fast growing stocks look more reasonable. And they play the same game with the S&P 500. At the end of every bull market Wall Street are still proclaiming that valuations are reasonable and forward PE ratios around in line with the historical average.

You are comparing nominal and real variables. Except for monetary regimes of financial repression (e.g. post WW2 and post GFC) the 10 year nominal yield has always been well above the real GDP growth rate (historical average around 3-4%). However if the yield curve un-inverts in a meaningful way there might be some scope to reduce rates 50-100bps or so. Anyway none of this really matters for the market. Fed fund rates has been above 4% for the last year and a half and during that time period a Mag7 ETF has gone up 150%. And with those kind of returns no one is going to care what your risk-free rate is or what inflation is. And even if you do think we are higher for longer and inflation is going to be sticky at around 3% to 4% why would you invest in a long bond and get real returns of approximately zero?

I would suggest everyone read the INC's 2024 Election Manifesto: https://manifesto.inc.in/assets/Congress-Manifesto-English-2024-Dyoxp_4E.pdf People vote for BJP not because the BJP is good (which it somewhat is), but because Congress is so utterly bad. That manifesto looks like it's been made by a 5 year old who has no understanding of any financial concepts let alone geopolitics. Compare the above Manifesto to that of the BJPs and you will see why Indians seem to want this 'dictator'. On another note, Indian randomly vote for unsustainable subsidies, a population that has gotten used to freebies has no future. On one hand you want development, on another you want subsidies, on a third hand Indian Businessmen are somehow crony capitalists but foreign ones are Christ's second coming, on a fourth hand you don't want to mine minerals because you care too much about the environment but also want a mineral economy. - 'you' referring to urban upper class elitist 15-25 y/o who cry dictatorship all day. India seems to be the only 'dictatorship' where you can bad mouth the dictator every day and write a million articles on it all the while sipping wine in your apartment in South Delhi with no consequences at all. The only 'Hindu Nationalist' country where you can say please remove the police for 15 mins and see what we do to the majority & still roam free, and where the so called Hindu Nationalists fight for >100 years in court to get their own temple back. From the inside looking out, it seems western media hates anyone who refuses to play long with the west's ideas, don't even get me started on academia.

Price is there to serve you, not to guide you. Act accordingly.

https://ca.yahoo.com/news/frontline-ukrainians-fear-aid-u-083843561.html …. Biden promised the arms shipments would begin immediately and hailed what he called “a good day for world peace.” The reaction here, near the front lines of the war, felt very different. Oleg sighed when The Daily Beast told him about the events 5,000 miles away in Washington, D.C. “Are you serious?” he said. “Now this war will just continue.” ….. …. Soldiers told The Daily Beast Russia hopes to take control of the city in the Donbas region by May 9, the World War II Remembrance Day for Russia and other post-Soviet countries. Throughout much of Ukraine, a collective sigh of relief has been felt, and many far away from the fighting feel that finally, they are receiving the aid they so desperately have needed. But in Kharkiv, 19 miles away from the Russian border, some residents are angry that the U.S. is resuming its aid.

Yes every significant merger is going to get sued by the FTC and COF and DFS will have a high combined market share in credit cards. It is going to be tough to get this merger to close, imo.

LHX has very straightforward management incentives. They have been bulking up with acquisitions to become a prime contractor, but it has stretched their balance sheet somewhat. I think GD is probably the best run of the primes. LMT has a great balance sheet so they could flex when growth prospects are limited because some much is dependent on the F35 program which is not a priority in the current defense budget.

Well it's because people aren't investors and they want a lot of money really fast without hard work or discipline I have a buddy who opened an Etrade account back in the 90s because they were offering some kind of bonus and he bought Viropharma for less than $20 and sold it at $100 because the company said some news about the common cold. And ETrade kept crediting his account with this supposed one time bonus over and over again and when he pointed out the mistake, they let him keep all the money That's the way life should be, money for nothing and chicks for free, so why shouldn't they be entitled to the high water mark? They deserve it!

Nominal GDP was up 4.8% annualized. Seems kind of high for a rate cut. Also unemployment is only 3.8%.

He should be running for president as the Republican nominee imo.

Yeah I would never invest in Ford or GM and I own airlines.

I just don't think you need higher rates with GDP where it's at. Under a lowish/stable inflation regime, I'd argue the nominal rate on the 10-year should roughly approximate GDP growth. At this point, were ~2-3x that level. The gold/copper ratio is also suggesting significantly lower 10-year rates. But the 10-year rate probably won't/can't go meaningfully lower until rate cuts occur and 5+% short term rates are absolutely restrictive in a 1.6% annualized growth environment.

Bought a little MGM

In case anybody hasn't read "Trillion Dollar Triage" and has an interest in the history of Fed independence from the White House, this article is basically a big excerpt from the first part of the book - https://www.wsj.com/economy/central-banking/a-brief-history-of-the-feds-uneasy-peace-with-the-white-house-608dee30?mod=hp_lead_pos4

It comes with the territory. Investors do not just want high returns they want high returns without the volatility. They also want to get rich quick so find it hard to tolerate the inevitable downdrafts and dry spells. It is why people are such suckers for Ponzi schemes. And it is why companies feel pressured to manage earnings and waste a lot of time providing "guidance", "whisper numbers" and employ expensive investor relation teams. If you are going to be a growth investor the real money is made identifying companies with good long pull growth prospects and then buying and holding them for decades. Over that time period there are going to be lean years and fat years and many false alarms that indicate the growth is coming to an end encouraging a rush to the exits. For a quality growth stock you are much better off erring on the side of overstaying your welcome the way that Buffett often gets accused of doing.

I don't mean that investments out of the private sector are inefficient in general. In the US/west these investments are subpar, too little, not well meant, resulting in an almost sort of ghetto system.

The US became so expensive due to the market power of these services and that all of this is in the control of private hands that you need 10-50x as much money to live the same lifestyle I could live in a tier 2/tier 3 city in China. The privatized schools, the privatized healthcare, the privatized daycare for kids, The housing sector. At the same time, investments in basic services outside of the private sector are really inefficient, and public schools are not good often. Subways are dirty and broken, deteriorating social fabric in society. And then imagine how China looks like 10 years down the road, running a mixed public and private economy and not walking into the financialized economy trap...when the sky airs up due to EVs, the automation of production that is not far away on a different continent. The scale of their city design...next decades going to be very interesting, especially in China.

Inflation isn't going to get back to 2% until government spending is brought under control and there probably will need to be a recession to achieve meaningful further disinflation. Unfortunately the Fed seem to have no further appetite for rate hikes and the US government will continue to spend because there is no one to stop them doing so. I can understand the desire to avoid the pain of a recession. But the alternative of getting stuck with 4% inflation for the next decade is much worse for the average joe even if investors will probably do just fine (it is high inflation not moderate inflation that kills the stock market). But what is pretty interesting is that we only managed 1.6% real GDP growth in Q1 with a government deficit of over 1/2 a trillion for the quarter with the economy at full employment (if you believe the official figures). Resilient consumer spending seems to be what is keeping the US out of recession growing at 2.5% for the quarter. Question is how long that can continue with job losses starting to rise and the saving rate at new lows.

@John Hjorth Wonderful to see John. @Xerxes Mentioned the gut check citizens & countries will have to make in committing their sons to the conflict. Looking ahead, I think Ukraine really needs to think through the possibility that they could lose a million or so of their sons to this conflict - and whether, as a nation, they can recover from that. That is - if it means ejecting the Russians for good. Xerxes would know, as I believe the Iran/Iraq stalemate, cost Iraq 1M young men from Saddam's ill-fated miscalculation.

I will

The real economy is the traditional form of capitalism where profits are made through the production of goods by expanding the economy through tangible capital formation and productive investment. Employing labor to produce and sell commodities at a markup. What the US developed into is a financialized economy where manufacturing mostly moved away to other countries while they engaged in wealth extraction through financial channels rather than production and investment. GDP growth in the US literally includes the insane 20% credit card debt US citizens are getting delinquent on now, which has 0 productive value to the economy. Then you have all this housing speculation and appreciation, investment speculation/services which are big parts of GDP, rent-seekers and high rents that push up GDP, banks that don't provide money for tangible investment but do speculation on loans which led to the financial crisis, etc. Thats 30% of the US economy...crazy. Yes, the US has a few shining star mega-cap companies and worldwide financial services providers, those are all basically monopolies. Looking at the US GDP, you can see the impact of this financialized economy, monopolies for healthcare that rip off US citizens, end-game housing market with prices unaffordable for most, and further shrinking manufacturing sector. The point is, China has been building out the real economy and owns the largest labor force worldwide, the most efficient supply chains worldwide, and now slowly the best products worldwide for a cheaper price the US could ever have. Looking at the SP 500, if the market doesn't develop in this western protectionist and war economy against the uprising economies, China can replace many of these businesses with cheaper prices simply because of the low-cost infrastructure the government provides and the fact that their economy is not controlled by these mega-services monopolies that are just very expensive for doing business. That's why the US needs tariffs and trade blockage because their companies can not survive and they arent willing to invite Chinese companies either. That's why the US can only attract manufacturing with huge subsidies. The economy with the cheapest labor pool, most efficient supply chains, and best products wins. BYD, XIAOMI, TEMU, Commodities at cheaper prices, food at cheaper prices...its only a matter of time... At this point chinas economy is self-sufficient enough to develop internally. Yeah, these deflows are providing headwind but the core of china is a powerhouse and they arent bad finding partners globally either with russia, saudis, BRICS etc. Meanwhile the US faces highly inflationary forces with their derisking so I think the incentives over the longterm are pointing towards a "with China" than without. Biden playing a deficit and subsidy game but that's not sustainable. The problem is an uncompetitive manufacturing basis and dependence on foreign countries producing their expensive high margin products. I don't think it can last over time. On the other hand, things like alphabet and Microsoft will and can last but how many Americans work there...alphabet has 150k employees globally...most Americans wont feel the impact of their success, at max in their retirement funds.

Yeah the P/E investor of the past in GM got taken to the woodshed....because although GM was generating earnings......they were required to then take those earnings & dump it back into the business just to standstill.....these were not 'owner earnings' they were business accounting earnings.......those earnings needed to be reinvested in the business to simply be a business five ten years out. GM seems to be at inflection point....sufficient investment has occurred in its EV and autonomy portfolio such that they now have extinction insurance......and it appears that the transition to EVs & autonomy are going to be gentler incline which bodes well for the capital intensity here for the next few years. A new metric in the auto industry should "EV FREE Cash flow".......Tesla's headwinds are good news for the owner earnings of OEM shareholders....hats off ultimately to Toyota who stuck to their guns on BEV adoption They are however simply terrible businesses and any time I've made money owning a car company (FCA & GM for me) I try to forget about in case I might tempted to do it again...

Luca [ @Luca ], You definitely need to open a new topic in the COBF Books forum about this book.

Again, zero arguments in this response. There is a good book about this, kicking away the ladder by economist Ha-Joon Chang.