1999 again?

[Guest]

You guys very well be right but we shall see.

 

P/E, dividend yield all still look a lot better than in 1999. Heck, even the Buffett's market cap to gnp is lower now vs then. That's not even including the low interest rates... which are much, much lower than they were then.

 

If everyone is so euphoric, shouldn't we expect to see these measures in a similar euphoric range?

 

With that said, hopefully the market drops 50% from here.

 

Hmmm...maybe we are getting a bit crazy here. ;)

 

Check this out:

 

https://www.cnbc.com/id/100991598

[Liberty]

Market-cap to GDP is very near the all time high set in 1999-2000.

 

Is there euphoria? Perhaps not, but price is what matters, in my opinion. And the price looks high.

 

https://www.gurufocus.com/stock-market-valuations.php

 

Is that metric useful? US companies are much more global than they were.

 

https://twitter.com/teasri/status/1142201221626941440?s=21

[Spekulatius]

Market-cap to GDP is very near the all time high set in 1999-2000.

 

Is there euphoria? Perhaps not, but price is what matters, in my opinion. And the price looks high.

 

https://www.gurufocus.com/stock-market-valuations.php

 

Market cap to GDP strikes me as one of the poorest metrics I can think of. The reason is simple, in some countries a lot of companies tend to stay private, in others they are owned by the government. The market cap to GDP would be lower, just because these companies don’t trade on the stock market. i would ja it stick with simple valuation metrics, EV/EBIT, EV/ Revenue etc, but market cap to GDP strikes me as a very poor metric.

[Spekulatius]

For the folks who think this is 1999 all over, were you investing in 1999?

 

I can tell you, this is no where near as euphoric as then. Will the market crash? No idea but we are not in euphoria.

 

In the past 9 months we've had a 20% correction and a 6% correction (with some sub-sectors moving a lot more than that), bond yield curve is inverting and everybody is talking about a recession... Agreed, not 1999 euphoria at all.

 

 

Actually increased volatile and sideways movements re often signs of a very late stage bull market.

 

Overall, this does not feel like 1999 however. 1999 had many bubbles they went parallel and were feeding on each other (IT hardware/software for the Y2000 bug, commercial real estate, high end housing, Internet stocks, telecom stocks, semiconductors etc). We have a bubble in tech stocks perhaps, but I don’t see much other bubbles yet.

 

In any case, while boom/bust cycles tend to have some similarities, I don’t think any of them are exactly alike. So 2019 may be a bubble, but I don’t think it will work out exactly like 1999, not like 2008 or 1987.

[jmp8822]

Market-cap to GDP is very near the all time high set in 1999-2000.

 

Is there euphoria? Perhaps not, but price is what matters, in my opinion. And the price looks high.

 

https://www.gurufocus.com/stock-market-valuations.php

 

Is that metric useful? US companies are much more global than they were.

 

https://twitter.com/teasri/status/1142201221626941440?s=21

 

GDP and GNP are typically very similar, which I agree is counter-intuitive. FED graph attached. The numbers on the graph are $21,285 billion for GNP,  $21,048 billion for GDP.

[jmp8822]

P/E, dividend yield all still look a lot better than in 1999. Heck, even the Buffett's market cap to gnp is lower now vs then. That's not even including the low interest rates... which are much, much lower than they were then.

 

That was the idea behind my first post - apologies if the link led to nowhere. We are currently very close to the all-time high of the 'Buffett market-cap' measure - within a couple percentage points approximately.  143-percent now, vs 148-percent at the top in early 2000.  Does that mean the market will crater tomorrow? No, but it could be a good time for an abundance of caution.

[RuleNumberOne]

Corporate debt to GDP is higher. If you take the Enterprise-Value to GDP instead of market cap, you would perhaps beat 1999. But anyway that was not my point.

 

Yeah the overall market P/E is lower. But that is like buying an IPO at 60x sales while pointing to Wells Fargo's P/E of 9. You cannot get to 60x sales for an unprofitable company without a bubble. In other words, you cannot deny there is a bubble in tech by averaging it out with the P/Es of banks.

 

Yes, the dividend yield is higher. But that would be saying 60x sales for an IPO is fine because food companies are yielding more than they were in 1999.

[RuleNumberOne]

Did some Googling on 1999.

 

QCOM was the best performing stock of 1999 reaching a market cap of $56 billion in November 1999. That was 14x sales, revenue had grown 10x over the preceding 4 years. QCOM was profitable all the time.

 

1999 AR: https://investor.qualcomm.com/static-files/df5fedaa-264d-4377-aa9a-e2916d572253

https://www.latimes.com/archives/la-xpm-1999-nov-18-fi-34813-story.html

 

Webvan had a market cap of just $1.2 billion at the peak.

 

[scorpioncapital]

I don't see high valuations. Quite low if rates stay where they are. There are a few no income tech and biotech stocks but in the great boom wasn't coke like 50x earnings ? With 2 percent inflation and 4.5 rates. Where are the nifty fifties trading up there? Even if they were, rates are so low why aren't stocks at 100x earnings if rates are going to be 1 to 2 percent for decades ?

[Guest cherzeca]

"Yes, the dividend yield is higher. But that would be saying 60x sales for an IPO is fine because food companies are yielding more than they were in 1999."

 

are IPO valuations a determinant or proxy for a bubble? what portion of the capital markets is represented by IPOs?  I just don't take IPO valuations to be a symptom of anything other than excessive venture capital allocations.

[scorpioncapital]

Perhaps people should read Philip Fischer's path to wealth through common stocks..the seeds of (hyper) inflation are sewn in major depressions..buffet said the hangover will be proportional to the binge. Fisher also said the way the American culture works they will not accept Japan or German style deflationary economics . Also he said war is always inflationary after the initial scare (and trade wars are still wars)

Put it all together and we are In one of the acts (who knows which one) until the grand finale. But it is not unusual to have higher stock markets if the value of money is debased.

[Guest ajc]

 

 

Yeah, who knows. If Jim Bullard or Jim Cramer get appointed as the next Fed Chair, 100x sales may become the new norm. This is not euphoric enough yet ...

 

Let me edit my comment. Just read that Kashkari announced on Bloomberg that he wanted a 50bp cut at this meeting itself.

 

Kashkari is the new front-runner for the next Fed Chair and 150x sales may become the new norm.

 

 

 

Yup. I just published a new thread about tech valuations, mean reversion, and growth risk/reward today - https://twitter.com/tonyjclayton/status/1142741798554624000

 

One reason I think tech investors might be more willing to fool themselves this time, is the biggest bubble may be in bonds and the IPO bubble is probably secondary but directly related.

That doesn't make these stocks any safer, but it does make the sector feel less exuberant.

In a way it's more dangerous than a tech-led bubble, because folks are likely looking for a trigger event in completely the wrong market.

 

I totally agree, growth investors are playing with fire.

 

 

[Spekulatius]

Perhaps people should read Philip Fischer's path to wealth through common stocks..the seeds of (hyper) inflation are sewn in major depressions..buffet said the hangover will be proportional to the binge. Fisher also said the way the American culture works they will not accept Japan or German style deflationary economics . Also he said war is always inflationary after the initial scare (and trade wars are still wars)

Put it all together and we are In one of the acts (who knows which one) until the grand finale. But it is not unusual to have higher stock markets if the value of money is debased.

 

I don’t see any deflationary economics in Europe, the ECB is run by an Italian right now anyways. The negative interest rates should be deeply inflationary, they just don’t seem to work, except creating elevated valuations for assets like real estate.

 

Same seems to be the case in Japan, partly due to shrinking population. It’s difficult to create a boom in real estate prices, when the population is shrinking and there is a surplus in houses in many areas except selected population centers. Same with other things where demand is waning.

 

 

If we want to create inflation, we need to bump up immigration in a great way. immigration alone is probably responsible for a 1% better GNP growth rate in the US vs Europe.

[Guest cherzeca]

we are at or near full employment with an equity market high, low interest rates and negligible inflation.

 

if I presented this scenario to you in a vacuum and asked you whether you would want to invest in equities, you would say no?

[RuleNumberOne]

Where I live, services inflation, such as haircuts, carwash, healthcare, has been running at 10% per year.

 

I wonder how the Bureau of Labor Statistics calculates inflation. Do they take a weighted average by population or is Alabama given the same weight as California.

 

Politicians appoint "their people" to the BLS, the BLS reports a fake CPI that is always adjusted to 1% (hedonically or otherwise). Politicians then use this as evidence for low rates.

[Guest cherzeca]

Where I live, services inflation, such as haircuts, carwash, healthcare, has been running at 10% per year.

 

I wonder how the Bureau of Labor Statistics calculates inflation. Do they take a weighted average by population or is Alabama given the same weight as California.

 

Politicians appoint "their people" to the BLS, the BLS reports a fake CPI that is always adjusted to 1% (hedonically or otherwise). Politicians then use this as evidence for low rates.

 

BLS is civil service.  but it is ok if you think BLS is part of a deep state conspiracy.  be my guest

[Guest]

So let's take the last 5 years of the dot com bubble and compare to the last 5 years from today.

 

Let's compare Vanguard Value and average value fund vs S&P 500.

 

$10,000 invested on 3/1/1995-3/1/2000

 

Vanguard Value Index was worth about $24,000.

 

average value fund about $21,000

 

S&P 500 was about $32,000

 

about a 33% difference between value index and S&P 500.

 

-------

 

6/22/2014-6/22/2019

 

Vanguard about $15,500

average value fund about $13,700

S&P 500 about $16,700

 

So we're talking about a less than a 10% difference between the value index vs S&P 500.

 

How is this anywhere close to euphoria?

 

 

 

 

 

[Gregmal]

Good couple points on value investing

 

https://www.cnbc.com/2019/06/21/is-value-investing-dead-it-might-be-and-heres-what-killed-it.html

 

At least the older fashioned version of it.

 

 

Reading other threads, it just seems like people want to make excuses not to invest. If presented with a quality company that is firings on all cylinders, its "that's too expensive". If given something dirt cheap, then we get "its got too much hair/too many issues"... So it just seems like people don't want to invest.

[RuleNumberOne]

True. Nobody wants to hear about inflation. With a 4x increase in government debt since 1999, record corporate debt, fiscal deficits during record-low unemployment, the last thing anybody wants to hear is inflation.

 

Inflation is the one thing that can blow this sky-high.

 

Here is how it works.

 

Suppose California's inflation is 8%, Alabama and Mississippi are at 1% inflation.

 

National inflation = ( California inflation + Alabama inflation + Mississippi inflation ) / 3 = 3.3%

 

Though computers and cellphones cost as much as ever, Internet and wireless bills as high as ever, there has been improvement in speeds. Therefore, we have actually had deflation!

 

Say these categories are deflating at 20% per annum and take up 10% of spending.

 

Final inflation = 3.3% - 2% hedonic adjustment = 1.3%

 

What a great human achievement! 1% inflation year after year, decade after decade! The eighth wonder of the world!     

 

 

Now let us move over to Europe. You say Italy and Greece have too much debt? Lets tweak the inflation methodology a bit here and there, now Italy can borrow at 2% and Greece at 3%. Nobody can complain about the ECB bazooka when inflation is at 0%!

 

"Whatever it takes!"

[Liberty]

Actually increased volatile and sideways movements re often signs of a very late stage bull market.

 

 

I've heard "insert what is happening recently" is a sign of "late innings/crash soon/recession/new normal with no growth/etc" since about 2011.

 

Maybe it is, maybe it isn't. Someday it'll be right (broken clock and everything), but I think people are extremely bad at predicting that stuff -- not just bad, but much worse than they think they are, and it's this miscalibration that makes it dangerous.

[Spekulatius]

Actually, increasing government debt is not a problem when negative interest rates persist. I believe the QE in the next downturn will include unprecedented purchases of corporate debt and probably equity purchases as well. It’s the only thing left to do when the risk free interest rate approaches zero. That’s  already the case in Japan where their treasury buys selected equites like Reits. In a way, is a smart thing to do, when the cost of capital approaches zero or becomes negative. Strange new world.

 

[WayWardCloud]

That or helicopter money / universal income if the next president is one of the further left people running.

 

I like the idea better actually. If the government really HAS to print money and throw it around, then it might as well be bottom up rather than hoping for it to somehow trickle down. I think it's superior because that way the money is mostly being reinvested in the "real" economy immediately rather than hoarded at the top. Give $1000 to working class people they'll go to the store and buy stuff. Give $1000 to upper class people they'll add it to their stash of financial assets and real estate. Rich dad, poor dad, all that.

 

But good luck to whoever tries to implement those policies in the US  ;D

 

Oh, and I agree that a government borrowing at super low cost to invest in anything that can easily return more than the cost of debt, such as real estate, makes sense on paper. Austerity politics make no sense in our extremely low rate environment (I'm looking at you, Angela). That said I really don't want my government to be ubiquitous owning real estate, shares of companies and whatnot. It's too much power under the same hands and it's just asking for conflicts of interest and corruption. Just look at China.

[Castanza]

That or helicopter money / universal income if the next president is one of the further left people running.

 

I like the idea better actually. If the government really HAS to print money and throw it around, then it might as well be bottom up rather than hoping for it to somehow trickle down. I think it's superior because that way the money is mostly being reinvested in the "real" economy immediately rather than hoarded at the top. Give $1000 to working class people they'll go to the store and buy stuff. Give $1000 to upper class people they'll add it to their stash of financial assets and real estate. Rich dad, poor dad, all that.

 

But good luck to whoever tries to implement those policies in the US  ;D

 

Oh, and I agree that a government borrowing at super low cost to invest in anything that can easily return more than the cost of debt, such as real estate, makes sense on paper. Austerity politics make no sense in our extremely low rate environment (I'm looking at you, Angela). That said I really don't want my government to be ubiquitous owning real estate, shares of companies and whatnot. It's too much power under the same hands and it's just asking for conflicts of interest and corruption. Just look at China.

 

You can't artificially create demand by printing money and giving it to poor people. Policy built on hopeful premises is dangerous.

[Jurgis]

But it's perfectly fine to print money and give it to rich people.

[Castanza]

But it's perfectly fine to print money and give it to rich people.

Never said it was....simply pointing out a fact.