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1999 again?


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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.

 

This post by Paul combined with the last post by Richard brings up a question for Paul:

 

Wikipedia : Euphoria

 

Isen't there an element of multidimensional relativity to the phenomen? -I mean :

 

1. It can be related to several kinds of activity, ref. the Wikipedia article,

2. Some persons engage in it, some don't [, perhaps because the euphoria isn't triggered or an effort is done keep it under control].

 

In casu for Paul, I think that it's likely that 20+ years of investment experience has made Paul less detached to things going in certain areas in the stock market, i.e. - & here, - under the tech bubble in 1999? [Meant as another way of saying : "Paul does not "feel" [perhaps the word "perceive" would be better] the euphoria because he "minds his own business" to a greater extent than earlier with regard to investing, likely based on experience & training."]

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So who are all those optimistic people pushing the sp500 higher and investing in Beyond Meat and stuff??? Where are they hiding?

 

Well there is about 573k hiding in the Wallstreetbets sub on Reddit. And a few million more scattered across the site. Truly entertaining to see their logic and reasoning.

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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

 

Yes, this is probably the most important similarity.  The second most important similarity I think is this huge wave of IPOs, which strongly suggests that insiders and other very well-informed people think this is a great market to sell into.

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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

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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

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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.

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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.

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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.

fredgraph.thumb.png.845ef4d7b52c2146bc40b585a43ffa0f.png

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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.

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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.

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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.

 

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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 ?

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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.

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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.

 

Right, that’s one of several caveats to keep in mind when looking at this metric. 

 

With regard to its implications, the general trend in the US over the last two decades has been that more and more companies have chosen to go/stay private, and so if you combine that with where the market cap to GDP ratio currently stands, it probably means that the total value of US companies (public and private combined) is higher than it’s ever been relative to US GDP. 

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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.

 

Alternatively one could divide by world GDP (instead of US GDP).  In 2017 that ratio was around 37%, close to where it was in 1998.  I don't have more recent numbers but my guess is that it hasn't changed that much.  The 2000 peak was a hair below 45%.  See the attachment for a chart.

Screen_Shot_2019-06-22_at_11_38.27_AM.thumb.png.8acdf4f79ee00e90b53e6e9dcbb29346.png

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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.

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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.

 

 

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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.

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On bonds and inflation, I’m personally seeing a number of inflationary forces building up as we speak:

 

- The recent jobs numbers suggest that we’re now at full employment and that any further uptick in job creation will likely come with wage inflation.

- The Trump tax cuts likely had a temporary deflationary impact in industries where their benefits are being competed away and passed on to consumers.  This effect should diminish in the near future.

- The Fed rate hikes during 2018 seem to have artificially strengthened the USD, and if that starts reversing we should see an increase in import prices. 

- Tariffs are obviously inflationary.

- We’ll see what happens with Iran but any turmoil in that region is most likely a positive for oil prices and thus also inflationary.

- There are quite a few companies (like Uber & Lyft) that look like they really need to start raising prices soon if they are to survive.

 

If we do get material inflation, bonds will likely sell off and the Fed will probably have no choice but to raise rates.  This is something to watch out for, as it is among the worst things that could happen to this market.

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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?

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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.

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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

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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.

 

They basically take a weighted average by spending. 

 

The big picture is that services (esp. things like healthcare and education) have gotten much more expensive while goods (like electronics and such) have gotten cheaper especially on a quality adjusted basis.  The trade issues have the potential to disrupt the latter trend and create an uptick in overall inflation.

 

There are measurement issues for sure but I don’t see any evidence that supports a conspiracy theory...

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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?

 

 

 

 

 

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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.

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