The Stock Market Bubble

[Toro]

It's not a bubble. It might be on it's way to one but it isn't one yet.

1999 was a bubble.

So no similarities you recognize between 1999 and today? That's rather bizarre.

A bubble in stocks isn't when stocks go up because you don't understand why, or because of money printing, or because stocks are expensive. A bubble in stocks is when stocks make zero sense from a valuation standpoint and there is a mania. Neither exists today. The price/earnings ratio on the S&P 500 is currently about 16x, which is roughly the long-term average. During the bubble, it was as high as 30x, for large-cap growth stocks it was over 40x, and for the Nasdaq around 100x. That's a bubble.

 

[B. Kidd]

It's not a bubble. It might be on it's way to one but it isn't one yet.

1999 was a bubble.

So no similarities you recognize between 1999 and today? That's rather bizarre.

A bubble in stocks isn't when stocks go up because you don't understand why, or because of money printing, or because stocks are expensive. A bubble in stocks is when stocks make zero sense from a valuation standpoint and there is a mania. Neither exists today. The price/earnings ratio on the S&P 500 is currently about 16x, which is roughly the long-term average. During the bubble, it was as high as 30x, for large-cap growth stocks it was over 40x, and for the Nasdaq around 100x. That's a bubble.

Amazon-T should thank you for edukatin' him.........

 

[Dugdale_Jukes]

Companies are making money hand over fist and have large amounts of cash available for expansion. While I can understand a certain amount of apprehension, I think it is misplaced. I see the stock market and economy taking off big time very soon. By 2016, things will be picking up, and by 2020 we will be in a huge economic boom period, and none of it has to do with politics. It won't matter what happens politically in 2016.

No.
Companies are not making money hands over fist - only large corporations are.
Small businesses are severely suffering - most just getting by.
If there was "hand over fist" money to be made out there - then you wouldn't see the empty storefronts everywhere you go.

I drove by the local Mr. Freeze last night. At 9:00 PM there were over 100 people standing in line for ice cream. Everyone I'm talking to is telling me their businesses are starting to pick up. It's slow and it doesn't include every single business, but we are on the cusp of something pretty big.

The folks holding my contract (Fortune 100 megalith) plan for the US economy to be as close as it is going to get to "normal" [specifically, the new normal] no sooner than 2017 and possibly as late as 2020.

There is no question in my mind we'll see at least one and maybe two more "corrections" before 2017.

 

[AmazonTania]

A bubble in stocks isn't when stocks go up because you don't understand why, or because of money printing, or because stocks are expensive. A bubble in stocks is when stocks make zero sense from a valuation standpoint and there is a mania. Neither exists today. The price/earnings ratio on the S&P 500 is currently about 16x, which is roughly the long-term average. During the bubble, it was as high as 30x, for large-cap growth stocks it was over 40x, and for the Nasdaq around 100x. That's a bubble.

I never said that there was a bubble in stocks. I only asked if you recognize any similarities between 1999 and today. I'm pretty sure you know that Stocks weren't the only securities experiencing a bubble, or don't you?

I don't suppose you are aware that those are not the only indicator of bubble. Although valuations are far from bubble territory, US earnings and book value are both flattered beyond belief. Either way, all you have just told me that the bubble is not in equities.

Amazon-T should thank you for edukatin' him.........

Never let the name Tania escape the fact that you can't diffientiate between a man and woman.

Also, a random on an internet forum educating a Stock Broker on stock bubbles. Yeah, I guess I can see that happening, you either of you have a hellava job ahead of you if you think you are 'educating' me...

 

[B. Kidd]

A bubble in stocks isn't when stocks go up because you don't understand why, or because of money printing, or because stocks are expensive. A bubble in stocks is when stocks make zero sense from a valuation standpoint and there is a mania. Neither exists today. The price/earnings ratio on the S&P 500 is currently about 16x, which is roughly the long-term average. During the bubble, it was as high as 30x, for large-cap growth stocks it was over 40x, and for the Nasdaq around 100x. That's a bubble.

I never said that there was a bubble in stocks. I only asked if you recognize any similarities between 1999 and today. I'm pretty sure you know that Stocks weren't the only securities experiencing a bubble, or don't you?

I don't suppose you are aware that those are not the only indicator of bubble. Although valuations are far from bubble territory, US earnings and book value are both flattered beyond belief. Either way, all you have just told me that the bubble is not in equities.

Amazon-T should thank you for edukatin' him.........

Never let the name Tania escape the fact that you can't diffientiate between a man and woman.

Also, a random on an internet forum educating a Stock Broker on stock bubbles. Yeah, I guess I can see that happening, you either of you have a hellava job ahead of you if you think you are 'educating' me...

Okay.....a female self-professed financial expert....check.
I'm impressed......

 

[AmazonTania]

Okay.....a female self-professed financial expert....check.
I'm impressed......

Anyone who is a stock broker is a financial expert? Interesting. That must explain why hedge funds hasn't done any better than flipping a coin for the last 30 years.

All I am saying is people should address what I am saying, not what people would like me to say.

 

[Dugdale_Jukes]

Hyperstock values are 20% INTO bubble territory on average with businesses like Apple and Google being at the 20% bogusness level while Exxon is probably as close to real world value as any stock and the majority of stocks suspect because accounting is whatever anyone wants it to be. The big falls next time are going to be tech-based stocks that are watered to the point of absurdity now.

No question about it.

 

[Toro]

A bubble in stocks isn't when stocks go up because you don't understand why, or because of money printing, or because stocks are expensive. A bubble in stocks is when stocks make zero sense from a valuation standpoint and there is a mania. Neither exists today. The price/earnings ratio on the S&P 500 is currently about 16x, which is roughly the long-term average. During the bubble, it was as high as 30x, for large-cap growth stocks it was over 40x, and for the Nasdaq around 100x. That's a bubble.

I never said that there was a bubble in stocks. I only asked if you recognize any similarities between 1999 and today. I'm pretty sure you know that Stocks weren't the only securities experiencing a bubble, or don't you?

I don't suppose you are aware that those are not the only indicator of bubble. Although valuations are far from bubble territory, US earnings and book value are both flattered beyond belief. Either way, all you have just told me that the bubble is not in equities.

Amazon-T should thank you for edukatin' him.........

Never let the name Tania escape the fact that you can't diffientiate between a man and woman.

Also, a random on an internet forum educating a Stock Broker on stock bubbles. Yeah, I guess I can see that happening, you either of you have a hellava job ahead of you if you think you are 'educating' me...

I'm not a stock broker. I was one for a short period of time. I'm an institutional money manager and I've been managing large amounts of money for nearly 20 years.

In the late 1990s, stocks were in a bubble. No other asset class that I can remember was also in a bubble. The similarities between today and 1998/99 is that the Fed cut interest rates to save Long-Term Capital Management before raising them in 1999, whereas today, we have 0% interest rates, and aren't raising rates anytime soon. Also, the Fed is highly cognizant of asset prices and may be creating serial bubbles. Otherwise, there are few similarities. If there is a bubble today, it's in fixed income. But there is not one in stocks.

 

[Toro]

Oh, and valuation is the only indicator of a bubble because, by definition, a bubble is when prices become totally disconnected from reality. As for other indicators like price to book value, stocks are about where they've been for the past 30 or so years.

 

[william the wie]

Oh, and valuation is the only indicator of a bubble because, by definition, a bubble is when prices become totally disconnected from reality. As for other indicators like price to book value, stocks are about where they've been for the past 30 or so years.

Sounds intelligent and reasonable to me but there is a big problem in other numbers

Market Cap vs. GDP has been in bubble territory since 1996 so there is a major league bubble out there. Instead of the longrun average of about 0.8 GDP for market cap at tops over the past century the current ratio is 1.64 GDP. I don't know where to find it online but "Riding The Bear" by Sy Harding has the relevant data in tabular form if you want to check. Other than importation of rebuilt capital equipment due to the US lacking a VAT I am unaware of other major understatements of US GDP.

So, either there is a cumulative 50+% understatement of GDP due to investment that is not counted in GDP and while that is remotely possible I kind of doubt that nobody would have run the numbers and come out with a 46+T figure for actual GDP and I wouldn't have heard about it. What is your explanation of this disconnect between market cap and GDP? I would expect a hidden 2+% GDP growth over the past 50 years to be fairly damned obvious to somebody and that such a discovery would make the news in a big way, so did I miss something or what?

 

[Toro]

Oh, and valuation is the only indicator of a bubble because, by definition, a bubble is when prices become totally disconnected from reality. As for other indicators like price to book value, stocks are about where they've been for the past 30 or so years.

Sounds intelligent and reasonable to me but there is a big problem in other numbers

Market Cap vs. GDP has been in bubble territory since 1996 so there is a major league bubble out there. Instead of the longrun average of about 0.8 GDP for market cap at tops over the past century the current ratio is 1.64 GDP. I don't know where to find it online but "Riding The Bear" by Sy Harding has the relevant data in tabular form if you want to check. Other than importation of rebuilt capital equipment due to the US lacking a VAT I am unaware of other major understatements of US GDP.

So, either there is a cumulative 50+% understatement of GDP due to investment that is not counted in GDP and while that is remotely possible I kind of doubt that nobody would have run the numbers and come out with a 46+T figure for actual GDP and I wouldn't have heard about it. What is your explanation of this disconnect between market cap and GDP? I would expect a hidden 2+% GDP growth over the past 50 years to be fairly damned obvious to somebody and that such a discovery would make the news in a big way, so did I miss something or what?

Or, market cap to GDP doesn't really apply because about 40% of the profits of the S&P 500 companies comes from abroad and there are structural changes within the economy that reflect higher valuations, i.e. more of a knowledge-driven economy now compared to the past.

What is more interesting is the level of profit margins, which are near record highs. Are they sustainable? I don't know the answer to that. The long-term average is about 6%. Today it's around 9%. Again, part of that is due to structural changes, but part is also due to very low interest rates, which will eventually drift higher. Profits as a percentage of the economy are at all-time highs. Can they stay like that forever? History would say, no. In fact, so would capitalism, given the lack of investment that should push down higher ROEs.

 

[william the wie]

Oh, and valuation is the only indicator of a bubble because, by definition, a bubble is when prices become totally disconnected from reality. As for other indicators like price to book value, stocks are about where they've been for the past 30 or so years.

Sounds intelligent and reasonable to me but there is a big problem in other numbers

Market Cap vs. GDP has been in bubble territory since 1996 so there is a major league bubble out there. Instead of the longrun average of about 0.8 GDP for market cap at tops over the past century the current ratio is 1.64 GDP. I don't know where to find it online but "Riding The Bear" by Sy Harding has the relevant data in tabular form if you want to check. Other than importation of rebuilt capital equipment due to the US lacking a VAT I am unaware of other major understatements of US GDP.

So, either there is a cumulative 50+% understatement of GDP due to investment that is not counted in GDP and while that is remotely possible I kind of doubt that nobody would have run the numbers and come out with a 46+T figure for actual GDP and I wouldn't have heard about it. What is your explanation of this disconnect between market cap and GDP? I would expect a hidden 2+% GDP growth over the past 50 years to be fairly damned obvious to somebody and that such a discovery would make the news in a big way, so did I miss something or what?

Or, market cap to GDP doesn't really apply because about 40% of the profits of the S&P 500 companies comes from abroad and there are structural changes within the economy that reflect higher valuations, i.e. more of a knowledge-driven economy now compared to the past.

What is more interesting is the level of profit margins, which are near record highs. Are they sustainable? I don't know the answer to that. The long-term average is about 6%. Today it's around 9%. Again, part of that is due to structural changes, but part is also due to very low interest rates, which will eventually drift higher. Profits as a percentage of the economy are at all-time highs. Can they stay like that forever? History would say, no. In fact, so would capitalism, given the lack of investment that should push down higher ROEs.

OK, we're at least in radio contact on areas of fragility so I'm not major league off base. But unlike my friends on this thread I see way too much concentration on US data and way too little on foreign data. It feels like 1997-8 from where I sit.

Brazil and Africa seem to be going hyperbolic on energy production. The Far East is hitting speed bumps and the Ukraine is hoping to get rich off its shale oil and gas. There has got to be a downside $30-/bbl oil.

 

[B. Kidd]

I just cashed out the other day. Sell high, buy low my mantra. Needed a hefty down payment for a house I'm buying. It actually felt good. Market may go a lil' higher, but if it hits 15,500 or higher, I'll eat fatso Kim Kardishians' panties (not really).

Stock market still has not closed at 15,500 or higher, so far. Has come close tho'. Fortunately, there was a strong global selloff today.
No way I wanna eat Kim Kardishians' panties......whew! (as B. Kidd wipes his brow).

 

[Staidhup]

For there to be a bubble you first have to see PE ratio's reach the sky, second you need to see sales start to flatten for an extended time. Most important as long as CD and Bond rates remain mediocre at best the need to beat or meet inflation requires investment in the stock market. The flight from precious metals, and the Euro to stocks continues to push valuations up further. If its a bubble your worried about then think US Dollar and US debt securities.

 

[FireFly]

Japan just printed triple the money as we did here in the USA on a percentage basis. Now their stock market just tanked 7%. They must be rushing to buy Gold because it has made a u-turn.

Lower yen will lower Japan export prices. The US profit margins will take a hit as cheap Japanese goods flood the markets. That will lower US stock earnings per share & stock prices.

 

[iamwhatiseem]

Talk all you want - label it as you please...the fact remains the market is drunk on low interest rates, money printing and $85,000,000,000 massive bond buying and toxic asset buying via the FED.
A few weeks ago the market fell 200 points on a whispered rumor that the FED might...might...stop the flow of cash (that wasn't true)...it fell 200 points simply on a rumor.
Today it has fallen another 200 because, once again, the f*cking reality is setting in finally that "oh wait...the economy is not that good without the freebie tax payer props"...Jesus Christ.

 

[B. Kidd]

I just cashed out the other day. Sell high, buy low my mantra. Needed a hefty down payment for a house I'm buying. It actually felt good. Market may go a lil' higher, but if it hits 15,500 or higher, I'll eat fatso Kim Kardishians' panties (not really).

Stock market still has not closed at 15,500 or higher, so far. Has come close tho'. Fortunately, there was a strong global selloff today.
No way I wanna eat Kim Kardishians' panties......whew! (as B. Kidd wipes his brow).

Market below 15K today. (200+ pt. selloff)
I took my money an' ran.
My mouth is safe!!!
K. Kardishians' panties are someone else's problem.........................

 

[Rozman]

I just cashed out the other day. Sell high, buy low my mantra. Needed a hefty down payment for a house I'm buying. It actually felt good. Market may go a lil' higher, but if it hits 15,500 or higher, I'll eat fatso Kim Kardishians' panties (not really).

I'll eat fatso Kim Kardishians' panties (not really).

Good call for backing off that...
Look what happened to Michael Douglas....
And he's married to Catherine Zeta Jones and look at how that worked out.

 

[Rozman]

And why in the world did you have to come up with a huge down payment for a house.
You can't do a Fannie or Freddie deal with no down payment,buy a house you can't afford,walk away
with Obama's blessing then blame it all on the Republicans.

Or maybe you just don't work that way....
Good for you.

 

[ELITEofWarman8]

And why in the world did you have to come up with a huge down payment for a house.
You can't do a Fannie or Freddie deal with no down payment,buy a house you can't afford,walk away
with Obama's blessing then blame it all on the Republicans.

Or maybe you just don't work that way....
Good for you.

Good one!