Thursday, April 14, 2016

Stock Market Valuations Are Expensive
Michael Lebowit emphasizes how U.S. stock market valuations are insane & disconnected from earnings forecasts & slowing global economic growth .. "The current P/E is 55% above the historical mean and surpasses 92% of all P/E data. Only multiples from the 2000 and 2008 bubble periods were higher than today .. China’s exponential growth over the last 20+ years propelled global economic growth and, without a doubt, helped increase U.S. corporate profits. In 2013, reported economic growth in China averaged 7.7%. Since then it has trended lower and currently stands at 6.8%. Most economic forecasters expect this slowing trend to continue as China has largely exhausted many of the factors that created the prior year’s economic gains. As China’s growth slows, U.S. corporate profits are likely to suffer .. We laid out a few key factors showing that the outlook in 2013 was, in many respects, more favorable for corporate earnings than it is today. The question investors should therefore contemplate is why pay such a high premium today for something that in all likelihood is not nearly as valuable as it was in 2013? As we have emphasized on a few occasions, risk is not a number, it is simply paying too much for an asset. The greater fool theory is a belief that market prices are not always based on fundamentals. At times, buyers are self-justified, believing they will find another party (fool) willing to pay an even higher price. Our two cents – do not be the greater fool."
LINK HERE to the analysis

2 comments:

epic research said...

Well basically Hedge funds use long-short strategies, which invest in some balance of long positions and in short sometimes.

Anonymous said...

If you discount an income stream (particularly if it is growing) to infinity with an assumed negative rate of investment return (i.e. negative interest rate) you get an infinite present value.

Sorry but the stock market is looking cheap in what has turned into our cloud cuckoo world .... with warm fuzzy cloud cuckoo prime ministers and chancellors.