Are You Overpaying for Stocks?

Mish

Think about earnings, earnings revisions, and how much you are paying to buy stocks.

Lance Roberts, Chief Strategist at RIA Advisors has the "Tweet of the Day" 

Too Fast, Too Furious

Buy the Unknown the Unwanted, the Unloved

Small Cap Valuations Through the Roof

Agree with Bianco on that.

Marijuana Legalization Coming?

My answer: Yes, if Biden wins, and perhaps anyway.

China-US Trade Souring

Reflections on Liquidity

Pent-Up Spending Coming

For how long no one knows, and that is what matters. 

I suspect something like a W- or square-root-shaped recovery with weak uptrends following that deep second-quarter decline.

Grim Economic Data

  1. May 8: Over 20 Million Jobs Lost As Unemployment Rises Most In History
  2. May 15: Retail Sales Plunge Way More Than Expected
  3. May 15: Industrial Production Declines Most in 101 Years
  4. May 30: GDPNow Forecast is Negative 51.2 Percent
  5. June 3: Bad Economic Reports? Yes, But They Were Supposed to Be Bad

Ripple Impacts

For a detailed synopsis of the state of the economy and the ripple impacts, please see The Economy Will Not Soon Return to Normal: Here's Why.

Global COVID-19 Risk Ranges Up to $82 Trillion

To understand the total global risk, please see Global COVID-19 Risk Ranges Up to $82 Trillion

GDP Projections Before and After Covid-19

GDP Projections Before and After Covid-19 Mish

I added that red line and expect a shape something like that. 

Why?

In addition to depleted savings and an expected huge change in attitudes on risk, presidents prefer to have a recession or weakness in the first two years of their term, not their 4th year.

The US is in recession now. After a weak rebound, it is not at all far-fetched to believe there could be another shorter double-dip coming.

Regardless, I believe the CBO projections in the above chart are optimistic for the reasons stated. 

For discussion, please see CBO Estimates it will Take 10 Years Just to Get Back to Even.

Mish

Comments (36)
No. 1-15
njbr
njbr

I'll save everyone the trouble--the fed will keep the values up.

There, I've saved a lot of electrons.

Good luck when the permanent change in trajectory is apparent.

There was a real break in long-term trend, the slope of growth really lessened.

Wait until you see this one.

But, but, but the fed....

Sechel
Sechel

Doesn't matter who is President. I like the dividend discount model but even using an earnings model using CAPE adjusted earnings we're simply paying too much for the next 40 years worth of earnings or dividends. Felt that way for a long time.

njbr
njbr

2010 was a mere kitten sneeze. There already were a lot of major changes in the pipeline before CV.

Spyguy
Spyguy

Mish, I think you should relax. You live in Illinois. With the COVID tax repercussions you won’t have any money to invest. If Biden wins everyone will be in the 50% bracket. You will beg for another shooting so you can get shoes for your family.

numike
numike

This Treasury Official Is Running the Bailout. It’s Been Great for His Family.
Deputy Treasury Secretary Justin Muzinich has an increasingly prominent role. He still has ties to his family’s investment firm, which is a major beneficiary of the Treasury’s bailout actions. https://www.propublica.org/article/this-treasury-official-is-running-the-bailout-its-been-great-for-his-family

anoop
anoop

What if we are headed to a PE of 100 and that becomes the new normal? Money is cheap. If the price/annual income can go up for housing, surely stocks deserve a bump in PE. There is NOT going to be a reversion to the old mean. Ever.

It make no sense analyzing markets by fundamentals anymore. What makes sense is how to position ones resources in the various asset classes to take advantage of what the fed is offering.

THX1138
THX1138

Time after time I click the link only to be greeted by embeds of twitter feeds... why bother? Is Mish going to write anything anymore, or just republish twitter?

Sechel
Sechel

Reminds me of how I started investing when I came out of college. I had a few metrics. I usually ran value line analytics. Not sure if the software is around today. Now I use Bloomberg.

I had a few metrics. One was companies that weren't over-leveraged that I had a high confidence in in their earning s predictability and were trading at a dividend to growth rate of less than 1.0 I used to find many such companies often at p.e. ratios of 10-12(another metric avoiding high p.e. rates). Later that expanded to companies that had huge returns on equity and paid good dividends. Wound up selecting companies such as Sherwin Williams and UST. Last few years such searches come up empty.

bradw2k
bradw2k

The Fed has disconnected assets prices from assets (by destroying yields). The result is NOT that prices will stay high forever, the result is a casino. Literally, "investors" are just trying to out-maneuver each other, day in day out, caring less and less about the underlying properties or their profitability (don't laugh). ... I expect one of these days there's going to be some genuinely good news (maybe Trump losing?) and then everyone will try to get out of equities at the same time, and smart people will say "well of course the Fed couldn't keep stock prices up!"

TumblingDice
TumblingDice

"Are you overpaying for stocks?"

Answer: No.

I didn't sell when the economic shutdown started. When Congress started spending trillions of dollars and the Fed said they would backstop the economy I saw that inflation would be coming.

I did buy 5 shares of Starbucks at $61, wish I would have done 10.
Starbucks is now at $77.
Other than that I haven't been buying so NO I'm not overpaying.

I'm sure others sold at lows and now are BUYING HIGH.

channelstuffing
channelstuffing

Fed will never let the "market" drop again (ever),Powell made deal with Bezos to make him the first trillionaire for 10% and lifetime free shipping,thats a 100 billion,Trump's cut is less than half that.

Stuki
Stuki

Whether or not anyone is overpaying, depends crucially on how close they are to the Fed and government. Goldman Sachs is not overpaying, since any meaningful downside risk is covered for them. While at the same time, peripheral buyers are most certainly overpaying, since, after all, the substantial cost of putting a floor under Goldman needs to be paid for by someone.

The Fed will no doubt, as they have always done, try to pass as much of that cost as possible onto people who aren’t in a position to buy stocks at all. After all, redistribution from them to stock owners, hence transferring resource control from people who produce and create, to people whose incomes are solely dependent on Fed welfare, is what The Fed exists to do.

But as those transfers have left more and more of the productive classes destitute, The Fed is increasingly facing “Thatcher limits,” meaning they are running out of other people’s money to steal. At which point, they have no choice but to start peeling off the outer layers of the once-were-protected-class onion.

They started that process in earnest in 2008, where the most peripheral of those who were at one point beneficiaries of the redistribution, were peeled off and relegated to the “redistribute from” side. Such that the 5% who used to be beneficiaries, are now down to perhaps 3% or less. All justified by the propaganda apparatus, by changing their status from supposedly positive sounding platitudes like “risk takers”, “job creators”, “investors”, “developers” blah, blah; to supposedly less positive sounding slurs, like “house flippers.”

As the theft and redistribution is leaving more and more once juicy targets with less and less to steal, The Fed will have no choice but to continue such peeling off of outer layers. Such that some of those who used to be members of the N%, will now be thrown under the bus in order to prop up the N-d% which is all The Fed can now scrounge up enough loot to keep afloat by redistribution. It’s how all kleptocracies always end up circling the drain in ever tighter circles, at the end of their lives.

So, while there is no way of determining precisely whether someone is overpaying as of current, what can be said with certainty, is that more people are overpaying now, than were overpaying prior. And more people than that, will be overpaying in the future. It cannot be any other way. Since as more and more of those who The Fed used to be able to rely on robbing to keep the charade going, have been rubbed to destitution; new fresh blood, in the form of some of those who used to be net beneficiaries, will always have to be thrown under the bus and robbed, in order to afford propping up those higher up the “Fed Closeness” ranking than themselves.

Scooot
Scooot

According to an article I’ve just read in Zero Hedge, there’s been a lot of new equity sales hitting the markets. In May the 3 month average tripled to $94 billion. These corporations are therefore very attracted by current prices and PE’s so I guess new stock will continue to hit the markets.

Tony Bennett
Tony Bennett

"The US is in recession now. After a weak rebound, it is not at all far-fetched to believe there could be another shorter double-dip coming."

...

Shorter?

Don't know about that. If anything "shorter", it will be the rebound. Put me down for a long hard slog ... with NIRP.

Jdog1
Jdog1

The liberal protesters and their violent wing Antifa are ensuring that we will have both another Covid-19 outbreak, and another wave of business bankruptcies and unemployment. The liberals are willing to do anything to attack Trump, including ruining the country and the economy. They will be held accountable.