4 ms·

When the price of an asset doesn't match its underling worth, not strictly true since prices are high but earning are also high, PE ratio looks average in the U

When the price of an asset doesn't match its underling worth, not strictly true since prices are high but earning are also high, PE ratio looks average in the US. I assume OP is alluding to low interest rates, lots of money being injected in to the system and a select few companies being priced silly high.

jariel 7y ago
"When the price of an asset doesn't match its underling worth" There's no such thing as 'underlying worth' :) A bubble is when prices are high relative to historical or comparative measures of worth, and any degree of volatility can snap such valuations back to historical norms. The thing is - prices can be way out of historical norm ... but it may not be a 'bubble', in the sense that it may take a lot to 'prick' the bubble or change things so that there's a crash. Housing in 2008 crashed due to a bunch of things gone wrong. If any one of those things held up ... there may not have been a crash even with high valuations, even with a fair bit of shenanigans going on. As far as I am concerned, interest rates are being held 'historically low' by the Fed. In any other recovery, the'd have gone up by now. The FT reported however that the Fed is engaging in a new tactic: they are looking not just at unemployment, but those who have stopped seeking work as well. Though unemployment is low, there's still people being sucked into the labour market and they're trying to see how far that can go. So they are less worried about inflation than they are 'true unemployment' apparently.
- badpun 7y ago
  > There's no such thing as 'underlying worth' :) The primary function of an asset is to generate income - through dividends, rent, bond interest etc. This income determines asset's underlying worth.
  - JamesBarney 7y ago
    It seems like you're getting at discounted future cash flow. But this has an easy explanation for why assets are more expensive. Interest rates are incredibly low which discounts future cash less.
  - jariel 7y ago
    Funny because Apple hardly ever pays dividends. So what is APPL worth? Even if they did, what is a single share that produces $1 a month 'worth'? It depends on your cost of capital. In both cases, they are 'worth' what someone will pay for them :)
    - xsmasher 7y ago
      AAPL has been paying dividends four times a year since 2012.

jariel 7y ago

"When the price of an asset doesn't match its underling worth" There's no such thing as 'underlying worth' :) A bubble is when prices are high relative to historical or comparative measures of worth, and any degree of volatility can snap such valuations back to historical norms. The thing is - prices can be way out of historical norm ... but it may not be a 'bubble', in the sense that it may take a lot to 'prick' the bubble or change things so that there's a crash. Housing in 2008 crashed due to a bunch of things gone wrong. If any one of those things held up ... there may not have been a crash even with high valuations, even with a fair bit of shenanigans going on. As far as I am concerned, interest rates are being held 'historically low' by the Fed. In any other recovery, the'd have gone up by now. The FT reported however that the Fed is engaging in a new tactic: they are looking not just at unemployment, but those who have stopped seeking work as well. Though unemployment is low, there's still people being sucked into the labour market and they're trying to see how far that can go. So they are less worried about inflation than they are 'true unemployment' apparently.

badpun 7y ago
> There's no such thing as 'underlying worth' :) The primary function of an asset is to generate income - through dividends, rent, bond interest etc. This income determines asset's underlying worth.
- JamesBarney 7y ago
  It seems like you're getting at discounted future cash flow. But this has an easy explanation for why assets are more expensive. Interest rates are incredibly low which discounts future cash less.
- jariel 7y ago
  Funny because Apple hardly ever pays dividends. So what is APPL worth? Even if they did, what is a single share that produces $1 a month 'worth'? It depends on your cost of capital. In both cases, they are 'worth' what someone will pay for them :)
  - xsmasher 7y ago
    AAPL has been paying dividends four times a year since 2012.