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> The trailing (!) S&P P/E is greater than 20 right now. The Fed is supporting prices above their historical mean/median of 15. It makes zero sense, from a fina
by usaar333 7y ago
> The trailing (!) S&P P/E is greater than 20 right now. The Fed is supporting prices above their historical mean/median of 15. It makes zero sense, from a financial standpoint, unless the market is pricing in substantial inflation.
No, it's just pricing in low returns across all asset classes (to simplify, low interest rates) - assets are priced by excess returns not absolute.
There's nothing unreasonable about a P/E over historical norms if you think interest rates will continue to stay well below historical norms.
- ISL 7y agoA fair point. It is paradoxical that a sputtering economy can make equities worth more cheeseburgers, rather than fewer, but I see the logic. At some point, given the choice between a low-yielding equity and a cheeseburger, I'd rather have the cheeseburger.
- usaar333 7y agoExactly. The thing people may also forget who have a long time horizon is that this is actually a bad thing. Returns are likely historically low going forward which is bad for your future retirement.
- ISL 7y agoThanks -- this is precisely why I post to HN. Other thoughtful perspectives are really valuable.
- icelancer 7y ago>> Returns are likely historically low going forward which is bad for your future retirement. For sure. People are not factoring in the long-term interest rate here - they should look at the risk-free T-bill rates in the 1980s and how equities performed against them, and what we're looking at as well.