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The Stock Market Has Never Been More Overvalued

53 points by jkuria 6y ago

shiftpgdn 6y ago
Yet the question everyone asks: Where do I store my money? I know many many e-commerce and manufacturing executives who took PPL aid and are now absolutely flush with cash. Where is a safe place for the top 5% to park their cash? That's to say nothing for government purchasing of corporate stocks and bonds.
- lilbaine 6y ago
  I thought about this since March and my stock investments some what proved me correct. Any company that provides a strong “good” or service during this period with both a strong balance sheet and low debt will make it through and is a good investment. Also real or physical assets such as real estate in proper areas are good investments, real estate in specific regions are going through the roof! This is also due to low interest rates from the fed as well as low supply of property and high demand in specific areas of the country. The real question is how are commercial real estate investments and banks going to be able to absorb or handle these financial hits when small businesses can’t pay rents or when big corporations have their employees work from home and realize it’s more economical for them to work from home and no longer need office buildings? I guess the Fed will just bail them out as well.
smabie 6y ago
> “Market rules are not written in stone,” said Robert Colby of Robert W. Colby Asset Management, which has $20 million in assets under management. “Sometimes there’s just no logic to market behavior.” No logic?? The fed has been spending like its no tomorrow and rates are effectively at zero. Investors have correctly realized there's a large backstop to how much the market can fall. If we see another crash, I wouldn't even be surprised if the Fed starts buying stock. Until the pandemic has passed, rates will stay at zero and the fed will keep buying back bonds. This might increase real inflation (I kind of doubt it, inflation seems to stay low no matter what the Fed does), but it definitely has/will lead to asset inflation. Even so, I think investors are still worried about short-term crashes that could easily evaporate 10-20% of the recent gains. This is why everyone has been piling into tech stocks, as they represent a "safe" sector in which the downside risk is limited by strong revenue and a great strategic position during the pandemic.
- lilbaine 6y ago
  Good argument and well stated! Also inflation hasn’t kicked in since real wages are also stagnant compared to their real values (not nominal values) since probably the early 1990’s. I have been waiting for commodity inflation since 2011 and this period has been more deflationary from my observations. Take the price of oil as an example. Since 2008 to now. The prices of gold and platinum have been relatively low until the pandemic. Also look at prices of wheat and other commodities. They deflated in 2007-2014 and struggled to pick up. Commodity pricing is also affected by varying political, social and technological environments. And from my own personal observance of the economy we are in a more biflationary period. This would be evident by the stagnant pricing of oil and the high prices of certain real estate, property and stocks. This is also evident with the knocking off of Exxon from the Dow Jones stock exchange.
- acwan93 6y ago
  Isn’t the reason why inflation hasn’t increased despite the Fed’s spending due to the low Velocity of M2 Money? The Fed’s data indicates that since the 2008 recession, the exchange of money from one party to another has decreased, only to tank in 2020 [1]. Despite the money supply being increased like no tomorrow, if it’s not getting spent and is just sitting in savings accounts the economy wouldn’t get stimulated. This would imply current wage stagnation and the cost of goods not increasing aside from real estate and college tuition. I would think that maybe the S&P 500 has probably also turned into a savings account for some since the ROÍ on any other investment is lousy. [1]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
  - thatfrenchguy 6y ago
    It’s also pretty obvious when you walk and drive around the United States that there hasn’t been any sort of substantial investment over the past 10-20 years in infrastructure, housing and manufacturing. A lot of the assets being expensive in the US is expensive because TINA.
    - seibelj 6y ago
      An alternative explanation is the US doesn’t invest in shiny new objects if the rusty old one still functions. There are many bullet trains in Spain and ghost cities in China that look nice and make great conversation, but are not actually economically viable.
robjan 6y ago
Correct title is "The Median S&P Stock Has Never Been More Expensive" (aka the SP500 is at an all time high). The article doesn't make the claim that the market is more overvalued than ever, it just says it's been overvalued for the past ten years.
kvn_95 6y ago
I see that the article is behind a paywall.
pmiller2 6y ago
Paywall workaround: https://archive.is/F9sFo https://archive.is/F9sFo
m3kw9 6y ago
I would say is asset inflation than overvalued. Just remember some the Trillions of dollar stimulus needs to go somewhere.
deleted 6y ago
[deleted]
alpineidyll3 6y ago
The comments attributing this to zirp are spot on. This is also the effect of the popularity of passive index investing. The average person has been told they should buy index funds, so the perceived safety and growth of tech monopolies trickles down and overvalues anything on the s&p. It's also worth realizing that finance is very global. If the whole world of reasonable investments were not also in countries with zero rates, there would be a huge painful exodus from the US market now. The fed is very wary of this and it's what has kept the rates nominally above zero. Some smart volker-like creature will raise rates somewhere. That place will become a great place to live and invest. It just hasn't emerged.

53 points by jkuria 6y ago

Yet the question everyone asks: Where do I store my money? I know many many e-commerce and manufacturing executives who took PPL aid and are now absolutely flush with cash. Where is a safe place for the top 5% to park their cash? That's to say nothing for government purchasing of corporate stocks and bonds.

lilbaine 6y ago
I thought about this since March and my stock investments some what proved me correct. Any company that provides a strong “good” or service during this period with both a strong balance sheet and low debt will make it through and is a good investment. Also real or physical assets such as real estate in proper areas are good investments, real estate in specific regions are going through the roof! This is also due to low interest rates from the fed as well as low supply of property and high demand in specific areas of the country. The real question is how are commercial real estate investments and banks going to be able to absorb or handle these financial hits when small businesses can’t pay rents or when big corporations have their employees work from home and realize it’s more economical for them to work from home and no longer need office buildings? I guess the Fed will just bail them out as well.

smabie 6y ago

> “Market rules are not written in stone,” said Robert Colby of Robert W. Colby Asset Management, which has $20 million in assets under management. “Sometimes there’s just no logic to market behavior.” No logic?? The fed has been spending like its no tomorrow and rates are effectively at zero. Investors have correctly realized there's a large backstop to how much the market can fall. If we see another crash, I wouldn't even be surprised if the Fed starts buying stock. Until the pandemic has passed, rates will stay at zero and the fed will keep buying back bonds. This might increase real inflation (I kind of doubt it, inflation seems to stay low no matter what the Fed does), but it definitely has/will lead to asset inflation. Even so, I think investors are still worried about short-term crashes that could easily evaporate 10-20% of the recent gains. This is why everyone has been piling into tech stocks, as they represent a "safe" sector in which the downside risk is limited by strong revenue and a great strategic position during the pandemic.

lilbaine 6y ago
Good argument and well stated! Also inflation hasn’t kicked in since real wages are also stagnant compared to their real values (not nominal values) since probably the early 1990’s. I have been waiting for commodity inflation since 2011 and this period has been more deflationary from my observations. Take the price of oil as an example. Since 2008 to now. The prices of gold and platinum have been relatively low until the pandemic. Also look at prices of wheat and other commodities. They deflated in 2007-2014 and struggled to pick up. Commodity pricing is also affected by varying political, social and technological environments. And from my own personal observance of the economy we are in a more biflationary period. This would be evident by the stagnant pricing of oil and the high prices of certain real estate, property and stocks. This is also evident with the knocking off of Exxon from the Dow Jones stock exchange.
acwan93 6y ago
Isn’t the reason why inflation hasn’t increased despite the Fed’s spending due to the low Velocity of M2 Money? The Fed’s data indicates that since the 2008 recession, the exchange of money from one party to another has decreased, only to tank in 2020 [1]. Despite the money supply being increased like no tomorrow, if it’s not getting spent and is just sitting in savings accounts the economy wouldn’t get stimulated. This would imply current wage stagnation and the cost of goods not increasing aside from real estate and college tuition. I would think that maybe the S&P 500 has probably also turned into a savings account for some since the ROÍ on any other investment is lousy. [1]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- thatfrenchguy 6y ago
  It’s also pretty obvious when you walk and drive around the United States that there hasn’t been any sort of substantial investment over the past 10-20 years in infrastructure, housing and manufacturing. A lot of the assets being expensive in the US is expensive because TINA.
  - seibelj 6y ago
    An alternative explanation is the US doesn’t invest in shiny new objects if the rusty old one still functions. There are many bullet trains in Spain and ghost cities in China that look nice and make great conversation, but are not actually economically viable.

robjan 6y ago

Correct title is "The Median S&P Stock Has Never Been More Expensive" (aka the SP500 is at an all time high). The article doesn't make the claim that the market is more overvalued than ever, it just says it's been overvalued for the past ten years.

kvn_95 6y ago

I see that the article is behind a paywall.

pmiller2 6y ago

Paywall workaround: https://archive.is/F9sFo https://archive.is/F9sFo

m3kw9 6y ago

I would say is asset inflation than overvalued. Just remember some the Trillions of dollar stimulus needs to go somewhere.

deleted 6y ago

[deleted]

alpineidyll3 6y ago

The comments attributing this to zirp are spot on. This is also the effect of the popularity of passive index investing. The average person has been told they should buy index funds, so the perceived safety and growth of tech monopolies trickles down and overvalues anything on the s&p. It's also worth realizing that finance is very global. If the whole world of reasonable investments were not also in countries with zero rates, there would be a huge painful exodus from the US market now. The fed is very wary of this and it's what has kept the rates nominally above zero. Some smart volker-like creature will raise rates somewhere. That place will become a great place to live and invest. It just hasn't emerged.