3 ms·

And with a P/E ratio of 95, versus 25 and 59 for Google and Amazon, respectively!

jgalt212 3y ago
agreed, it's very high, but with M2 growing again such outlandish valuations seem sustainable. https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS
- brcmthrowaway 3y ago
  What is the implication of M2?
  - pclmulqdq 3y ago
    It's the amount of money in the economy, and its growth is one measure of inflation. GP may be commenting that the "good times" of super-high valuations are about to come back thanks to inflation. That isn't the financial datum that really matters, though - what matters for P/E ratios is the risk free rate (which establishes the discount rate for the time value of money), which is still very high.
    - jgalt212 3y ago
      > what matters for P/E ratios is the risk free rate Where's the research showing the empirical relationship between P/E ratios and the risk free rate? Also, we are living in a a time of unprecedented monetary aggregate growth (for the US at least). I posit his why the yield curve has been inverted for so long and yet there is no recession in sight. The predictive power of asset prices seemingly no longer exists.
      - pclmulqdq 3y ago
        There's a ton of it: here's one person's regression. You can find the same in academic papers (although economics papers don't exactly deserve that label). https://www.currentmarketvaluation.com/posts/sp500pe-vs-interest-rates.php https://www.currentmarketvaluation.com/posts/sp500pe-vs-inte... It's also just common sense if you understand company valuation.
        jgalt212 3y ago
        It's not 1:1, and only fits over long periods of time. Furthermore, none of those studies encompass the great money printing period of COVID, and post COVID. And most of those studies model the 10Y rate vs stocks. The 10Y rate is not the risk free rate. In 2000 the SP500 PE was 40, and fed funds was 6%. it's low 20s now, and fed funds is 5.25% studies over more recent times have shown this correlation break down. It's probably the reason Ray Dalio retired.
        FredPret 3y ago
        If a 10 yr T bill isn’t risk free, what is? A shorter term US Gov bond? I mean realistically the US will just print the money it needs to pay that interest. It’s not a consequence-free decision for them, but much better than defaulting.
        jgalt212 3y ago
        10Y has duration risk. 1 week T bill have no credit risk or duration risk, hence this is the risk free rate.
        pclmulqdq 3y ago
        That's not true at all. The "risk free rate" is a theoretical concept that represents the rate of return that you can get on capital without taking any risk. No bond alone is the risk free rate. Neither is the reverse repo rate or the rate of a money market. All of these are proxies.
    - FredPret 3y ago
      By risk-free rate, do you mean the yield on US gov bonds?
      - pclmulqdq 3y ago
        "Risk-free rate" is a theoretical concept that represents the rate of return you get without taking any risk. T bill rates, reverse repo rates, and money market savings rates are a practical proxy for it, but it's not any one of these.
- throw0101b 3y ago
  > agreed, it's very high, but with M2 growing again such outlandish valuations seem sustainable. You know whose M2 has also been rising for decades? Japan's. And yet for most of that time the Nikkei has been flat (even negative): * https://fred.stlouisfed.org/graph/?g=17sx4 https://fred.stlouisfed.org/graph/?g=17sx4 China's M2 has also been going up steadily: * https://fred.stlouisfed.org/series/MYAGM2CNM189N https://fred.stlouisfed.org/series/MYAGM2CNM189N What has the Shanghai Stock Exchange (index) been doing lately? The UK's M2 has been going up continuously: * https://fred.stlouisfed.org/series/MSM2UKQ https://fred.stlouisfed.org/series/MSM2UKQ How's the FTSE 100? > https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS Now let's overlay the S&P 500: * https://fred.stlouisfed.org/graph/?g=1gvKR https://fred.stlouisfed.org/graph/?g=1gvKR A giant spike in M2 in 2020, and yet at the same time the S&P 500 dropped. M2 has been on a downward trend since April 2022, and the S&P 500 bottomed in ~October 2022, but has been rising since then—while at the same time M2 has been dropping.
  - jgalt212 3y ago
    you're missing the investor preferences bit. You could print $7T or whatever crazy amount Sam Altman wants, and if everyone puts that money under their mattress instead of stocks or spending, there will be no observable effect on the real or financial economy. In short, the transmission mechanism of money creation to real effects is laggy and and somewhat unpredictable. e.g. why NVDA and not gold?
    - throw0101b 3y ago
      > you're missing the investor preferences bit. You could print $7T or whatever crazy amount Sam Altman wants, and if everyone puts that money under their mattress instead of stocks or spending, there will be no observable effect on the real or financial economy. If you go through my posting history you'll see I've more than once mentioned that velocity is much more important than simple quantity. A good analogy from Cullen Roche that I often use: > But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy. * https://www.pragcap.com/three-things-i-think-i-think-i-see-dead-mutual-funds/ https://www.pragcap.com/three-things-i-think-i-think-i-see-d...
tomoyoirl 3y ago
Trailing or forward earnings?
what_ever 3y ago
Nvidia haven't released their latest earnings yet.
- MuffinFlavored 3y ago
  > NVIDIA Corporation Common Stock is expected* to report earnings on 02/21/2024 after market close.
foolswisdom 3y ago
That's a P/E ratio based on the past four reported quarters, over which time earnings at Nvidia increased so much that the earnings for the last reported quarter was over 4 times that of four quarters ago. Assuming that future earnings for the next year are consistent with the last reported quarter, they're valued at 45x earnings. But of course such a valuation still only reddit makes sense assuming growth (and the projected earnings for the next quarterly report is indeed expected to be 12% higher, giving a 40x p/e valuation). Consider that Amazon's P/E (using the last reported quarter as the baseline for the future - Amazon has had consistently increasing earnings over the last year, let's assume it doesn't decrease from here) is 43x.
refurb 3y ago
The thing with P/E ratios is that they are backwards looking while stock prices represent future estimations. Bankers put together detailed models to estimate the earnings per share in the future. Yes they are estimates, but informed as best as possible. The model spits out an estimated $/share. If the current price is lower, they think the future value of the share is actually higher than the current price, so they buy or convince others to buy.

agreed, it's very high, but with M2 growing again such outlandish valuations seem sustainable. https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS

brcmthrowaway 3y ago
What is the implication of M2?
- pclmulqdq 3y ago
  It's the amount of money in the economy, and its growth is one measure of inflation. GP may be commenting that the "good times" of super-high valuations are about to come back thanks to inflation. That isn't the financial datum that really matters, though - what matters for P/E ratios is the risk free rate (which establishes the discount rate for the time value of money), which is still very high.
  - jgalt212 3y ago
    > what matters for P/E ratios is the risk free rate Where's the research showing the empirical relationship between P/E ratios and the risk free rate? Also, we are living in a a time of unprecedented monetary aggregate growth (for the US at least). I posit his why the yield curve has been inverted for so long and yet there is no recession in sight. The predictive power of asset prices seemingly no longer exists.
    - pclmulqdq 3y ago
      There's a ton of it: here's one person's regression. You can find the same in academic papers (although economics papers don't exactly deserve that label). https://www.currentmarketvaluation.com/posts/sp500pe-vs-interest-rates.php https://www.currentmarketvaluation.com/posts/sp500pe-vs-inte... It's also just common sense if you understand company valuation.
      - jgalt212 3y ago
        It's not 1:1, and only fits over long periods of time. Furthermore, none of those studies encompass the great money printing period of COVID, and post COVID. And most of those studies model the 10Y rate vs stocks. The 10Y rate is not the risk free rate. In 2000 the SP500 PE was 40, and fed funds was 6%. it's low 20s now, and fed funds is 5.25% studies over more recent times have shown this correlation break down. It's probably the reason Ray Dalio retired.
        FredPret 3y ago
        If a 10 yr T bill isn’t risk free, what is? A shorter term US Gov bond? I mean realistically the US will just print the money it needs to pay that interest. It’s not a consequence-free decision for them, but much better than defaulting.
        jgalt212 3y ago
        10Y has duration risk. 1 week T bill have no credit risk or duration risk, hence this is the risk free rate.
        pclmulqdq 3y ago
        That's not true at all. The "risk free rate" is a theoretical concept that represents the rate of return that you can get on capital without taking any risk. No bond alone is the risk free rate. Neither is the reverse repo rate or the rate of a money market. All of these are proxies.
  - FredPret 3y ago
    By risk-free rate, do you mean the yield on US gov bonds?
    - pclmulqdq 3y ago
      "Risk-free rate" is a theoretical concept that represents the rate of return you get without taking any risk. T bill rates, reverse repo rates, and money market savings rates are a practical proxy for it, but it's not any one of these.
throw0101b 3y ago
> agreed, it's very high, but with M2 growing again such outlandish valuations seem sustainable. You know whose M2 has also been rising for decades? Japan's. And yet for most of that time the Nikkei has been flat (even negative): * https://fred.stlouisfed.org/graph/?g=17sx4 https://fred.stlouisfed.org/graph/?g=17sx4 China's M2 has also been going up steadily: * https://fred.stlouisfed.org/series/MYAGM2CNM189N https://fred.stlouisfed.org/series/MYAGM2CNM189N What has the Shanghai Stock Exchange (index) been doing lately? The UK's M2 has been going up continuously: * https://fred.stlouisfed.org/series/MSM2UKQ https://fred.stlouisfed.org/series/MSM2UKQ How's the FTSE 100? > https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS Now let's overlay the S&P 500: * https://fred.stlouisfed.org/graph/?g=1gvKR https://fred.stlouisfed.org/graph/?g=1gvKR A giant spike in M2 in 2020, and yet at the same time the S&P 500 dropped. M2 has been on a downward trend since April 2022, and the S&P 500 bottomed in ~October 2022, but has been rising since then—while at the same time M2 has been dropping.
- jgalt212 3y ago
  you're missing the investor preferences bit. You could print $7T or whatever crazy amount Sam Altman wants, and if everyone puts that money under their mattress instead of stocks or spending, there will be no observable effect on the real or financial economy. In short, the transmission mechanism of money creation to real effects is laggy and and somewhat unpredictable. e.g. why NVDA and not gold?
  - throw0101b 3y ago
    > you're missing the investor preferences bit. You could print $7T or whatever crazy amount Sam Altman wants, and if everyone puts that money under their mattress instead of stocks or spending, there will be no observable effect on the real or financial economy. If you go through my posting history you'll see I've more than once mentioned that velocity is much more important than simple quantity. A good analogy from Cullen Roche that I often use: > But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy. * https://www.pragcap.com/three-things-i-think-i-think-i-see-dead-mutual-funds/ https://www.pragcap.com/three-things-i-think-i-think-i-see-d...

tomoyoirl 3y ago

Trailing or forward earnings?

what_ever 3y ago

Nvidia haven't released their latest earnings yet.

MuffinFlavored 3y ago
> NVIDIA Corporation Common Stock is expected* to report earnings on 02/21/2024 after market close.

foolswisdom 3y ago

That's a P/E ratio based on the past four reported quarters, over which time earnings at Nvidia increased so much that the earnings for the last reported quarter was over 4 times that of four quarters ago. Assuming that future earnings for the next year are consistent with the last reported quarter, they're valued at 45x earnings. But of course such a valuation still only reddit makes sense assuming growth (and the projected earnings for the next quarterly report is indeed expected to be 12% higher, giving a 40x p/e valuation). Consider that Amazon's P/E (using the last reported quarter as the baseline for the future - Amazon has had consistently increasing earnings over the last year, let's assume it doesn't decrease from here) is 43x.

refurb 3y ago

The thing with P/E ratios is that they are backwards looking while stock prices represent future estimations. Bankers put together detailed models to estimate the earnings per share in the future. Yes they are estimates, but informed as best as possible. The model spits out an estimated $/share. If the current price is lower, they think the future value of the share is actually higher than the current price, so they buy or convince others to buy.