tag:blogger.com,1999:blog-5389144729834496735.post2884247018376159842..comments2024-03-17T05:15:55.634-04:00Comments on The Brooklyn Investor: Bubble WatchUnknownnoreply@blogger.comBlogger11125tag:blogger.com,1999:blog-5389144729834496735.post-53887439161137259992018-09-03T11:31:42.761-04:002018-09-03T11:31:42.761-04:00Hey, thanks for the quick reply. Agreed re 2007 no...Hey, thanks for the quick reply. Agreed re 2007 not being typical equity bubble (but credit bubble) so probably fine to exclude from the analysis. Think question is when the next downturn will hit? US corporate debt level are back to pre recession levels so with rising interest rates this will over time put some corporates into problems. Personal income growth is slowing a bit but banks are healthier than in 2007 as well as less speculative home building happening. But hard to predict of course in the absence of a crystal ball...Anonymoushttps://www.blogger.com/profile/03876440090023273146noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-48219452776521726022018-09-03T09:54:04.074-04:002018-09-03T09:54:04.074-04:00Hi, I think I was only looking at big stock market...Hi, I think I was only looking at big stock market bubbles, and 2007 wasn't really a stock market bubble. For example, there was no parabolic explosion to the upside etc. <br /><br />As for taking averages, I have other posts that actually look at the EY/PE including all data going back and I don't think there is any rubber band stretching at all.<br /><br />Thanks for stopping by.kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-56184287142186921902018-09-03T09:28:58.174-04:002018-09-03T09:28:58.174-04:00Hey, thank you for this analysis. Just out of curi...Hey, thank you for this analysis. Just out of curiosity, why did you not include 2007? July 2007 P/E was around 20x, implied EY is 5% and July 10yr yield was 5.1%. So spread of 0.1% and EY/PE ratio of 1x. If one was to include this in the numbers the average EY/PE ratio would be 0.7x so using you 4% normalised interest rate that would return a 2.8% EU for the market or a 36x PE ratio vs the current 25x (rolling, not CAPE). So even including 2007 agree that we are not in bubble or rubber band scenario yet but maybe closer that suggested above? What do you think? Thank you!Anonymoushttps://www.blogger.com/profile/03876440090023273146noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-19062391319787220502018-08-17T06:25:48.148-04:002018-08-17T06:25:48.148-04:00Thanks for sharing the informative blogs with us o...Thanks for sharing the informative blogs with us on trading. Keep updating more like this.Sebi registered advisory companyhttp://www.capitalstars.com/Services/noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-45051414516330649722017-05-26T22:49:11.077-04:002017-05-26T22:49:11.077-04:00Great comparison with 1987 and 1999 earnings yield...Great comparison with 1987 and 1999 earnings yields, really helpful! But I'm not sure you can draw any meaningful conclusions from comparing SPY to RSP, over time you would expect any equal-weighted indexes to outperform the value-weighted versions: <br /><br />https://greenbackd.com/2012/05/17/why-does-an-equal-weighted-portfolio-outperform-market-capitalization-and-price-weighted-portfolios/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-66432812676073492142017-05-26T13:33:00.486-04:002017-05-26T13:33:00.486-04:00http://www.philosophicaleconomics.com/2017/04/dive...http://www.philosophicaleconomics.com/2017/04/diversification-adaptation-and-stock-market-valuation/<br /><br />has a new post that touches on your question and this topic. the author does a good job I think of explaining theoretically the risks involved in certain securities and how they affect the pricing of the security. the author also provides a pretty persuasive argument as to why the ease and low cost of diversification could lead to a systematically higher pricing of equities.Anonymoushttps://www.blogger.com/profile/00481604513475549355noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-32303144604183531202017-05-26T11:29:54.824-04:002017-05-26T11:29:54.824-04:00Hi, good points. The model Buffett used in 1999/20...Hi, good points. The model Buffett used in 1999/2000 was the same one he used back in 1969, I think. He said something to the effect that stock market returns is basically dividend yields plus real GDP growth plus inflation. That's also where I get my 5-6% equity market expected return (2% dividend yield + 2% real GDP growth + 2% inflation; others will argue that including share repurchases would make 'real' dividend yield more like 3-4%). <br /><br />As for share of profits to GDP, I don't know really how to parse that as the S&P companies get 40-50% of sales and/or profits from outside the U.S. If Kraft-Heinze bought Unilever, it would boost that ratio but not really change the market valuation, right? Google, Apple and many others make tons of money outside the U.S., so comparing corporate profits to GDP doesn't make too much sense to me. <br /><br />As for CAPE and other things, Buffett did say at the recent annual meeting that people always try to simpilify things to a single model, ratio or indicator, and that things are not so simple. <br /><br />Thanks for dropping by... <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-51668189009615886302017-05-26T08:16:17.709-04:002017-05-26T08:16:17.709-04:00Great post! Thanks for doing this. I won´t mention...Great post! Thanks for doing this. I won´t mention his name, but someone well know just commented about the frothiness of the mkt and the ¨distortions¨ caused by quant trading in large cap tech names. This post seems to make a good argument against that theory.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-67166625082021816412017-05-26T03:00:09.895-04:002017-05-26T03:00:09.895-04:00Great blog post. I believe Buffett in the past has...Great blog post. I believe Buffett in the past has also mentioned 2 other important variables. Economic growth and the % of economic growth that is captured or derived from the Corporate sector. I am no economist but I would guess one couldn't expect below average interest rates and above average growth to be sustained for very long. I guess low economic growth is possible and the corporate sector continues to gain a higher and higher % of that growth, but the current levels look pretty high vs. history. The appealing thing of a PE or Shiller PE is that in theory, that metric captures all 3 of these variables. How would you think about including these components in the current environment? I believe Buffett wrote an article/speech in 1999/2000 and gave his estimates of each of these variables. He was right that the market was too high but for the wrong reasons. He thought interest rates at the time couldn't go much lower than 4%. Thanks for your blog. I really enjoy it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-28641948894242452372017-05-25T22:10:42.527-04:002017-05-25T22:10:42.527-04:00In general, asset prices are determined by interes...In general, asset prices are determined by interest rates as the value of assets are the sum of all future cash flows they are expected to generate. If interest rates are lower, discount rate is lower, so asset prices are higher. There has been discussion/debate about that here in previous posts about market valuation. But the general gist is that lower interest rates => higher asset prices, and P/E ratio is a common yardstick of stock prices. <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-14999894989080093892017-05-25T20:01:38.422-04:002017-05-25T20:01:38.422-04:00Thank you for posting. Can you help explain to me ...Thank you for posting. Can you help explain to me why interest rates would affect the market PE so much? I understand how interest rates may affect the PE for certain companies, but why is it used to adjust the PE of the entire market?Anonymousnoreply@blogger.com