undefined | Better HN

0 pointsgrey-area3y ago0 comments

Yes, that's why it has far more to go to revert to the mean of earnings and price. Earnings are also artificially inflated, and will drift down, and stock prices with them, we're just seeing the beginning of that process.

Here's someone else who called it over a year ago with some charts with counterpoint those you link:

https://www.hussmanfunds.com/comment/mc220925/

OR CAPE: https://www.multpl.com/shiller-pe

Note he's in good company, with Jeremy Grantham for example also warning of the same thing:

https://www.livewiremarkets.com/wires/grantham-this-is-a-bub...

Just to be clear, the argument is not 'everything is shit now because inflation', it is that the era of easy money has ended, significant inflation and war means a regime change in central bank intervention, and central banks will now tighten till things break. They haven't even managed to unwind QE yet and stop buying their own debt, will they ever? If they do, watch out.

This isn't doom and gloom, it's simple realism about the regime change in interest rates - the era of 0% money is gone, in its place we have a normalisation, which means a normalisation of frothy asset prices and a reversion to the mean of earnings and prices in many domains. Usually these things take a year or two to work out, it won't be a fast process.

0 comments

sokoloff3y ago

I agree with most of what you wrote, but I think it misses that, in an era of 0% money, growth matters more than current profits and so firms rationally trade off the latter in pursuit of the former.

When that changes, I think you’ll see earnings rise as chasing growth now carries a higher cost.

grey-areaOP3y ago

That has changed with persistent inflation. We are now moving up from zero rates.

RC_ITR3y ago

> Earnings are also artificially inflated, and will drift down

Citation needed. Maybe we are enter a local minimum, but what, you think off-stock-market value is not going to be brought onto the stock market?

I think you should try to raise a private capital fund and roll-up as many mom and pop retailers as you can, then.

portlander522323y ago

How are earnings artificially inflated?

RC_ITR3y ago

It's a common trope for people who don't like the fact that the stock market is trading at normal-ish P/E levels to say 'well the E is fake!!! Just wait until the E normalizes!'

Usually, they cite things like artificially low input costs (hard to argue that today), unsustainable demand from customers due to 'cheap money' (haven't seen evidence of that yet, the opposite actually), and a general disdain for advertising and retail business models (despite their long-term durability).

adammarples3y ago

Yes, you are the clever one, everyone else just repeats tropes. Personal debt is at record levels, inflating earnings. That has to unwind at some point and it will be when the cost of money increases, which it will, if the Fed has to trigger a recession to do so. We're in a different regime now.

j / k navigate · click thread line to collapse

0 comments

sokoloff3y ago

I agree with most of what you wrote, but I think it misses that, in an era of 0% money, growth matters more than current profits and so firms rationally trade off the latter in pursuit of the former.

When that changes, I think you’ll see earnings rise as chasing growth now carries a higher cost.

grey-areaOP3y ago

That has changed with persistent inflation. We are now moving up from zero rates.

RC_ITR3y ago

> Earnings are also artificially inflated, and will drift down

Citation needed. Maybe we are enter a local minimum, but what, you think off-stock-market value is not going to be brought onto the stock market?

I think you should try to raise a private capital fund and roll-up as many mom and pop retailers as you can, then.

portlander522323y ago

How are earnings artificially inflated?

RC_ITR3y ago

It's a common trope for people who don't like the fact that the stock market is trading at normal-ish P/E levels to say 'well the E is fake!!! Just wait until the E normalizes!'

adammarples3y ago

j / k navigate · click thread line to collapse