On the Market’s “Dotcom” Redux

There’s a dirty little secret to earnings season…

Corporate earnings are priced in an asset that isn’t fixed.

Federal Reserve policy and government spending on debt make the U.S. dollar worth less over time.

Sometimes, like right now, the dollar weakens faster than others.

A weaker dollar helps boost sales, exports – you name it. And for companies in the S&P 500, a weak dollar makes the bottom line look good.

On a real, inflation-adjusted basis, however, stocks are pricey.

The Shiller Price to Earnings (P/E) ratio looks at earnings over the prior 10 years to determine how stocks are valued.

The current read? It’s a doozy…

Turn Your Images On

Three prior spikes in “valuation”: dotcom bubble, the “nifty fifty” in 1968 and the 1929 crash.

The only other time the Shiller PE ratio has been this high?

The dotcom era. Before that, the go-go market of the 1960s… and before that? The crash in 1929.

As we observed on Grey Swan Live! yesterday with Shad Marquitz, the same bubble mechanics as 1998-2000 are at work today. Nvidia is the new Cisco – with GPUs being the must-own computer component, not routers.

Investors are pricing stocks to perfection… a bright future that will still take decades to build out. Plus ca change, plus c’est le meme chose.

~ Addison

P.S. Also consistent with a bubble: record-high margin debt. And a resurgence in “meme stocks.”

The current earnings season has to be pitch-perfect – or else – we’ll get big price corrections like Tesla Motors and Chipotle Mexican Grill even on very small misses.

If you’ve borrowed to be in this market. Don’t. You’re in a crowded trade. When a trade is crowded, getting to the exit first is on everyone’s mind. Panic now and avoid the rush.

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

There’s a dirty little secret to earnings season…

Corporate earnings are priced in an asset that isn’t fixed.

Federal Reserve policy and government spending on debt make the U.S. dollar worth less over time.

Sometimes, like right now, the dollar weakens faster than others.

A weaker dollar helps boost sales, exports – you name it. And for companies in the S&P 500, a weak dollar makes the bottom line look good.

On a real, inflation-adjusted basis, however, stocks are pricey.

The Shiller Price to Earnings (P/E) ratio looks at earnings over the prior 10 years to determine how stocks are valued.

The current read? It’s a doozy…

Turn Your Images On

Three prior spikes in “valuation”: dotcom bubble, the “nifty fifty” in 1968 and the 1929 crash.

The only other time the Shiller PE ratio has been this high?

The dotcom era. Before that, the go-go market of the 1960s… and before that? The crash in 1929.

Investors are pricing stocks to perfection… a bright future that will still take decades to build out. Plus ca change, plus c’est le meme chose.

~ Addison

P.S. Also consistent with a bubble: record-high margin debt. And a resurgence in “meme stocks.”

The current earnings season has to be pitch-perfect – or else – we’ll get big price corrections like Tesla Motors and Chipotle Mexican Grill even on very small misses.

If you’ve borrowed to be in this market. Don’t. You’re in a crowded trade. When a trade is crowded, getting to the exit first is on everyone’s mind. Panic now and avoid the rush.

As always, your reader feedback is welcome: feedback@greyswanfraternity.com (We read all emails. Thanks in advance for your contribution.)

Markets are coasting into the weekend.

Durable goods orders are the only data on tap today, while remaining earnings will trickle in from HCA, Charter, Phillips 66, Centene, Booz Allen, and AutoNation.

Going into the weekend, let’s not mistake quiet for calm.

With meme stocks swirling, Trump openly jawboning the Fed, and insiders still net sellers in 90% of companies, volatility is simmering just beneath the surface.

And the real economy is showing strains.

So the “huge shift” in how regulators perceive gold — the one Forbes just discovered — has actually been nearly a decade in the making.

But yes, it was huge. No argument there.

For starters, Basel III made it far more attractive for banks and other financial institutions to hold physical gold.

That’s because the new rulesgave gold formal recognition in the international financial system. Before that, gold — in any form — was treated as a risky asset for regulatory purposes. Holding it came with capital penalties. Now, under the right conditions, it’s treated like cash or Treasuries.

Make no mistake — this is a monumental change.

Given the resurgence in “meme stocks” the past few weeks – Opendoor, Kohl’s – it may be a sign of market froth. And it may take a 5-10% pullback to get some sanity back in the markets.

If you’re leveraged in this market. Don’t be. You’re in a crowded trade.

Wall Street’s never been shy about picking favorites. And this week, retail investors are betting big — $8 trillion big — that the United States will crush China in the global AI arms race.

That’s the market cap of Nvidia and Microsoft combined.

Nvidia impressed shoe shiners and Uber drivers alike when it became the first $4 trillion company. The GPU manufacturer’s market cap is now about as large as the entirety of the European stock market.

Just behind it: Microsoft, flush from its investment in OpenAI and currently valued at $3.7 trillion. Together the two companies have eaten $7.9 trillion… approaching the entire GDP of Japan and Germany combined.