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.)

Gold has led people to do the most brilliant, the most brave, the most inventive, the most innovative and the most terrible things. ‘More men have been knocked off balance by gold than by love,’ runs the saying, usually attributed to Benjamin Disraeli. Where gold is concerned, emotion, not logic, prevails. Even in today’s markets it is a speculative asset whose price is driven by greed and fear, not by fundamental production numbers.

Fresh GDP data — the Commerce Department revised Q2 growth upward to 3.3% — fueling the rally. Investors cheered the “Goldilocks” read: strong enough to keep the music going, not hot enough (at least on paper) to derail hopes for a Fed pivot.

Even the oddball tickers joined in. Perhaps as fittingly as Lego, Build-A-Bear Workshop popped after beating earnings forecasts, on track for its fifth consecutive record year, thanks to digital expansion.

Neither represents a bellwether of industrial might — but in this market, even teddy bears roar.

In modern finance theory, only U.S. T-bills are considered risk-free assets.

Central banks are telling us they believe the real risk-free asset is gold.

Our Grey Swan research shows exactly how the dynamic between government finance and gold is playing out in real time.

When we compare apples to apples—median home prices to median household income, both annualized—we get a much more nuanced picture. Housing has indeed become less affordable, with the price-to-income ratio climbing from roughly 3.5 in 1984 to about 5.3 today. In other words, the typical American family now has to work much harder to afford the same home.

But notice something crucial: the steepest increases coincide precisely with periods of massive government intervention. The post-dot-com bubble recovery fueled by Fed easy money after 2001. The housing bubble inflated by government-backed mortgages and Fannie Mae shenanigans. The recent explosion driven by unprecedented monetary stimulus and COVID lockdown policies.

Neither represents a bellwether of industrial might — but in this market, even teddy bears roar.

In modern finance theory, only U.S. T-bills are considered risk-free assets.

Central banks are telling us they believe the real risk-free asset is gold.

Our Grey Swan research shows exactly how the dynamic between government finance and gold is playing out in real time.