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.)

Mining stocks amplify everything. First Majestic went from losing money to 45% margins without building anything new. They just held the line on costs while silver did the heavy lifting.

That cuts both ways. If silver drops hard, margins compress just as fast. Same leverage, opposite direction.

The miners with the lowest costs and cleanest balance sheets will hold up best in a pullback and capture the most upside if the deficit keeps grinding.

Economists at Goldman Sachs said this morning they expect core inflation to finish the year around 2% even while GDP rises at a “surprisingly strong” 2.5% clip.

In our view, their inflation forecast is optimistic. Their GDP call? Modest.

The last time we pumped this much liquidity into the system — 2020 through 2022—the result was a manic asset bubble, runaway inflation, and an epic hangover at the Fed.

Goldman’s optimism has triggered a fresh round of bullish bets: cyclical stocks are rallying, “dispersion” in the S&P 500 is spiking, and the Fed is expected to cut interest rates twice before Jerome Powell gets kicked out of Washington at the end of his term on May 15.

Anecdotally, we’re hearing stories of warehouses full of GPUs sitting unused for lack of energy to power them. It’s a natural feature of the heavy capital investment in new machines. The grid has to catch up!

While Trump’s great reset rolls on in 2026, keep an eye on modular nuclear reactors and increased demand for uranium, natural gas and related resources.

These PM producers are literally printing the most ‘hard money’ that they ever have at these metals prices and record margins here at the midway point in Q4.

If there ever was a time for this sector to get overheated and frothy, this would be it… only that isn’t what we’ve seen playing out.

PM producers are still insanely profitable at even at current metals prices and should be far more valuable based on their margins, revenue generating potential, and their resources still in the ground.