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Is the stock market in a bubble?

Is the stock market in a bubble?


  • Total voters
    23
You have that wrong

P/E increases on the expectation the company is going to increase profits and be a stronger company in the future. A low P/E is generally a sign the companies predicted future is not one of growth and larger profits

P/E stands for "Price Earnings Ratio." It's not the "Price to Expected Earnings" ratio.

What is the 'Price-Earnings Ratio - P/E Ratio'

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

The P/E ratio can be calculated as:

Market Value per Share / Earnings per Share

For example, suppose that a company is currently trading at $43 a share and its earnings over the last 12 months were $1.95 per share. The P/E ratio for the stock could then be calculated as 43/1.95, or 22.05.

EPS is most often derived from the last four quarters.

Read more: Price-Earnings Ratio (P/E Ratio) Price-Earnings Ratio (P/E Ratio)
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One more thing. I owned Whole Foods, and sold it after the Amazon offer became public. This company was also considered a "dog." The rap on Whole Foods was companies like Kroger were kicking its overpriced ass with expanded organic food offerings at lower prices. Then Amazon buys it and now Whole Foods is the darling while Kroger is in the bargain bin. Go figure.

Zon was looking at buying BJs Wholesale prior to snapping up whole foods, but we are not grocery focused enough for them.
 
P/E stands for "Price Earnings Ratio." It's not the "Price to Expected Earnings" ratio.

Yes, but stock purchases are bets on future P/Es. Sure, some folks "buy high", but most go for growth.
 
I know this is the case but

Why do so many Trump supporters believe that Trump is for main street not wall street? Everything in the man's past indicate that Wall Street (or more accurately economic elites) are more important to him than main street. His main line of business are building 4-5 star hotels/condo units, upper level resorts. His and his families licensed products are manufactured outside of the US (excluding Trump steaks and other agricultural products I expect). He has staffed his properties with temporary foreign workers instead of US citizens or permanent residents.

The man hired for his Chief of Staff is from wall street, his other cabinet positions are mostly either from wall street or ex military for the most part

Almost none of his actions suggest main street is more important to him than wall street. His words, yes but not his actions especially from the past

You really should read that article I linked. It might make you think twice about what you've said in this post.

At the very least, don't obsess so much about what the people he's hired did before. Think about what they are doing now. They are very successful, smart, capable and well qualified people...and they are working for Trump. Not whomever they worked for in the past.
 
Of course, there is a bubble...it is the debt bubble.

The fundamentals of the economy are lousy.

Money is not changing hands...it is just being created with new loans thanks to the still incredibly low-interest rates of the Fed.

fredgraph.png


https://fred.stlouisfed.org/series/M2V

Money velocity drops during recessions/depressions. It has now fallen almost continuously since the housing boom ended and is now by far the lowest ratio on record.

This IS bad. But people blow it off because too many people have a vested interest in this bubble continuing.

The DOW is skyrocketing because of one reason above all else...the Federal Reserve. It keeping interest rates WAY too low and it is still performing QE (though it does not call it that any longer as they are just rolling over maturing bonds).
All the market really cares about is what the Fed does. So long as the Fed raises rates in tiny increments over a long period of time AND continues QE (and is prepared to boost QE if the need arises again)...the markets relax as their backs are covered.

And this is going on all over the West/Japan. Hell, the BOJ (Bank of Japan) is buying hundreds of billions of stocks directly through ETF's...has been for years. The Fed bought AIG (the largest insurance company in the world I believe at the time) during the last crisis. Just bought it.

Central banks are completely out of control.

They can do almost anything and have said they basically will. They can print a trillion dollars tomorrow and buy controlling shares in the entire US auto industry if they wish.

And so long as they are willing to do ANYTHING to prop up markets - the markets will keep buying stock as they have a semi-guarantee that stocks will keep rising...even if the fundamentals stink.
And so long as they do...the rich will continue to get richer, the wealth gap will continue to grow and the ignorant masses will blame it on too low taxes or something else. It's not taxes...it's the Fed.


This bubble is far bigger than the dot.com and housing bubbles combined.

And it may take many more years for it to play out.

But it will...for certain.

And when it does, it will be a nightmare.
 
The stock market continues to surge (a mind blowing 4006 points since November), though its behavior seems to be divorced form anything actually happening in the news.

Trump shuts down travel from Muslim countries? Dow increases.
Trump slams NATO and exits from Paris Accord? Dow increases.
Missile strikes in Syria? Dow increases.
Slow news day? Dow increases.
Giant pit to hell opens, swallowing up all of Europe. Dow increases.

So is the market's behavior normal, or are we in a bubble? If not, can this be explained entirely by the promise of cutting regulations and taxes?

Also, if you have investments in the stock market, do you feel comfortable, or are you eyeing your investments nervously because you know deep down inside that the fundamentals of the market haven't changed and this surge can't last?

Something I can't help noticing is that as the Dow keeps going up, my etfs which track the market don't necessarily go up too. Often they'll be static or even go in reverse, as is the case today.



https://seekingalpha.com/article/40...ble-biggest-bubble-since-1999-surpassing-2007

My guess is a correction is coming soon. Money is being bet on the huge corporate tax cut promised by the Conman in Chief. If it pops, a real possibility, then the bubble bursts. But, hey, do not let me discourage people from going out and buying high. :)
 
P/E stands for "Price Earnings Ratio." It's not the "Price to Expected Earnings" ratio.

Yes i know that

Now a company with a P/E of 25 vs the stock market with an average of say P/E of 15 is expected by the shareholders to outperform the market when it comes to growth. They are paying a premium for the current earning with the expectation that future earnings are going to be higher to justify the high p/e.

A company with a p/e of 5 vs the market average of 15 is expected by shareholders to see earnings decrease in the future, they are getting a discount on current earnings as future earnings are expected to be less

A quick dirty explanation to get the point across as there are other factors
 
The world of finance is full of charlatans constantly warning of an impending crash in an effort to sell you gold or get you to subscribe to their newsletter. The result is another human quirk: We tune out the drumbeat of warnings and fail to recognize when we’ve actually joined the herd. Investing has always required discipline, and in the age of 24-hour financial media and Twitter, recognizing the signal amid the noise will require more discipline than ever.

The American investor has done more good in this world than anyone with the exception of the American soldier. But our stock market will crash again — because we’re human.


We?re not smart enough to spot a coming stock-market crash - MarketWatch
 
You really should read that article I linked. It might make you think twice about what you've said in this post.

At the very least, don't obsess so much about what the people he's hired did before. Think about what they are doing now. They are very successful, smart, capable and well qualified people...and they are working for Trump. Not whomever they worked for in the past.
So, what are these geniuses doing for Joe and Jane in Heartland America? So far they've cut environmental regulations and tried to take away their health insurance. Fortunately, they failed at the last one. Putting to the side the moral aspects, the point is that none of that is good for the economy. This is the same group that wants to cut taxes on millionaires and billionaires and undo Dodd/Frank that protects Americans from Wall St. swindlers.
 
My guess is a correction is coming soon. Money is being bet on the huge corporate tax cut promised by the Conman in Chief. If it pops, a real possibility, then the bubble bursts. But, hey, do not let me discourage people from going out and buying high. :)

Yeah, it seems that buying high is a bad idea. However, the dominant investment theory I'm aware of says to always put money away (particularly when the market is low, of course), because you will have more money invested and it will accrue in the long haul.

I know we're in a bubble, and I'm nervous about having money in stock market, but I'm unhappy about the idea of taking it out because I'm, like, amazingly awful at predicting what the market will do. I think the way the stock market works is that there's a computer and it watches what I buy. If I buy a stock, the computer will initiate a command to lower its value. If I sell the stock, the computer will raise its value.

Sure, go ahead and laugh, but the consistency of this phenomenon is uncanny.

The DOW is up nearly a hundred points right now and all my etfs which track the market are dropping in value. These etfs have ONE JOB.
 
A bubble indicates the probability of a near term future of bursting/busting the market value.

The Stock Market is inflated in value, yes, but it is not near a bubble yet.

As long as energy prices remain flat and housing/commercial buildings are not crazy, we have a time to wait, probably several years or more.
 
P/E doesn't increase due to "expectations." They rise when actual earnings increase or price falls, while "E" remains the same.

I think the markets are rising due to expectations that GDP growth will be higher. I don't think that annual GDP growth will be more than ~2% -- the same as it has been. Moreover, there is a presumption on the part of money managers that lower taxes and lower regulations are good for the economy -- absent any historical or academic evidence that it is so. They think that Republicans will provide tax-cuts -- the magic elixir of conservative economics.

No. Earnings are what the are, but stock price is usually based on how much investors think it will increase over time. Stock price is a variable based on forward looking expectations.
 
So, what are these geniuses doing for Joe and Jane in Heartland America? So far they've cut environmental regulations and tried to take away their health insurance. Fortunately, they failed at the last one. Putting to the side the moral aspects, the point is that none of that is good for the economy. This is the same group that wants to cut taxes on millionaires and billionaires and undo Dodd/Frank that protects Americans from Wall St. swindlers.

Despite all of your spin and hyperbole (for example, "tried to take away their health insurance") this is the results: https://blog.bea.gov/2017/07/28/gdp-increases-in-second-quarter-6/
 
No. Earnings are what the are, but stock price is usually based on how much investors think it will increase over time. Stock price is a variable based on forward looking expectations.
I don't dispute any of that. What I do question is what expectations investors have. I think they expect 3-4% GDP growth and believe that tax-cuts are good for the economy. I don't think tax-cuts, especially upper-income tax-cuts, are good for the economy and I think GDP will be ~2% annual -- about where it has been for years. It also hasn't been shown that the GOP can even deliver those tax-cuts.

Now, corp earnings have been good, which is bullish but have they been that good?
 
According to your link, 1st Qtr GDP was 1.2% and 2nd Qtr 2.6%. That's an average of 1.9%. I previously said in this thread GDP would be ~2% annual. I don't see the spin that you claim.

So, it's already exceeded your prediction...and this is in spite of opposition from the GOP Elites in Congress. Just think what Trump's agenda could do if Congress was on board.

Yet, you claim his team isn't doing anything. Okay. Spin on.
 
So, it's already exceeded your prediction...and this is in spite of opposition from the GOP Elites in Congress. Just think what Trump's agenda could do if Congress was on board.

Yet, you claim his team isn't doing anything. Okay. Spin on.
The operative word was "annual." Quarterly numbers jump up and down. If you look at your own link, GDP was over 2% in two of the 2016 quarters but averaged 2% for the year.

Moreover, Trump isn't on-board with the Trump agenda. He promised health care reform that would be 'terrific, everyone would be covered, at a cheaper cost and cover more.' Congress didn't pass it because what they had before them would strip millions of people of their coverage.
 
So, it's already exceeded your prediction...and this is in spite of opposition from the GOP Elites in Congress. Just think what Trump's agenda could do if Congress was on board.

Yet, you claim his team isn't doing anything. Okay. Spin on.
Stop trolling. The numbers refute you. There will never be better post Obama numbers in the Trump era than the last 18 months of the Obama era. Trump was knowingly lying talking about 4% growth. And you know it.
 
Stop trolling. The numbers refute you. There will never be better post Obama numbers in the Trump era than the last 18 months of the Obama era. Trump was knowingly lying talking about 4% growth. And you know it.
Well, it is 'possible' there might be better numbers and Trump will take full credit -- but he will have no part in any of the gain. But, if the GOP succeeds in getting tax-reduction for the rich and that results in high deficits that crowd out private borrowing, a decline in the economy would every-bit belong to the GOP and Trump.
 
The operative word was "annual." Quarterly numbers jump up and down. If you look at your own link, GDP was over 2% in two of the 2016 quarters but averaged 2% for the year.

Moreover, Trump isn't on-board with the Trump agenda. He promised health care reform that would be 'terrific, everyone would be covered, at a cheaper cost and cover more.' Congress didn't pass it because what they had before them would strip millions of people of their coverage.

LOL!!

Okay. I see the GOP Elites have been successful in conning you, at least.

I have nothing more to say to you, except...don't be surprised if you don't see Congress doing ANYTHING that is part of Trump's agenda.
 
LOL!!

Okay. I see the GOP Elites have been successful in conning you, at least.

I have nothing more to say to you, except...don't be surprised if you don't see Congress doing ANYTHING that is part of Trump's agenda.
The narrative about the "GOP elite" was campaign rhetoric. Trump and the GOP have the same agenda: Tax-cuts for the rich; dismantling the social safety net; reduction of consumer and public protections; letting corporations do whatever they want to do. It's pure nonsense to think that Trump isn't part of the GOP elite. The GOP is moving away from him because he's becoming a liability because he's SOOO stupid.
 
Well, it is 'possible' there might be better numbers and Trump will take full credit -- but he will have no part in any of the gain. But, if the GOP succeeds in getting tax-reduction for the rich and that results in high deficits that crowd out private borrowing, a decline in the economy would every-bit belong to the GOP and Trump.
Of course, it would. It would be the type of economy Japan, Italy, and Germany ran up to WWII. They had to go to war or bust.

And much as love my GOP, when it comes to the economy, Trump is lined up with the GOP elite.
 
BTW, the fact that the VIX (the volatility index) is at record lows, shows that the markets themselves are very stable...despite all kinds of weirdness going on in America (especially Washington).

VIX - CBOE Volatility Index - MarketWatch

Why?

My guess is because Wall Street knows that the Fed has their back - that the latter will do whatever it takes including lowering interest rates below zero, more QE and even buying stocks and companies (they previously bought a controlling interest in AIG - a huge insurance company) to keep the equity markets afloat and going north.

It's like trust fund kids buying companies knowing that Daddy has massive pockets to bail them out if they screw up...it gives a tremendous feeling of confidence and security.

That is probably why the VIX is at record lows.
 
I won't the stock market, not my forte, but I can say, housing is in another bubble, as is automotive. They heavily influence the market, correct?

Yes, housing and automotive are a large part of the economy, but how do you conclude automotive (other than Tesla) is in a bubble?

As for brick and mortar, my take is, Zon is going to use them as fulfillment centers for food. Think, Blue Apron, but amazons brand, with, say, a 1 hour delivery promise.

It's true that the U.S. has too many shopping malls. It's also true that Millennials don't spend time in malls the way older generations did, and retailers that can't or don't adapt and become "omni-channel" merchants or that don't offer a unique experience or merchandise will go bankrupt. But for strong merchants not concentrated in enclosed shopping malls (Best Buy, Costco, Walmart, Target, etc.) the "Amazon Effect" is over-hyped. It presents opportunity for patient investors.
 
U.S. Companies Post Profit Growth Not Seen in Six Years
https://www.wsj.com/articles/as-washington-stalls-company-profits-keep-trucking-1501423201

Dow closes at record high as Street cheers strong earnings season
https://www.cnbc.com/2017/07/31/us-stocks-earnings-season.html

Dow flirts with a fresh milestone: 22,000
Dow flirts with a fresh milestone: 22,000 - MarketWatch

Trump shuts down travel from Muslim countries? Dow increases.
Trump slams NATO and exits from Paris Accord? Dow increases.

Is it possible that not everyone sees Trumps actions as negative?
 
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