Invest $100 in a company making a nominal 1.74% on every invested dollar and what should you expect?
a.) A $1.74 gain before inflation
b.) The moon baby!! Someone else will always pay more. This stock is going to the moon!!!
Invest $100 in a company that when adjusted for inflation is LOSING 5.37% and what should you expect
a.) A $5.37 loss after inflation
b.) The moon baby!! Someone else will always pay more. This stock is going to the moon!!!
Stock yield is just P/E expressed in % terms (instead of as a ratio.)
Right now
Wall St analysts are fond of discussing “forward looking” P/Es based on “anticipated earning.”
but if you look at actual earnings, corporations are earnings a teensy 1.37% on invested money
adjusted for inflation that is a NET LOSS of 5.37%
That net loss of 5.37% is worse than any time during the mortgage crisis, worse than any time during the dot.com bust, worse than any time during the 1980s, worse than any time during the 1970s.
Corporate profits have not been this bad, in inflation-adjusted terms since Harry Truman was President and the post-war boom turned into the Edsel bust.
Send everyone a series of checks (Totally $12,800 for every family of 4)
Some people spend their checks buying stocks
The stock market goes up
Start kicking corporations in the shins, and the underlying earnings go down.
There is right now a huge unsustainable disparity between stock prices and underlying earnings, the biggest since Harry Truman.
(“Stocks are over-priced” is one common way to say it.)
If history tells us anything at all, it is that this huge disparity will not last.
Yale professor Robert Shiller is kind of a super star.
He is famous for the Case-Shiller Home Price Index
and for the Shiller P/E Ratio.
The “Real Yield” (from the Bank of America article) uses 1-year inflation and 1-year earnings.
Dr Shiller’s ratio weeds out temporary fluctuations by using 10-year averages of each.
According to the Shiller P/E stocks are currently 40% over-priced. Inflation might come down, but it would have to come down pretty far to change the ten-year average of inflation. Most likely stock prices will fall.
Here is another way to visualize the same thing
(Source: Bloomberg, EPB Macro Research, via Seeking Alpha, link below)
Imagine a government gave a bunch of checks to upper-middle class investors, working class folks with IRAS etc., while simultaneously demonizing and shin-kicking the corporations in which those investors invest.
If a govnerment did that we would expect to see
S&P 500 stock prices rise (because if increased investment), and
corporate profits stagnate (because of the legislative shin-kicking)
Well that is exactly what is happening and, if I read the chart right, it is happening to an alarming degree.
I don’t place much blame or credit for the stock market at Pres. Biden’s feet,
but we have been two years flat. (Minus ~12% if you count inflation)
S&P 500 close on 11/30/21: 4,567.00 Two years later
S&P 500 close on 11/30/23: 4,567.80
