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Stock market bubble?

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Money Talk > Investing, Stocks and Bonds

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ken-do-nim
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Stock market bubble?  Reply with quote  

I think we may be seeing "irrational exuberance" right now. I see 3 big drivers of the recent Stock Market rally:
1) The Republican plan to ease taxes and regulations on corporations.
2) The recent Carrier deal shows that the government is now offering bribes.
3) Rising interest rates cause a shift out of bonds and into stocks.

Since none of these are actually reflective of a company's balance sheet or good business acumen, I'm worried. Here's a case in point, take a look at AMD. It's P/E ratio is still -15.07, EPS -0.69. 6 months ago it was at 4.32. Today it sits at 10.34. So I wasn't surprised when came out yesterday about how the fact that NVIDIA and INTEL are still crushing it hasn't changed.

I'm not saying it's time to get out of the market, but I do think there will be a strong correction at some point. The question is when.
Post Fri Dec 09, 2016 1:49 pm
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oldguy
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quote:
1) The Republican plan to ease taxes and regulations on corporations.
2) The recent Carrier deal shows that the government is now offering bribes.
3) Rising interest rates cause a shift out of bonds and into stocks.

I'm not saying it's time to get out of the market, but I do think there will be a strong correction at some point. The question is when.


1. Simplifying and removing the burdensome regs (Dodd Frank, Obamacare) and replacing them with workable sensible plans will be one of the major engines to US economic growth - more people working, paying taxes, ie, more tax revenue. Plus the repatriation of $2Tril - new infrastructure, millions of jobs.

2. The Carrier 'bribe' is meant to point out to about 5000 or 10,000 companies that the US will soon become a Business destination, not a place to flee. It's not meant to be a company-by-company bribe program.

3. Yes - how wide & long, hard to tell - when Business starts adding millions of new workers, the new corporate earnings will drive the market values (stocks) up - so the bond/stock balance will equalize.

As far as an impending 'strong correction' - maybe, but maybe not. When Govt gets out of the way and lets Business work, Business finds new global customers, seeks to expand to meet their new0found demand, and suddenly an extra 10 million folks are producing goods in high paying jobs.
I'm old enough to have seen it before - I was astonished at how quickly the US came alive last time (1980), only took about two years - a complete reversal of public morale, spending, etc.

One large component is 'static' math vs 'dynamic' math. The Left used 'static', ie raising tax RATES increased tax REVENUE. The Right used 'dynamic', ie the revenue is optimized by adjusting rates up/down as req'd. Trump understands the math.

Our young generation has never seen a robust growing Business Cycle, they entered this 8 yr Flat period in their 20's and seen nothing good into their 30's - many will be astonished at Trump's ability to build, get things done, grow the GDP.
Post Fri Dec 09, 2016 4:20 pm
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bob5000
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ken-do-nim,

You see a correction soon and so do a lot of others. 'oldguy' said it well. The Carrier deal amounted to $600 per employee, or so I read. Chickenfeed.

Me personally, I expect a correction in equity market levels as rates rise, to be followed by a recovery as business expands. HFT companies will create a rather quick recovery via the nature of their business. Europe and China should be considered as higher risk until time proves them otherwise.

The big unknown is what the Federal Reserve will do. They have managed this ruinous economy into the ground for the past 8 years via below market interest rates. They appear to believe in fantastic and wrong theories that state low rates and lots of free money will create growth. Since they won't admit to ever being wrong no matter how much their ideas fail to produce, we have to wait them out.Had Trump not won, even if it were another stock Republican, I believe negative rates were in our future.This is how close we came to dystopia.

Nobody knows the best rate of interest, but long term (dozens to hundred of years of history) are a good guide. I personally would like to see 4% on the 10 year UST before considering them to be done. This would correspond to a discount rate of maybe 2% I would also like to see them reducing their balance sheet before considering the Fed to be back to normal.
Post Tue Jan 10, 2017 2:36 pm
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shipedgoods
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Post Mon Jan 16, 2017 1:10 pm
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ProThinker
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IS THE S&P 500 SEVERELY OVERVALUED? LOOK FROM FIVE DIFFE  Reply with quote  

https://prothinker.com/sp-500-severely-overvalued-look-five-different-angles/
Post Thu Oct 05, 2017 4:42 am
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