Do you really believe these sky high earnings are going to continue?

And what about all the companies that still have billion dollar market caps but have NEGATIVE earnings? (Atlassian, Snowflake, Uber, Crowdstrike, Shopify.... the list goes on)

Folks we are in a tightening cycle in order to fight inflation. It's feels important to remind everyone that economic conditions like this have not happened in decades. This site (hackernews) has pretty much entirely existed in the era of cheap money and low interest rates.

Keep your head in the sand at your own peril.

Companies are tightening their belts and you should too.

>And what about all the companies that still have billion dollar market caps but have NEGATIVE earnings? (Atlassian, Snowflake, Uber, Crowdstrike, Shopify.... the list goes on)

I think they are an extremely small part of the $100tn global stock market that people here love talking about because they work there.

>Folks we are in a tightening cycle in order to fight inflation.

My point was that we are at multiples in-line with 1990, ya know when we had 8% 10Y yields.

Folks, call the end of the world at your own peril.

> My point was that we are at multiples in-line with 1990, ya know when we had 8% 10Y yields.

Is any part of you worried the S&P is headed 3600 -> 3500 -> 3200 -> 3000 -> 2800 given the current climate? I'm worried that the current P/E ratio (from EPS TTM, past 4 quarters) might be a bit "rosy", and the next 4 quarters of earnings are over-optimistically priced (not enough pain has been factored in/the effects of corporations having to try to grow for 18 months in a 4% interest rate environment hasn't been priced in yet).

If you check https://www.spglobal.com/spdji/en/documents/additional-mater... and https://www.yardeni.com/pub/yriearningsforecast.pdf, analysts are forecasting 8-9% earnings growth 2022 -> 2023.

That means if we don't hit those numbers, the market will have to reprice itself, no?

Spot on.

Additionally, if the entire world stock market is $100tn, the US is sitting pretty, because at $49tn the US stock markets represent HALF of the entire world stock market.

S&P100 is $28t of that, S&P500 is $32t.

> Keep your head in the sand at your own peril.

Where do you propose to store wealth if it is all coming down?

Wealth? You want fixed rate debt right now if it’s all collapsing and we have a decade of unstoppable inflation upon us.

i-Bonds are limited at 10K, and bond funds seem risky if rates will go up ?

Or are there specific bond funds for this unique time?

The financial markets are predicting 2.15% inflation over the next 10 years:

https://fred.stlouisfed.org/series/T10YIE

Good muck to anyone placing their trust in internet forum hot takes.

Bond funds are generally a poor way to invest in bonds, especially in a rising interest rate environment.

No I’m saying you want to go in debt!

Hm can you explain more? Go into debt and do what with the money?

But housing could well crash, so mortgages are out.

What type of loans are we supposed to be getting?

Home equity loans, etc.

A home equity loan with a risk of a housing crash?

Hyper inflation more likely. Get a loan while money is cheap. Housing will come back no matter what anyways. But honestly could be 3x their cost today in 10 years. No one is selling anyways.

Wages are moving down in real terms. Many home purchases are made with 40% of gross income presently. Increased (3x) home costs would mean buyers would be paying out an even higher percentage of gross income. Eventually too many buyers are unable to buy housing and the party is over. I think we are already there, so 3x housing prices (and 3x rental prices) in 10 years seems very unlikely.

The printer will go burr and wages will increase because a load of bread is $10. Most of todays debt will be wiped out.

The burr of the printer will only make the spread between wages and costs even worse. Only fixed rate debt will be eroded by inflation; variable rate and short-term debt will step up to higher rates.

Yes, that's why it has far more to go to revert to the mean of earnings and price. Earnings are also artificially inflated, and will drift down, and stock prices with them, we're just seeing the beginning of that process.

Here's someone else who called it over a year ago with some charts with counterpoint those you link:

https://www.hussmanfunds.com/comment/mc220925/

OR CAPE: https://www.multpl.com/shiller-pe

Note he's in good company, with Jeremy Grantham for example also warning of the same thing:

https://www.livewiremarkets.com/wires/grantham-this-is-a-bub...

Just to be clear, the argument is not 'everything is shit now because inflation', it is that the era of easy money has ended, significant inflation and war means a regime change in central bank intervention, and central banks will now tighten till things break. They haven't even managed to unwind QE yet and stop buying their own debt, will they ever? If they do, watch out.

This isn't doom and gloom, it's simple realism about the regime change in interest rates - the era of 0% money is gone, in its place we have a normalisation, which means a normalisation of frothy asset prices and a reversion to the mean of earnings and prices in many domains. Usually these things take a year or two to work out, it won't be a fast process.

I agree with most of what you wrote, but I think it misses that, in an era of 0% money, growth matters more than current profits and so firms rationally trade off the latter in pursuit of the former.

When that changes, I think you’ll see earnings rise as chasing growth now carries a higher cost.

That has changed with persistent inflation. We are now moving up from zero rates.

> Earnings are also artificially inflated, and will drift down

Citation needed. Maybe we are enter a local minimum, but what, you think off-stock-market value is not going to be brought onto the stock market?

I think you should try to raise a private capital fund and roll-up as many mom and pop retailers as you can, then.

How are earnings artificially inflated?

It's a common trope for people who don't like the fact that the stock market is trading at normal-ish P/E levels to say 'well the E is fake!!! Just wait until the E normalizes!'

Usually, they cite things like artificially low input costs (hard to argue that today), unsustainable demand from customers due to 'cheap money' (haven't seen evidence of that yet, the opposite actually), and a general disdain for advertising and retail business models (despite their long-term durability).

Yes, you are the clever one, everyone else just repeats tropes. Personal debt is at record levels, inflating earnings. That has to unwind at some point and it will be when the cost of money increases, which it will, if the Fed has to trigger a recession to do so. We're in a different regime now.

not to alarm you, but the sp500 is only above the pre pandemic high by about 7.5% while the Dow is below. inflation adjusted, sp500 is below pre pandemic highs.

It is a very dangerous and naive game to

1) 'Inflation adjust' asset prices (if you think the average stock-holder has anywhere near the spend patterns of the CPI basket, boy howdy do I have something to tell you about home ownership and income inequality: rent is 33% of the CPI bucket and that's an 'imputed cost' for the vast majority of stock-holders who own their homes)

2) Think 7.5% in 2 years is a 'bad return'

EDIT: Let's actually play a fun game, what's the real return of the SPY from the perspective of someone planning on taking a trip to Europe/The UK/Japan?

> The stock market's price level is well above where it was pre-pandemic

Nope. Only a few percent above and trending sharply downward:

https://finviz.com/futures_charts.ashx?t=ES&p=w1

10% in 2 years is a very normal return.

negative real returns

Not if your currency of record is the pound the yen or the Euro!

Only one of the reasons it's foolish to 'inflation-adjust' asset prices.

EDIT: Also one nit

> and trending sharply downward

If only the stock market's past performance were indicative of future trends!

Earnings and P/E in isolation are not good indicators. They should be at least discounted against the “risk-free” rate of return, which if you haven’t noticed is high relative to the past two decades with further increases to come.

What a needlessly condescending reply

I would imagine most HN posters have never done a DCF analysis in their lives but I know plenty of people who have which have never beat the market. Not sure I buy any model other than Graham-Dodd’s these days.

Sure, that’s probably a better model. I don’t see anything wrong with it and it has more parameters.

I just think P/E by itself is way too oversimplified and a pretty garbage metric when used in aggregate + historically due to things like interest rates, sector/business model skew, relative maturity of companies, etc also fluctuating over time. It’s like Week1 of value investing 101, not an actual metric by which you’d want to engage in value investing or historical analysis.

dot-com occurred in an environment where bond yields were considerably higher than they are now. Yet SP500 P/E wasn’t that much lower and had risen to higher levels than in 2021 despite yields being 3x higher.

Ok what's your equity risk premium? How'd you calc it?