Key insights
- The article argues that a potential SpaceX IPO, with an estimated valuation exceeding $1.5 trillion and a high PE ratio, would significantly inflate the Shiller P/E ratio, potentially shattering historical overvaluation records seen during the dot-com bubble. This suggests a highly overvalued market, driven by a transfer of private company valuations to public markets, implying a bearish outlook for future equity returns.
For the people unaware, the Shiller P/E ratio or CAPE ratio divides the current price of the S&P 500 by its inflation-adjusted earnings over the previous 10 years to smooth out economic cycles. It's a less noisy version of PE ratios. Currently sitting at a monthly 42.80 Shiller PE ratio, we are still a smidge away from the high water mark of 44.19 achieved in the dot com bubble. However, when SpaceX IPOs at anything above $1.5 trillion valuation, and a PE ratio close to a 1,000 we will shatter that record. SpaceX would be a top 12 company by valuation, so their inclusion alone would will without a doubt make the market the most overvalued we have ever seen. Obviously the inclusion doesn't change anything about the current underlying dynamics. We live in the everything bubble this is merely an accounting transfer from private companies to go public so the froth is appropriately measured. If Anthropic, or OpenAI did an IPO this year the numbers will look much worse.
The same analysis would be true if we used the Buffet indicator, or any indicator that doesn't rely on forward earnings. So congratulations on living in the most overvalued markets of history. May value investing prove of worth to you when the reversal comes.
Sources: https://x.com/ThierryBorgeat/status/2039957208721445269?lang=en https://www.multpl.com/shiller-pe