Key insights
- The post highlights concerns about high US equity valuations based on Shiller PE and market cap to GDP ratios, drawing comparisons to the 2000 tech bubble. It argues that international revenue exposure doesn't fully justify current valuations. The author points to high inflation-adjusted M1 money supply and attractive real yields on TIPS as bearish signals for equities, suggesting a potential shift towards safer, inflation-protected assets.
Shiller PE at 39.4, surpassed only by the peak of the 2000 tech bubble.
Back then, it took 15 years for real-dollar market prices to recover.
How about the market cap to GDP ratio? Way above year 2000 level.
But perhaps this is all because the SP500 is more international ... yet SP500 revenue share from abroad has been between 35% and 42% (+/- 3%) since these data start in 2002.
Anyway, I'm hedged out of the market.
I'm sure this time it's different.
Edit: here is inflation adjusted M1 money supply, and M1 divided by GDP. They spiked in 2021, then began falling modestly in 2001. I suggest the better measure is GDP adjusted. This shot up by a factor of four.
Then again, 30 year TIPS are yielding about 2.7% over inflation and represent a safe, inflation protected alternative to stocks that could significantly appreciate if there is a round of QE in a downturn.