KennethNg
2021-04-09
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Don't Compare Today's Market With The 2000 Bubble
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":348806858,"tweetId":"348806858","gmtCreate":1617899269374,"gmtModify":1634295857479,"author":{"id":3568939926708961,"idStr":"3568939926708961","authorId":3568939926708961,"authorIdStr":"3568939926708961","name":"KennethNg","avatar":"https://static.tigerbbs.com/fb21175df05da17d9f0a2df034ac7468","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":4,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>👌🏼</p></body></html>","htmlText":"<html><head></head><body><p>👌🏼</p></body></html>","text":"👌🏼","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/348806858","repostId":1162076415,"repostType":4,"repost":{"id":"1162076415","kind":"news","pubTimestamp":1617894723,"share":"https://www.laohu8.com/m/news/1162076415?lang=&edition=full","pubTime":"2021-04-08 23:12","market":"us","language":"en","title":"Don't Compare Today's Market With The 2000 Bubble","url":"https://stock-news.laohu8.com/highlight/detail?id=1162076415","media":"seekingalpha","summary":"The 2000 bubble was about expectations about the future payoffs.The current stock market environment is a political economy bubble.Don't expect an imminent stock market crash now .Many market commentators are comparing the current stock market environment with the 2000 bubble. When you look at the S&P 500 valuations based on the CAPE Ratio , the stock market is almost as overvalued now as it was in 2000 at the peak of the dot.com bubble. So, it's understandable that many are drawing the compari","content":"<p><b>Summary</b></p>\n<ul>\n <li>The 2000 bubble was about expectations about the future payoffs.</li>\n <li>The current stock market environment is a political economy bubble.</li>\n <li>Don't expect an imminent stock market crash now (like in March of 2000).</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/afa0d9782d5f36404e2dc19a1ab2ea64\" tg-width=\"1536\" tg-height=\"884\"><span>Photo by anankkml/iStock via Getty Images</span></p>\n<p>Many market commentators are comparing the current stock market environment with the 2000 bubble. When you look at the S&P 500 (SPY) valuations based on the CAPE Ratio (as shown in the chat below), the stock market is almost as overvalued now as it was in 2000 at the peak of the dot.com bubble. So, it's understandable that many are drawing the comparisons - the current CAPE ratio at nearly 37 is the second highest in history, just below the 45 level in 2000. The CAPE ratio is looking at 10 years of inflation-adjusted earnings in relation to the price. The average CAPE ratio is around 16.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/3d86193efce2e067ea4c08b06b05eb8e\" tg-width=\"640\" tg-height=\"276\"><span>Source: Shiller PE Ratio (multpl.com)</span></p>\n<p></p>\n<p>However, the current stock market environment is very different when compared to the environment in 2000, and thus, I don't see an imminent stock market crash - like in 2000. In fact, the current stock market bubble can continue to inflate for long time.</p>\n<p><b>The 2000 bubble</b></p>\n<p>I worked on Wall Street in mid-1990, before starting a Ph.D. program where I wrote the dissertation on the dot.com bubble (part 1,part 2). So, based on my experience and research this is what happened in 2000:</p>\n<ul>\n <li><b>Dot.coms valued as lottery tickets.</b>There was a general understanding that we were entering \"the new economy\", where physical mortar and brick stores would eventually be replaced with on-line stores, our social lives would be moved to \"chatrooms\", etc. There were many companies trying to take the market share (in different segments) of what was perceived as an enormous market opportunity. We just didn't know which companies would take the lead and win the race. So, investors looked at each dot.com as a lottery ticket - where the payoff from the winner would be huge. Here is the example of the winner: Amazon (AMZN) - the winning lottery ticket.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/0563c290a95ccca8eb26e5fe85a92209\" tg-width=\"635\" tg-height=\"403\"><span>Data by YCharts</span></p>\n<ul>\n <li><b>The new economy and rational expectations</b>: Clearly, when you value a company as a lottery ticket, you ignore the current fundamentals and focus on the probability of future payoff. As a result, investors were biding the prices higher ignoring the earnings - most dot.coms had no profits and just modest revenues. Thus, the valuations, such as CAPE, were extremely overvalued - which is clearly irrelevant when you value a company more as a real option. Now we know, expectations in the mid-1990s were rational as our lives are currently deep into the digital economy, and there are clear winners.</li>\n <li><b>The Fed and irrational exuberance:</b>The Fed, led by Greenspan, acknowledged that there was \"irrational exuberance\" with respect to valuation of dot.coms in mid 1990's, but failed to act to restrain the bubble early. The problem with bubbles is that many individual investors get involved, speculate, and lose their savings, which could cause a systematic event by spreading to other sectors of economy. Thus, near the peak of the speculative bubble, the Fed did increase interest rates and invert the yield curve in February of 2000, which popped the bubble and eventually caused the recession of 2001, as shown below.</li>\n</ul>\n<p><img src=\"https://static.tigerbbs.com/056dc2123371133c60c9f78dbe7341ee\" tg-width=\"640\" tg-height=\"247\"></p>\n<p><b>The 2021 Bubble</b></p>\n<p>So let's be consistent and call the current market environment a bubble - strictly on valuation basis. However, the current environment is much different compared to the 2000 bubble. Here is how:</p>\n<ul>\n <li><b>Political economy bubble:</b>The stock market has been hijacked by the politics, which could traced to the 2008 US election, when the stock market crash contributed to the Obama victory. The Obama administration run the election on left-platform, but moved to the center in March of 2009 with the Wall Street bailout, which marked the bottom of the stock market crash, and commenced the bull marked still in place today - if you ignore the short pandemic shock in 2020. In fact, the Trump administration publicly embraced the stock market as the barometer of policies in place and cheered the each successive record market close. It's still early in the Biden administration, but Biden clearly run as a centrist and, obviously, the fiscal spending programs will ultimately end up on corporate income statements.</li>\n <li><b>The Fed independence in question</b>: As previously explained, the 2000 bubble was ultimately popped by the Fed. Now, the Fed publicly justifies the bubble-like valuations as irrelevant when compared to low interest rates - the TINA argument promoted by the Fed (there is no alternative to stocks). Fed Chair Powell tried to increase the interest rates in 2019, but quickly reversed the policy and lowered the interest rates after the sharp stock market correction. Now, the Fed basically guarantees the near-zero percent interest rates indefinitely as long as inflation does not significantly exceed 2% for some time. Note, the yield curve was inverted in 2000, and now it's approaching positive the 2% level. Stocks don't crash in this type of macro environment.</li>\n</ul>\n<p><b>Implications for investors</b></p>\n<p>The 2000 bubble was all about expectations about future pay-off from the digital economy, which were rational as we now know, but got out of hand somewhat. The Fed prudently popped the bubble. The current market environment is based primarily on the political economy: election cycles and intertwined fiscal and monetary policy. Thus, this bubble can continue to inflate for some time.</p>\n<p>However, there are segments in the current market that resemble the 2000 environment, most notably the EV market. Companies like Tesla (TSLA) command high valuations based on expectations on exponential growth in the EV market, and investors are trying to pick the winners. This segment is vulnerable to sharp correction - and some companies might not survive.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Don't Compare Today's Market With The 2000 Bubble</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDon't Compare Today's Market With The 2000 Bubble\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-04-08 23:12 GMT+8 <a href=https://seekingalpha.com/article/4418159-dont-compare-todays-market-2000-bubble><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nThe 2000 bubble was about expectations about the future payoffs.\nThe current stock market environment is a political economy bubble.\nDon't expect an imminent stock market crash now (like in ...</p>\n\n<a href=\"https://seekingalpha.com/article/4418159-dont-compare-todays-market-2000-bubble\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{".IXIC":"NASDAQ Composite",".DJI":"道琼斯",".SPX":"S&P 500 Index"},"source_url":"https://seekingalpha.com/article/4418159-dont-compare-todays-market-2000-bubble","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1162076415","content_text":"Summary\n\nThe 2000 bubble was about expectations about the future payoffs.\nThe current stock market environment is a political economy bubble.\nDon't expect an imminent stock market crash now (like in March of 2000).\n\nPhoto by anankkml/iStock via Getty Images\nMany market commentators are comparing the current stock market environment with the 2000 bubble. When you look at the S&P 500 (SPY) valuations based on the CAPE Ratio (as shown in the chat below), the stock market is almost as overvalued now as it was in 2000 at the peak of the dot.com bubble. So, it's understandable that many are drawing the comparisons - the current CAPE ratio at nearly 37 is the second highest in history, just below the 45 level in 2000. The CAPE ratio is looking at 10 years of inflation-adjusted earnings in relation to the price. The average CAPE ratio is around 16.\nSource: Shiller PE Ratio (multpl.com)\n\nHowever, the current stock market environment is very different when compared to the environment in 2000, and thus, I don't see an imminent stock market crash - like in 2000. In fact, the current stock market bubble can continue to inflate for long time.\nThe 2000 bubble\nI worked on Wall Street in mid-1990, before starting a Ph.D. program where I wrote the dissertation on the dot.com bubble (part 1,part 2). So, based on my experience and research this is what happened in 2000:\n\nDot.coms valued as lottery tickets.There was a general understanding that we were entering \"the new economy\", where physical mortar and brick stores would eventually be replaced with on-line stores, our social lives would be moved to \"chatrooms\", etc. There were many companies trying to take the market share (in different segments) of what was perceived as an enormous market opportunity. We just didn't know which companies would take the lead and win the race. So, investors looked at each dot.com as a lottery ticket - where the payoff from the winner would be huge. Here is the example of the winner: Amazon (AMZN) - the winning lottery ticket.\n\nData by YCharts\n\nThe new economy and rational expectations: Clearly, when you value a company as a lottery ticket, you ignore the current fundamentals and focus on the probability of future payoff. As a result, investors were biding the prices higher ignoring the earnings - most dot.coms had no profits and just modest revenues. Thus, the valuations, such as CAPE, were extremely overvalued - which is clearly irrelevant when you value a company more as a real option. Now we know, expectations in the mid-1990s were rational as our lives are currently deep into the digital economy, and there are clear winners.\nThe Fed and irrational exuberance:The Fed, led by Greenspan, acknowledged that there was \"irrational exuberance\" with respect to valuation of dot.coms in mid 1990's, but failed to act to restrain the bubble early. The problem with bubbles is that many individual investors get involved, speculate, and lose their savings, which could cause a systematic event by spreading to other sectors of economy. Thus, near the peak of the speculative bubble, the Fed did increase interest rates and invert the yield curve in February of 2000, which popped the bubble and eventually caused the recession of 2001, as shown below.\n\n\nThe 2021 Bubble\nSo let's be consistent and call the current market environment a bubble - strictly on valuation basis. However, the current environment is much different compared to the 2000 bubble. Here is how:\n\nPolitical economy bubble:The stock market has been hijacked by the politics, which could traced to the 2008 US election, when the stock market crash contributed to the Obama victory. The Obama administration run the election on left-platform, but moved to the center in March of 2009 with the Wall Street bailout, which marked the bottom of the stock market crash, and commenced the bull marked still in place today - if you ignore the short pandemic shock in 2020. In fact, the Trump administration publicly embraced the stock market as the barometer of policies in place and cheered the each successive record market close. It's still early in the Biden administration, but Biden clearly run as a centrist and, obviously, the fiscal spending programs will ultimately end up on corporate income statements.\nThe Fed independence in question: As previously explained, the 2000 bubble was ultimately popped by the Fed. Now, the Fed publicly justifies the bubble-like valuations as irrelevant when compared to low interest rates - the TINA argument promoted by the Fed (there is no alternative to stocks). Fed Chair Powell tried to increase the interest rates in 2019, but quickly reversed the policy and lowered the interest rates after the sharp stock market correction. Now, the Fed basically guarantees the near-zero percent interest rates indefinitely as long as inflation does not significantly exceed 2% for some time. Note, the yield curve was inverted in 2000, and now it's approaching positive the 2% level. Stocks don't crash in this type of macro environment.\n\nImplications for investors\nThe 2000 bubble was all about expectations about future pay-off from the digital economy, which were rational as we now know, but got out of hand somewhat. The Fed prudently popped the bubble. The current market environment is based primarily on the political economy: election cycles and intertwined fiscal and monetary policy. Thus, this bubble can continue to inflate for some time.\nHowever, there are segments in the current market that resemble the 2000 environment, most notably the EV market. Companies like Tesla (TSLA) command high valuations based on expectations on exponential growth in the EV market, and investors are trying to pick the winners. This segment is vulnerable to sharp correction - and some companies might not survive.","news_type":1},"isVote":1,"tweetType":1,"viewCount":257,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/348806858"}
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