What Did You Buy Today?

[Otter]

(03-25-2021, 11:21 AM)vbin Wrote:

(03-25-2021, 11:06 AM)Otter Wrote: A P/E of 15 representing a benchmark for value was formulated when the Federal funds rate was 6%. Even then, investors would traditionally pay 20 or more for "blue chips" or "aristocrats."

When interest rates crater 75% and stay near historical lows for more than a decade, asset competition comes into play. Money ends up invested somewhere. It tends to go where the largest potential returns are, which can re-set traditional valuations that were measured against the expectation of treasuries yielding 6%.

I'm not saying everyone should go out and load up their portfolios with junk-rated equities with no revenues to speak of, but TINA is a real phenomenon, and I am not too keen on fighting the Fed. I sold my SPY puts last year pretty damn quick after the Fed opened the money floodgates. There are absolutely zero signals from the Fed of a near-term tightening of monetary policy. All market-directed statements from Powell and Yellen signal exactly the opposite.

Oh Grantham had something to say on this on the lines of just becouse one thing is bad we are to go for something utterly ludicrous?(worth listening to his interview with bloomberg) What you are saying makes sense but the pe of 35-60 is still not justifiable. What stops feds to realize they have been wrong all along and raise interest rates to 3% and let's the zombies die out in short term.

Apple just 2-3 years ago was reading below 20 pe when people were hating it for not innovating suddenly it's the best on the street( mostly after buffet bought)

The Fed has two policy objectives: full employment and an annual inflation target of 2%. Neither would be served by a sudden raising of interest rates to 3%. Tied into those two considerations are the cost of servicing the national debt, which cannot be defaulted on (written into the Constitution). Making it harder for the government to service the debt, to the point that it impedes the orderly functioning of government, doesn't serve the interests of government. So, the treasury and Fed work hand in hand to make sure that doesn't happen. Economic policy is also partly national security policy. 

If the treasury cared about the current yield on the 10yr, the Fed would buy 10yr treasuries at whatever price/yield combo deemed sufficient to set the price of those instruments wherever treasury wants it to be. 

I have no idea what the proper yardstick for P/E "value" is with negative real interest rates (even the 10yr is negative on a real basis), which are at least 75% below historical standards. It can't be whatever the yardstick was before, but TSLA with its 1000+ P/E is probably too high.