31 replies to this topic

[libertas]

Well first of all, it is a very naive analysis. It disregards the closing of loopholes which will likely occur. Trump wants the earnings currently being sheltered overseas to be repatriated, and there will be a stick as well as a carrot. So while the tax rate will decrease, taxable income will increase.

 

Secondly, raw P/E is a pretty useless valuation measure. You can use Buffett's measure - market cap/GDP or Hussman's - GVA/GDP if you want the best predictive value. Needless to say, both are at hair-raising extremes and are unaffected by tax rates. Earnings are subject to so much manipulation - I've sat in the end of quarter meetings myself - that they are largely meaningless in the short term. CAPE aka Shiller P/E is not too bad, but it uses a 10-year average as well as an inflation adjustment so would see little impact from tax changes.

 

If you are looking for Schadenfreude at the expense of those who care about valuation (they can be referred to as investors, for short), look elsewhere.

Edited by libertas, 22 October 2017 - 01:30 PM.

[alexnewbee]

Well first of all, it is a very naive analysis. It disregards the closing of loopholes which will likely occur. Trump wants the earnings currently being sheltered overseas to be repatriated, and there will be a stick as well as a carrot. So while the tax rate will decrease, taxable income will increase.
 
Secondly, raw P/E is a pretty useless valuation measure. You can use Buffett's measure - market cap/GDP or Hussman's - GVA/GDP if you want the best predictive value. Needless to say, both are at hair-raising extremes and are unaffected by tax rates. Earnings are subject to so much manipulation - I've sat in the end of quarter meetings myself - that they are largely meaningless in the short term. CAPE aka Shiller P/E is not too bad, but it uses a 10-year average as well as an inflation adjustment so would see little impact from tax changes.
 
If you are looking for Schadenfreude at the expense of those who care about valuation (they can be referred to as investors, for short), look elsewhere.

Super!

[kinga200]

This is an old article. But gives you the S&P earnings estimates for 2017 based on various corp tax rates.
 
https://seekingalpha...-p-500-earnings
 
Based on this article, the S&P earnings estimate would be $151.70, if the corp tax rate reduces to 20% (assuming Trump's tax plan becomes a reality). At $151.70 earnings and today's price level of SPX 2570, the P/E would be about 16.9.
 
Without the tax cuts, the current P/E is at obscene levels, at around 25. If the tax plan is implemented, assuming 20% tax rate, the P/E would drop from 25 to 16.9.  That's a mountain of difference. All of sudden we drop from obscene valuation to normal valuations. 
 
The historic median P/E of S&P is around 15. So the fundmental guys will have little to complain about high valuations.
 
 
Post Tax plan here are some numbers
 
Now here's something to think about. Have you seen a major bull market top at fair valuations ? Nope. That means we are not going to top at a P/E of 17 but somewhere higher, much further away from the median.
 
At 16.9 P/E - S&P 2570 (Fair)
At 20 P/E - S&P  3034 (Overvalued)
At 25 P/E - S&P 3792 (Bubble territory)
 
I would wager that S&P will at least reach the overvalued territory, before this bull market ends.
 
Those who were buying post-elections were not stupid guys. They were the smart folks discounting all of this. While the dumb guys kept complaining about overvaluations all the way up. This will end like most other bull markets. The smart folks who bought at the bottom will distribute to the dumb folks who will capitulate at much higher levels.
 
Again this is all assuming the tax plan would get passed by both houses. Just some food for thought !

Didn't In the 80's Reagan was pushing big tax cuts while the market went higher then when he got them we had black Monday in 87.

Not say we have that bc after black Monday they put in the breaks plan.

I think they r pushing this market for Trumps agenda on tax. It's in case he doesn't get them they will drop this until he does.

At least that what the ex Goldman sec treasury has stated.

But if he does, it will drop just like it did in Reagan days.

Imho

[iloli way]

Good stuff all !

[NAV]

 

 

Secondly, raw P/E is a pretty useless valuation measure. You can use Hussman's - GVA/GDP if you want the best predictive value.

 

Really ?. The guy has been screaming overvaluation and a equity bubble since 2014 and has not participated in this huge rally. What predictive value ?

[NAV]

 

 

If you are looking for Schadenfreude at the expense of those who care about valuation (they can be referred to as investors, for short), look elsewhere.

 

I just googled "Schadenfreude". Why such bitterness ?.  Who's misfortune are we exactly talking about here ?

 

Any analysis i post will be against some beleifs and dogmas. I am not here to please everyone or balance my opinions so that it acceptable to all. At the same time, i can assure you, i don't post things intentionally to target and hurt people's feelings. 

Edited by NAV, 22 October 2017 - 09:17 PM.

[NAV]

You can use Buffett's measure - market cap/GDP or Hussman's - GVA/GDP if you want the best predictive value. CAPE aka Shiller P/E is not too bad

 

 

 

So you think the GDP numbers reported by the government is pure, on which the market cap/GDP or GVA/GDP depends. I thought the government numbers were phony. What about the Shiller P/E which again depends on the CPI numbers reported by the government ? I personally think the CPI is the most bogus number reported by the government. 

[alexnewbee]

You can use Buffett's measure - market cap/GDP or Hussman's - GVA/GDP if you want the best predictive value. CAPE aka Shiller P/E is not too bad
 

 
 
So you think the GDP numbers reported by the government is pure, on which the market cap/GDP or GVA/GDP depends. I thought the government numbers were phony. What about the Shiller P/E which again depends on the CPI numbers reported by the government ? I personally think the CPI is the most bogus number reported by the government. 

If you take the red pill - half of the companies are actually bankrupt, all banks are bankrupt. But we all dance as long as music plays.

[libertas]

You can use Buffett's measure - market cap/GDP or Hussman's - GVA/GDP if you want the best predictive value. CAPE aka Shiller P/E is not too bad

 

 

 

So you think the GDP numbers reported by the government is pure, on which the market cap/GDP or GVA/GDP depends. I thought the government numbers were phony. What about the Shiller P/E which again depends on the CPI numbers reported by the government ? I personally think the CPI is the most bogus number reported by the government. 

 

 

I don't have any opinion about "purity." The numbers are what they are, this is not about interpretation or opinion. Valuation has nothing to do with short term trading. It is a tool that allows one to reliably predict returns over the longer term, typically 10-12 years. These measures have historically offered highly reliable predictions of those returns. As valuation changes, available longer term returns vary between 20% or better to negative numbers, where they are now. It doesn't matter what the inputs mean or how they are arrived at, so long as the methodology is reasonably consistent over time. The resulting measure is either useful or not.

 

Maybe, this time is different. But I doubt it, so I am not invested in equities at this time. My  investments are in Treasuries, which offer better returns with the added benefit that I can predict them exactly with my trusty HP-12C, no need to use statistical predictions. When stocks become cheap again, I will switch.

 

I do a little bit of trading, but that is separate from investing. There, I am a disciple of Nassim Taleb.

Edited by libertas, 23 October 2017 - 08:38 AM.

[libertas]

BTW, "Schadenfreude" means taking pleasure in someone else's misfortune - it does not imply any role in actually causing said misfortune. I used it because there's no English word with the same sense and I wanted to convey the condescending nature of your post.

 

You consistently referred to people who consider the stock market overvalued as "dumb." Read your post. That is offensive and unjustified because we won't know who was right for several years. Obviously you feel that you are smarter than they are, but your post exhibits little understanding of why and how they make those claims, or even what they mean.

 

I am one of those people. I may be wrong, but I am not dumb. If I am wrong, it will be because correlations that have held for many decades will break down. It can happen. It will not be as a result of tax changes, however "huuuge" they may be.

 

I firmly believe in debate as the best way to discover truth. But ad hominem remarks should not form part of any debate.

Edited by libertas, 23 October 2017 - 09:11 AM.