Until a few weeks ago, the stock market was trading at the highest prices (measured against earnings) that we’d ever seen before in history. More expensive than 1929. More expensive than 2000. In fact, you had to go all the way back to 1844 (during the first railroad boom) to find a time where stocks were this expensive.
To maximize your future returns, it’s important that you buy great businesses when you can acquire them for substantially less than their intrinsic value. Here’s a real, current example of a great business trading at a truly attractive price.
While the possible collapse of the Treasury-bond market and the end of the global dollar financial system will certainly be catastrophic for many companies, there are still plenty of great businesses that will continue to provide goods and services and earn good profits.
In our democracy there’s a huge incentive for people to vote for benefits (money, credit, patronage) they do not have to pay for. These incentives create huge inefficiencies in our economy. Thus, Porter writes, it’s unlikely Elon Musk or anyone will be able to reduce government spending – and Social Security will disappear.
Stocks in the S&P 500 are currently trading at sky-high valuations. With a weakening economy, it’s only a matter of time before share prices fall to levels at which valuation multiples decline to historical averages.
Today we look at the key vulnerability facing the U.S. economy: the end of the wealth effect created from the greatest bull market of the last 50 years, and how it removes a key pillar of strength holding up the U.S. economy.