There is no way the Federal Reserve is going to bail you out anytime soon

Financial crises have never been as severe as those that occurred in 2000.

The stock market peaked in 1999, surpassing the highs of 1929 for the first time. As a result of this, the crowd was convinced that the rally would go on forever. The veterans were given preference over the newcomers. Some stocks saw gains of 10, 20, or even 30% in a single trading day. Internet-related stocks had seen significant gains.

There is a lot of faith in the story.

Is it something you’ve heard of? As in the late 1990s, the current market speculative climate is similar to that of the early 2000s, but at a higher price.

P/E ratios have returned to or exceeded their 1999 levels since 1999. The current and 1929 prices show a significant difference.

Sales are more difficult to influence than P/E, so P/S is easier to manage.

The current P/S ratio is 50% larger than it was in 1999.

1.40 was Warren Buffett’s pre-crisis valuation ratio for the market, whereas 2.50 is today.

The Q-ratio for the S&P 500 can be calculated by dividing its market capitalization by its total replacement costs. Amount received by a private investor who has purchased property owned by a corporation. The ratio currently stands at 3.5 standard deviations above the normal range. rises in elevation over previous peaks (1999).

Compared to 1999, current prices are in the same range or higher. Economic conditions in each period aren’t taken into account here. In the near future, assume that the economy and business earnings will grow by double digits.

Economic and wage growth have slowed significantly over the last few years. In recent decades, debt-to-GDP ratios have risen dramatically. The economy’s growth is being stifled by demographics and productivity.

The Federal Reserve’s excessive measures have caused asset values to rise. Borrowing and stock buybacks are encouraged by low interest rates. Low-yielding bonds are unable to compete with stock returns.

The stock market continues to rise with the efforts of the Federal Reserve.

Investment returns have increased as a result of this trend.

They believe the Federal Reserve is capable of keeping stocks from collapsing. How long will the stock market be able to trade at artificially high levels after the Federal Reserve stops purchasing Treasuries?

CAPE valuations and 20-year expected return rates have a strong correlation. If the market maintains its current level, annualized gains of 1% to 2% are possible.

Irving Fisher claimed that equities had reached a “permanent high plateau” prior to the 1929 stock market collapse. Fisher has made one of the worst mistakes of his life. During the late ’90s, investors believed that the internet would usher in a “new era.”

Are Fed-controlled markets capable of raising stock prices above their historical averages while avoiding a market crash? Will the “new era” come to an end if the stock market crashes?

When it comes to the Fed’s role in the market, it’s no longer there to keep it afloat with more stimulus measures.

The Federal Reserve has completely shifted its focus from economic growth to inflationary pressures.

It’s possible you won’t believe me, but maybe you’ll believe Fed Chair Powell, who said to a Senate panel: “The risk of persistently higher inflation has clearly increased, and I think our policy has adapted.”

“Policy has adapted” equates to a tightening of monetary policy in an effort to rein in inflation.

There is no way the Federal Reserve is going to bail you out anytime soon.

This is something that high yield credit already knows. It’s only now that the stock market has figured out what’s going on.