Oh dear. I’m getting fair value numbers in the 950-1050 range. I’m using a justified PE model and Shiller historical data to get the ERP and the S&P payout ratio, recent 12m earnings data from S&P and historical averages since 1960 for earnings growth. And 10y treasury yields for RFR. This suggests a justified PE of around 13 based off of earnings of $81.31, for a value of about 1057. Now $81.31 is trailing earnings, but the justified PE formula is for forward earnings. You can grow it by the historical average of 4.5% to get about 1100 (about where we closed today). So the big question is what the wealth shock will do to earnings next year. It’s VERY hard to figure out how big the hit is, but it will definitely come from wealth destruction AND from contractionary fiscal and perhaps monetary policy. The shock shouldn’t be as bad as 2008, because we don’t have a bank freezeup, but we did have contractions of about 10% in 1990 and 23% in 2001 (and 67% in 2008), so I think 10-15% might be a likely earnings hit. A 10% hit gives about 950. A 15% hit gives about 900. If people panic, we can easily overshoot that. And getting there will be panic for sure. But the good news is that you’re likely to get a nice rate of return if we overshoot that. Time to batten down the hatches, my friends. Unless Uncle Ben Bazookifies us, that is.
Ben and Tim are probably pissing themselves right now. Every time the markets tank, they go into panic mode.
I think someone said something very funny in this post, saying that market timing is easy… If you can really time the market pshhhhh screw CFA and MBA, just go to NYC and open up a hedge fund and make million dollars a day. When you do, I would like to invest everything (not much) I have if and only if you can time the market.