Sobering read about peak fever…

It isn’t a thesis to end all theses on the subject but I thought that bringing up the debt/leverage levels was a reasonably new insight into recent peaks and current comparisons. For those interested in FFAANNG stocks there’s a cursory comparison to the dotcom equivalent darlings.



I find this article to be very misleading. A couple of examples:

Those who do not wish to draw any parallels between today’s stock market and the 1999-2000 tech stock bubble typically claim that "all of those turn-of-the-century dot-coms weren’t making any money.

Actually, the first thing those of us who don’t think the market now is similar to the dot com bubble don’t say that. We know that just because a company is not profitable does not mean it’s a bad investment (just a risky one). No, the biggest gripe we have is that the valuation of the FANG stocks now is nowhere near the dot com craze. And by that I mean it’s 20-50 times cheaper now than it was in year 2000.

especially when one considers an average P/E of 130 for “FANG.”

P/E is a bad measure for companies with low earnings. Even a company with a market cap of $1000 will have an astronomical P/E if its earnings are close to zero. In such cases you have to look at P/S (or EV/S). In '99/'00 the P/S of companies like Yahoo was aproaching 300. The P/S of FANG now is under 5! But FANG are not really an equivelant of the dot com “darlings” the author is talking about. A company like SHOP would be such an equivalent and that is valued at 20 times revenue. That’s still 15 times cheaper than the “darlings” of the 1999 era!

Second, the ratio of American households’ net worth to disposable income in 2000 hit 620%, due primarily to an 18-year old secular bull market and tech stock euphoria. It was unsustainable, however, largely because the ratio had rarely deviated more than 1 standard deviation from its mean and because asset prices had frequently correlated with after-tax wage growth. Similarly, the ratio hit 650% on residential housing jubilation prior to the financial collapse in 2008. That too was unsustainable. Now we have “FANG” stocks emulating the “Four Horsemen,” the median stock bubbling over with froth, and real estate prices in key parts of the country stretching affordability. Should investors really be dismissive of the ratio in 2017?

Here’s the problem with the chart:
a) The Households and Nonprofit Organizations; Disposable Personal Income chart looks like this:
b) The Households and Nonprofit Organizations; Net Worth, Level:
c) Households and Nonprofit Organizations; Net Worth as a Percentage of Disposable Personal Income:

How the hell can a ratio of a) and b) look like c)?!

Well, I can tell you how - they clipped 70% of the bottom part of the chart away and thus made the froth at the top of the chart look like large cliffs. Very sneaky.

The greater problem with the chart is that is does not have much to do with stock market performance beyond a cursory shape comparison. For instance around the fall off in the ratio c) around year 2000 was caused by house prices stagnating when the personal disposable income grew. That does not sound like a bad thing and also it has got nothing to do with dot com bubble. On the other hand the drop off in 2007 has got everything to do with the housing bubble and was terrible. So which case is the author tying to apply to today?

It seems to me that the author is just doing chart voodoo - saying this chart looks like that one - and not considering the inherent meaning in the data.