The S&P 500 price earnings ratio has been relatively stable over the last few years, so the big changes in the equity risk premium are likely due to the increase in the interest rate with the end of quantitative easing.
Can trees grow to the sky?
https://www.cnn.com/2023/07/27/investing/dow-stock-market-news-today/index.html
If the Dow closes higher Thursday for a 14th consecutive session, that would be its longest run of consecutive gains since May 1897.
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Nope. Down today. (7/27/23)
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Lots of negative stuff out there today, prelude perhaps.
- much worse than expected GDP
- inflation remaining elevated
- a couple major tech stocks very weak on earnings (META, IBM)
- geopolitical heat, sanctions, etc, ramping up
Bond yields are over 5% and the next rate cut just disappeared. Stock market optimists are now hoping for just 1 cut in late 2024, and maybe 1 in spring’25.
GDP trend, not so hot. annualized growth rates for recent quarters:
https://www.bea.gov/data/gdp/gross-domestic-product
Q3 2023 +4.9%
Q4 2023 +3.4%
Q1 2024 +1.6%, expecting +2.4%
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Buffett has $190:billion cash to deploy if SHTF
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Historically, BKR has looked for bargains on companies they identified as having good long term strategies. Bargains have been slim at current market valuations though.
Plus BKR is so large now that buying promising midcap companies don’t really move the needle much.
And finally, it also doesn’t hurt him as much to sit on cash at current short-term treasuries returns. And he figures, one likely scenario for the short-term treasury rates going down is when SHTF and Fed start aggressively lowering rates. Perfect time then for BKR then to convert its cash pile no longer earning as much and find bargains.
I hold Berkshire in my HSA. A good stock since it pays no dividends and California treats an HSA as an ordinary account. It has performed well and provides some extra return above the treasury bills that I also hold in the account
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Anyone using Galileo FX?
Bullish case for Japanese stocks.
https://mail.biremecapital.com/japan-anchoring-bias-writ-large
The Japanese were overwhelmingly kind, considerate and humble. Economic inequality is low and social stability is high. The cities were clean, orderly and technologically advanced. Public transportation is excellent. Management took great pride in their work and were eager to meet potential investors… Unlike in the US, retailers do not suffer from petty theft. Companies do not struggle to find and retain reliable, hard-working, low-wage labor. Employees take pride in, and feel loyalty to, their employer. There is low risk of strikes and disruptive societal upheaval. While not an investment case in and of itself, these positive attributes should not be overlooked
Over the past decade they have pushed for companies to appoint independent directors, mandated English-language financial disclosures, and encouraged open dialogues with investors. They have also recognized that persistent undervaluation (nearly 40% of the top 500 companies in Japan trade below book value versusonly 5% of the S&P 500) serves no one. Thus, the exchange requested in March 2023 that all companies on the “Prime” and “Standard” markets analyze their implied cost of equity capital, disclose an improvement plan if necessary, and be conscious of their stock’s valuation when managing the business going forward. As a result of this pressure, corporate governance and capital allocation practices have improved across many different metrics
While this inflationary pressure might be painful for the Japanese consumer, it could be good news for holders of Japanese equities. During Japan’s long deflationary era, it has been more attractive to hold cash, which has kept its purchasing power, rather than equities, whose real value has decreased. In an inflationary environment, the reverse is true.
I know several good investors who made substantial investments in Japan over the last year along these lines.
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Their anti-immigrant policies combined w/ demographics are a headwind.
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for the economy, yes, but their stocks have been priced for that for a long time, and only in the last year or so have they started being pressured by the government to enact better shareholder governance, buybacks, etc. That can really move the needle in terms of valuations.
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The currency is another headwind, is it not? If we trade USD for JPY and JPY tanks, we lose. Even though the exchange rate is close to a multi-decade low (or maybe all-time low, I don’t know).
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Does that mean their aging population? Something else? If the former, that’s a tiny part of why the Nikkei has been in the doldrums, but mainly applies to their domestically focused companies. If the latter, please elaborate.
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I don’t think so, and hope not. It is near the 90’s rates, so that’s higher than it’s been for 30 years, but I think it’s got room to strengthen. My presumptions are based on inflation not yet being licked. If the fed got it right, I may take a small bath. 
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yes an aging population with not enough kids being born. Unlike the US, but primarily thru immigration.
Exports can only do so much, esp. with US and others becoming protectionist.
I do agree that valuations might have baked it in with Nikkei not doing much for 20+years.
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Also, don’t forget this is self-interested. As part of their Covid QE, the Japanese central bank bought like 7% of their stock market and still owns that stake. So rising valuations are good for their bottom line too.
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I’m not sure I follow. USD is higher and JPY is lower than it’s been for 30 years. You think JPY has room to strengthen against USD because US inflation isn’t over? But hasn’t JPY been falling against the USD during US inflation?
Short term. We’ve only had rampant inflation for the past 3 years.
I’d say it was only “rampant” for 2 of the past 3 years, but that’s another topic.
My point was that the yen is weakening against the USD while the USD is weakening due to US inflation, and if like you say US inflation continues, the yen would continue to weaken, no?
Since the BoJ is no longer printing yen, it should strengthen.