{"id":29924,"date":"2018-01-19T09:56:36","date_gmt":"2018-01-19T14:56:36","guid":{"rendered":"http:\/\/olduvai.ca\/?p=29924"},"modified":"2018-01-19T09:56:36","modified_gmt":"2018-01-19T14:56:36","slug":"measuring-the-equity-bubble-you-are-here","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=29924","title":{"rendered":"Measuring The Equity Bubble – “You Are Here”"},"content":{"rendered":"
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Measuring The Equity Bubble – “You Are Here”<\/span><\/a><\/h3>\n<\/div>\n
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On best <\/strong><\/u>revisions for GDP and earnings in 2018 after Tax reform, the S&P is now less expensive than before, at just 57% above historical average…<\/em><\/strong><\/p>\n

\"https:\/\/www.zerohedge.com\/sites\/default\/files\/inline-images\/20180118_PEG1.jpg\"<\/a><\/p>\n

In this brief note,\u00a0we wanted to update our value indicator for the S&P, after the\u00a0steep consensus upgrades to US earnings and US GDP that followed the US tax reform. <\/strong><\/em><\/p>\n

We assess how big of an improvement should we see after the reform, assuming a GDP growth of 3.40% in 2018, which is the average of the 10 highest analysts\u2019 forecasts surveyed by Bloomberg, and assuming a 26% jump in earnings in 2018, again at the top end of surveys. We conclude that, against such most generous estimates,\u00a0the \u2018Peak PEG\u2019 ratio for the S&P improved by almost 10%, or, rephrased, it is almost 10% off peak.<\/strong><\/p>\n

It follows that\u00a0the S&P is now above historical averages by a mere 57%.<\/strong><\/em><\/u><\/p>\n

The Peak PEG ratio, using Peak Earnings and Trend Growth<\/u><\/strong><\/p>\n

The\u00a0\u2018Peak PEG\u2019 ratio<\/a>\u00a0is a\u00a0variation of the Shiller P\/E and the Hussman P\/E indicators. It measures the price-earnings to growth ratio (PEG ratio) not for a single stock but for the market as a whole.\u00a0The \u2018Peak PEG ratio\u2019\u00a0is a price to peak-earnings multiple, adjusted for long-run trend growth.<\/strong> It considers the highest (rather than average) earnings over the previous 10 years (top 2 quarters on the last 40) and then divides for\u00a0growth potential. It uses top earnings so to conservatively assume the best profit generation capability for stocks in a decade to persist, thus defusing a common critic to the\u00a0Shiller P\/E. It uses GDP trend growth so to proxy earnings growth potential, which is highly correlated to it over time.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Measuring The Equity Bubble – “You Are Here” On best revisions for GDP and earnings in 2018 after Tax reform, the S&P is now less expensive than before, at just 57% above historical average… In this brief note,\u00a0we wanted to update our value indicator for the S&P, after the\u00a0steep consensus upgrades to US earnings and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[17355,16042,18018,18017,353,391,18020,18019,696,4318],"class_list":["post-29924","post","type-post","status-publish","format-standard","hentry","category-economics","tag-earnings-growth","tag-equity-bubble","tag-fasanara-capital","tag-francesco-filia","tag-gdp","tag-growth","tag-peak-earnings","tag-peg-ratio","tag-sp","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29924","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=29924"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29924\/revisions"}],"predecessor-version":[{"id":29925,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29924\/revisions\/29925"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=29924"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=29924"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=29924"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}