Stock market valuations in the US and around the world have reached crazy levels. Does that mean we’re due for a crash, or could we actually go even higher?
I don’t know if you caught the news, but last month, Apple won the race to be the world’s first trillion dollar company.
Think about that for a sec. That’s a company worth 1,000 x 1,000 x a million dollars.
And it wasn’t like Apple was out on their own. There were a few companies in the peloton, and Amazon stuck a toe over the trillion dollar line itself earlier in the week.
Google, Microsoft, even Facebook seem like they’re within striking distance too.
The idea of a trillion dollar company is mind-blowing. That makes single companies, under the helm of single individuals more wealthy and more powerful than some entire continents.
(Antarctica, looking at you. You’re not pulling your weight.)
I mean, it makes Apple worth more than all but 15 countries.
But what’s going on here? Is this the sign of an economy on the ever upward on onward? Or is it just the next piece of evidence that the whole show is just bat-sh!t crazy?
What do you reckon?
It is true that the US share-market is on a bull-run. It’s having a good year when many major countries are not. Like China. Compare China and America’s stock markets since the start of the year:
America is pumping along. China is having a dog of a year. (Hey? Pun of the year, anyone? Anyone?)
That’s good news, right?
Well, yes, mostly. But some people worry that things are getting a little bubbly.
And there are some grounds for that concern. On a few measures, America is getting back to some previous-bubble highs.
Like, take the ratio of price to sales – the value of a company relative to its revenue, for example.
There’s two ways to look at it across the entire share market, (one straight, the other weighting companies by their capitalisation), but both are looking pretty bumper.
One has doubled since the GFC. The other is back to a peak not seen since the dot come bubble.
So… is that ominous? Or is it just what we would expect the market to be doing?
That’s a million dollar question right there. But for me, I think this is something that needs an explanation. If there’s not a good reason for it, then I think we should be worried. It might just look like the traders on Wall St were getting a little too high on the sugar otherwise.
But I think there is a good reason for it.
Now hang on, hear me out. I’m not saying he’s a brilliant economic manager or anything like that.
But, what I am saying is that the policies he’s brought in – particularly the tax cuts and the tariffs on foreign production, are having real impact.
I don’t know if that’s an impact he was actually anticipating, but that doesn’t matter. It’s happening.
And what’s happening? This is:
That’s the amount of money being repatriated (brought back home) to America by American companies.
In just the first quarter of this year alone, American companies repatriated a massive $300 Billion.
That’s more money in a single quarter than in pretty much the previous seven years, COMBINED!
So money is rushing on home.
And what is going to happen to all that money? Some will go into share buy-backs probably, but much will be invested and turned into economic activity.
So this is some serious good news for the American stock market. And on that measure alone, not to mention a cyclical uplift that’s already so good that the Fed has raised rates seven times in the past couple of years – on that measure alone, I’d be expecting the stock market to be posting some very healthy results.
Which they are.
So I’m not seeing a bubble here… not yet.
And that probably means that the trillion dollar company is probably here to stay.
What a proud moment for humanity.