‘You Are Here.’ Questions?

Listen, if you’re out there trying to pretend like this market isn’t expensive, do yourself a favor: just stop. Because you’re embarrassing yourself.

The thing about being irrational is that it’s always better to just admit that’s what you’re doing up front and then quickly double down by exclaiming that you plan to keep being irrational right up to and until being irrational stops being profitable. That’s far preferable to trying to pretend like your behavior isn’t manifestly unreasonable.

But a lot of people still don’t understand that, despite being the very same people who parrot the “would you rather be right or make money?” meme. If you are regurgitating that nonsense, then almost by definition you understand that staying long here (or worse, getting long here) isn’t the “right” thing to do where “right” means prudent. You’re simply staying bullish because that’s what’s been working. So at the very least, don’t be that guy who implicitly acknowledges that we’re in a mania but simultaneously rationalizes valuations. That’s just God awful to listen to.

As we look ahead to the announcement of Fed balance sheet normalization and ponder whether rising yields could end up triggering a pullback in equities, I wanted to take a minute to excerpt a few things from a new Barclays note just so understand that “you are here” – so to speak.

First, “you are here”:

Barclays: Today, the US stock market is on a Shiller PE multiple near 30x. Relative to a history going back to 1881, US stock markets have only been more expensive twice: 1) during the latter stage of the Tech bubble; and 2) during the late-cycle surge that preceded the great depression in 1929.

Next, “you are here”:

Barclays: The biggest stock market region in the world, the US, is outright expensive on almost any valuation metric we can find. Most other regions, including Europe, look cheap. On Price/Book, the gap in valuation between US stocks and Non-US stocks is considerable (Figure 8). The US stock market on Price/Book is now more expensive than the levels seen in 2007.

Finally, “you are here”:

Barclays: The expensiveness of the US is not restricted to a few Technology stocks. The expensiveness is also not a function of mega cap stocks being expensive, and the remainder of the market being cheap. In Figure 9 and Figure 10 we highlight the 12m fwd PE multiple and the Price/Book ratio for the median US and European stock. On both measures we find that US stocks still look near the most expensive levels seen in history.

Questions?