The Tyranny of Groupthink, by David Stockman

As SLL recently said, “Your first duty is to think for yourself.” A lot of people are about to find out why. From David Stockman at lewrockwell.com:

The broad market (S&P 500) is trading at the highest forward PE multiples since November 1999, but the financial press is rife with mendacious piffle claiming there is no bubble. For example, in celebration of Tuesday’s all-time high on the S&P 500, one James Mackintosh of the Wall Street Journal minced no words:

Except, the Everything Bubble is in the imagination of the many investors complaining about it. First, it isn’t everything. Second, it isn’t a bubble….

Right. Supposedly, the above statement is true because energy sector stock prices are in the tank, but the market is being rationally led by the tech giants where allegedly solid prospects for earnings growth are being rewarded with higher PE multiples owing to ultra-low interest rates.

…. Lower rates mean profits further in the future matter more to the share price, so companies with steady earnings no matter what the economy does are worth more. Those that are sensitive to the economy are worth less, because future earnings are expected to be hit. Growth stocks do incredibly well, because their future earnings are expected to be higher and, at least for those thought immune to economic weakness, worth more as well thanks to lower rates.

Apply this framework and there’s no bubble. U.S. stocks are more highly valued than in the past because they are dominated by big growth stocks, themselves justifiably more highly valued thanks to low rates.

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