Are we seeing a healthy market correction, or is this the beginning of something much bigger?
HEALTHY
Everyone’s calling AI a bubble.
In 2000, tech stocks cost double the market. Today they cost the same.
Bubbles don’t look like this.
In a bubble, the forecast feeds on itself. Booming spending (on internet build-out then, AI now) inflates expected profits, so a low forward P/E can be a low number built on peak forecasts.
I like to look at the Cynically adjusted PE radio (CAPE) which uses 10 yers of actual inflation-adjusted earnings. The down side it is BACKWARD looking, which means it's also robust to a rosy outlook.
In terms of bubble timing, I don't know, because the CAPE is a terrible timing tool. But it is a very good 10-year outlook tool one and at 40.9, history says expect low returns for the next decade.
HEALTHY
Everyone’s calling AI a bubble.
In 2000, tech stocks cost double the market. Today they cost the same.
Bubbles don’t look like this.
In a bubble, the forecast feeds on itself. Booming spending (on internet build-out then, AI now) inflates expected profits, so a low forward P/E can be a low number built on peak forecasts.
I like to look at the Cynically adjusted PE radio (CAPE) which uses 10 yers of actual inflation-adjusted earnings. The down side it is BACKWARD looking, which means it's also robust to a rosy outlook.
In terms of bubble timing, I don't know, because the CAPE is a terrible timing tool. But it is a very good 10-year outlook tool one and at 40.9, history says expect low returns for the next decade.
