Warning on Exuberant Valuations and Future Negative Returns

about 1 month ago

"However, when it comes to buying businesses, if you look at the S&P 500 P ratio over the last few years, it almost tripled. So, if the SAP now is at, I don't know, 9,000 points. If we revert back to historical valuations, we are down to 4,500, 4,000 points. That is just valuation. So this exuberance led to everyone just paying for stocks whatever the price is historically. And of course you say the government cannot allow it because if interest rates go higher, real home prices fall, pension funds, 401ks fall, other financial assets."

The speaker highlights that the S&P 500 price-to-earnings ratio has nearly tripled compared to historical levels, suggesting that current market exuberance may lead to negative real returns over a decade. The commentary ties high valuations to potential risks such as falling home prices and pension fund losses if interest rates rise.