Remember the past to understand the future

详细摘要

I know it doesn’t feel like it, but the ASX200 Total Return index nearly hit a new all-time high yesterday (see chart below).

It’s just another good reminder that in the short term, the market and the economy aren’t in sync.

I mean, by nearly all measures the economy is one of the worst we’ve experienced in many years outside of the COVID shutdown. High taxes, inflation, and interest rates are slowly strangling the middle and working classes.

If you’re asset rich and debt free, life is good, though. Higher interest rates mean returns on risk-free cash are around 5%.

Why would you buy Commonwealth Bank on a prospective yield of around 3%?

Everyone is buying Commonwealth Bank on a prospective yield of around 3% (or 4.3% grossed up for franking credits)!

The stock closed at a three-month high yesterday. It’s up 15% from its early October lows.

My guess is that a lot of money is coming out of the property sector and going into the market, with large caps like CBA being major beneficiaries.

Whether this continues to push the market to new all-time highs, I have no idea. But I do know that in the background, a low-growth economy caps earnings growth, and therefore long-term stock market returns will likely be poor from these elevated levels.

For a given level of earnings, the price you pay determines your future return. Given earnings growth remains weak (especially for domestically focused businesses like the banks), investors continue to pay a price that will likely deliver a poor long-term return.

文章开头，摘自Fat Tail Daily。如需阅读全文，请前往媒体网站。