The Death Of Irrational Exuberance

Jan. 22, 2022 9:35 AM ET27 Comments
John Overstreet profile picture
John Overstreet
1.87K Followers

Summary

  • Using the historical patterns outlined in this series, we look at potential absolute and relative returns across multiple multi-decade horizons.
  • Returns from 2022-2024 are likely to be very low and deflation-prone.
  • Returns from 2022-2030 are likely to be low, deflation-prone, and extremely volatile.
  • Returns from 2022-2040 are likely to be low, inflation-prone, and vulnerable to political risk.
  • There are multiple angles of attack for investors; a simple one would be a portfolio evenly divided between major asset classes.

Old books

ferrantraite/iStock via Getty Images

This is the final installment in a series exploring the relationship between stock prices and earnings, particularly with an eye to how much earnings growth will be needed over the long term in order for stocks to

PE ratio versus 20-year growth rates in earnings

Shiller

price and earnings equilibrium equation

John Overstreet

earnings yield and 20-year earnings growth

Shiller

real commodity prices versus earnings and dividend yields

multiple sources

total S&P Composite returns and contribution of dividends

Shiller

S&P total returns, absolute & relative to commodities

Shiller, World Bank, St Louis Fed

S&P Composite total returns vs bonds

Shiller

S&P Composite returns relative to commodities

Shiller, World Bank, St Louis Fed

real commodity prices vs S&P earnings yield

Shiller data, World Bank

Shiller CAPE versus correlation between earnings and yield

Shiller

14-year returns

Shiller

PEG ratio versus 7yr correlation between earnings and yield

Shiller

table of stock return scenarios

Shiller and own calculations

earnings yield vs earnings growth

Shiller

stock returns versus correlation between earnings and yield

Shiller data

volatility in earnings yield

Shiller

extrapolations from historical data

John Overstreet

hard reversion scenario

Shiller data and own extrapolations

2020s hard reversion scenario for earnings yield and growth

Shiller and own extrapolations

hard reversion scenario

John Overstreet

1930s earnings and stock prices

Shiller

ratio of stock to commodity prices

multiple sources

total stock returns versus commodity prices

multiple sources

stock/bond ratio

Shiller

bond/commodity ratio

multiple sources

hard reversion

Shiller & own extrapolations

S&P GSCI industrial metals index

Stockcharts.com

earnings yield, 10yr Treasury, consumer inflation

Shiller

earnings yield, growth, commodity inflation

multiple sources

This article was written by

John Overstreet profile picture
1.87K Followers
I study markets from a long-term historical view, especially the interaction between yields and inflation across all major asset classes. I have a bachelor's degree in political science, history, and intelligence analysis, and a master's in political theory. My Seeking Alpha articles have been mentioned in Marketwatch and Real Clear Markets. I have lived in Asia for twenty years.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am short tech stocks, long Treasuries, short commodities.

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