Some topics covered in this Live Steam…
Are stocks cheap or expensive?
The S&P 500 has been holding near all-time highs for the past couple of months after falling farther than 30% around the same time last year following the outbreak of COVID-19.
While the real economy struggles to find workers and move goods around, the stock market has been full steam ahead which has led many to wonder whether it is overvalued.
If we look at a few historical metrics to measure the valuation of the market, we get a mixed picture.
The Buffet Indicator, or the total market cap to GDP ratio, is a popular metric to measure the stock market’s valuation. Currently, the Buffet Indicator sits at over 200%. Comparing this value to the stock market crashes of 2000 and 2007 when the ratio sat at 140% and 105% respectively, we could conclude that the stock market is grossly overvalued at recent prices.
A look at the Shiller P/E (CAPE) Ratio draws a different conclusion. As of June 2021, this ratio sits around 38. While this is the second-highest ratio on record, the Shiller P/E Ratio peaked at the height of the Dot-Com Bubble in 1999 at just over 44, indicating this market could have more room to run.
But no matter how high the ratio might go, the subsequent result is always the same.
Reverse Repos Surging
After going quiet for about a year, the Fed’s reverse repo program has surged back to life since the beginning of April. With most recent chart showing over $800 billion a day in treasuries being sold by the Fed to the commercial banking system in overnight lending.
These numbers have been followed by mixed commentary, including some who believe this to be a sign that the Fed’s $120 billion a month bond purchasing program is no longer providing ample liquidity to the financial markets as intended.
Check out this episode of the Rebel Capitalist Show for an in-depth explanation of the Repo market insanity!
When will the Labor Shortage End?
Everyone not living in the bubble that is Washington D.C. can tell you there is a massive shortage of labor impacting most of the country. After coming out of forced closures, businesses are open and hoping to return to their pre-covid operating levels.
But for many businesses, this has not been the case. Not because of a lack of demand from customers, but from a lack of labor to perform normal business functions. This has resulted in restaurants reducing hours and available seating, manufacturing facilities halting lines, and small businesses offering exorbitant hourly rates and signing bonuses to try and attract labor.
Many people attribute this labor shortage to the $300 per week enhanced federal unemployment assistance that will run until September 6. This payment has effectively paid people to stay home rather than work.
Many states have decided they are not going to wait until September and halted these extra payments for their citizens. A move they hoped would bring people back into the workforce.
Indiana was one of these states who decided to end these enhanced federal payments. However, it did not take long for a judge to rule that the state must reinstate the payments.
It will be interesting to see if this decision stands and whether it impacts other states’ dismissals of the extra payments.
Whether or not the extra federal payments are the only source of the labor shortage, they certainly cannot be helping.