Valuations Don’t Matter When Money Is Fake
Valuations Don’t Matter When Money Is Fake
What if 40x earnings isn’t overvalued anymore?
Because I’m feeling masochistic today, I decided to play devil’s advocate and temporarily shelve the endlessly recycled takes about an imminent market crash. Instead, I tried to stretch my brain far enough to imagine a world in which the stock market rallies another 25% to 50% over the next couple of years, not because it should, but because it can.
Nearly everything I’ve written over the past few years has revolved around how grotesquely overvalued the market is. Pick your metric. The Buffett Indicator is screaming. Traditional price-to-earnings ratios are absurd. The Shiller CAPE is parked near all-time highs yet again. Historically, these measures existed to anchor investors to something resembling reality, accounting for cycles, earnings power, and the inconvenient fact that prices are supposed to relate to value. Today, they are waved away by growth narratives and financial influencers who treat valuation like an outdated superstition.
But let’s entertain a heretical thought. What if 40x earnings isn’t overvalued anymore?
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