Show Transcript
After months of flirting with record highs, fears of mounting inflation are putting pressure on global stock markets. Kim Parlee talks to Phil Davis, founder of Philstockworld.com and PSW Investments, on whether market valuations are running ahead of the economic recovery.
Print Transcript
- Here to give us his take on what he's seeing in the markets plus a little more after that, we've got Phil Davis. He is founder philstockworld.com and founder of PSW Investments. Phil, it's great to see you. And just as I was starting things out, I talked a bit about, we've seen some real volatility in tech, some real volatility in growth. Not so much in the S&P 500 yet, still near all-time highs. What's your take on what's going on right now?
- Well, I think, fortunately, some of the large caps still have some value in them, and they're not so terribly overpriced as the tech stocks. But the valuations on a lot of stocks-- the S&P has a lot of conservatively-priced stocks, so it's not as bad. But when you look at the NASDAQ-- and you look, especially since the NASDAQ is so weighty to the 100, and the 100 is weighty to just 10 stocks, basically, these valuations are getting completely insane.
And even the whole S&P, though. I mean, the S&P's PE ratio is 35 at this point. And that's-- usually it's 16, so the market is way overpriced. And that's giving you the volatility. I mean, just any little misstep, and everybody kind of pulls back a little.
- So give me your sense there. I mean, with the S&P 500 priced where it is, and part of that being buoyed by industrials, financials, commodities that are helping push up all that inflationary side. But there's a lot of money being-- a lot of stimulus, there's a lot of obviously low rates from central banks. So is that justified? Or do you see the path forward, I guess, for the overall markets?
- Well, I think this is a problem. I think it's a weird thing because we're obviously at all-time highs. It means we weren't this high before the pandemic. And how is it that we're pricing in at all-time highs, the best market ever, when we're still shut down for half a year? And the US is starting to open back up, but Canada, still, you guys are still on lockdown, more or less. India's a disaster. There are more worldwide COVID cases now than ever. There are more deaths every day than ever in total around the world.
We are effectively just saying, oh, it looks good here. We're good here, so everything's going to be good again. But still, half the revenues for the S&P 500 come from overseas, and this is a heavily, heavily stimulated economy. How can you possibly look at that-- it's like when someone's in a coma and they're hooked up to life support and you say, oh, they're having a good day today. They're in a coma. If you pull the life support, they're dead. We don't know what this economy is going to be like when they pull that support.
- It's a lot of support, though, Phil. Like, it is a lot of support.
- It is a lot of support. And that's the thing, though. If you have this coma patient and they're hooked to the machines and whatever, and if you're going to make a bet and say, if I come back tomorrow, will they be alive or dead? You can bet on alive, because those machines are going to keep them alive. It's when you remove the machines. And the question is, how long can we keep doing this? How long can we put this 10%, 20% of our GDP in stimulus and go 10% to 20% more in debt every year? How long can we keep that up?
- So what's the catalyst? I mean, what do you see as catalysts as we move ahead? I'd say if I looked up to Canada, Bank of Canada has started talking about raising rates. That's not on the table for a lot of other countries right now. But what's going to be the catalyst to shift what's happening right now, in your opinion?
- I think the catalyst is the runaway inflation you're bound to cause if you doubled the money supply in the last couple of years. And what's happened is the money supply has doubled, but the velocity of money has gone almost to zero, of course. Because you're not out spending money. You're spending money on Amazon and a few key things. But generally, we're all sitting at home doing nothing, not spending money, not going out, not doing a lot. Eating takeout and stuff is doing good. Certain things will do good that you're doing, but the wider economy is incredibly, incredibly bad shape.
But there's all this money sloshing around just not doing anything. So once people start moving the money around, then you get that money multiplier effect and inflation kicks in really hard and fast.
[MUSIC PLAYING]
- Well, I think, fortunately, some of the large caps still have some value in them, and they're not so terribly overpriced as the tech stocks. But the valuations on a lot of stocks-- the S&P has a lot of conservatively-priced stocks, so it's not as bad. But when you look at the NASDAQ-- and you look, especially since the NASDAQ is so weighty to the 100, and the 100 is weighty to just 10 stocks, basically, these valuations are getting completely insane.
And even the whole S&P, though. I mean, the S&P's PE ratio is 35 at this point. And that's-- usually it's 16, so the market is way overpriced. And that's giving you the volatility. I mean, just any little misstep, and everybody kind of pulls back a little.
- So give me your sense there. I mean, with the S&P 500 priced where it is, and part of that being buoyed by industrials, financials, commodities that are helping push up all that inflationary side. But there's a lot of money being-- a lot of stimulus, there's a lot of obviously low rates from central banks. So is that justified? Or do you see the path forward, I guess, for the overall markets?
- Well, I think this is a problem. I think it's a weird thing because we're obviously at all-time highs. It means we weren't this high before the pandemic. And how is it that we're pricing in at all-time highs, the best market ever, when we're still shut down for half a year? And the US is starting to open back up, but Canada, still, you guys are still on lockdown, more or less. India's a disaster. There are more worldwide COVID cases now than ever. There are more deaths every day than ever in total around the world.
We are effectively just saying, oh, it looks good here. We're good here, so everything's going to be good again. But still, half the revenues for the S&P 500 come from overseas, and this is a heavily, heavily stimulated economy. How can you possibly look at that-- it's like when someone's in a coma and they're hooked up to life support and you say, oh, they're having a good day today. They're in a coma. If you pull the life support, they're dead. We don't know what this economy is going to be like when they pull that support.
- It's a lot of support, though, Phil. Like, it is a lot of support.
- It is a lot of support. And that's the thing, though. If you have this coma patient and they're hooked to the machines and whatever, and if you're going to make a bet and say, if I come back tomorrow, will they be alive or dead? You can bet on alive, because those machines are going to keep them alive. It's when you remove the machines. And the question is, how long can we keep doing this? How long can we put this 10%, 20% of our GDP in stimulus and go 10% to 20% more in debt every year? How long can we keep that up?
- So what's the catalyst? I mean, what do you see as catalysts as we move ahead? I'd say if I looked up to Canada, Bank of Canada has started talking about raising rates. That's not on the table for a lot of other countries right now. But what's going to be the catalyst to shift what's happening right now, in your opinion?
- I think the catalyst is the runaway inflation you're bound to cause if you doubled the money supply in the last couple of years. And what's happened is the money supply has doubled, but the velocity of money has gone almost to zero, of course. Because you're not out spending money. You're spending money on Amazon and a few key things. But generally, we're all sitting at home doing nothing, not spending money, not going out, not doing a lot. Eating takeout and stuff is doing good. Certain things will do good that you're doing, but the wider economy is incredibly, incredibly bad shape.
But there's all this money sloshing around just not doing anything. So once people start moving the money around, then you get that money multiplier effect and inflation kicks in really hard and fast.
[MUSIC PLAYING]
