"And so this is Christmas
For weak and for strong,
(War is over if you want it)
For the rich and the poor ones,
The road is so long.
(War is over now)" – Lennon
No, it isn't Christmas and no, the war is not over.
Covid isn't over either and inflation isn't over and the World is still warming (remember that?) and Seditionists are still allowed to roam free despite breaking down the doors of our Capital and threatening the lives of our Lawmakers – including the Vice President of the United States (they didn't threaten the President only because he's the one who sent the mob in the first place!). The supply chains have not unraveled, rates are still going to rise, our National Debt will still pass $32Tn this year and yes, the economy is slowing.
So why shouldn't stocks bounce right back to their all-time highs? As long as there are people dumb enough to pay 30 times earnings for stocks – there are going to be traders that are happy to sell them to you, after all. That's the auction process you engage in when buying a stock – how many years' worth of the company's earnings are you willing to pay for it now. A rational reason for making this bet is you believe the company will grow and, at some point, your risky return on the equity will outpace the "risk-free" (that's a whole other article) return of Bonds or TBills, which is currently 1.86% for a 10-year note and 2.26% on a 30-year note.
That is significantly below the historical averages of 4.29% for a 10-year and 5.21% for a 30-year. 4.29% is essentially 23.3 times "earnings" with the earnings being the interest paid on a TBill and 23.3 being…
