RE: Various popular stock market valuation metrics
The following are widely used but also frequently come up with wildly different conclusions on whether stocks are cheap or dear…or something in between:
Ø Median price-to-sales ratio
Ø Total stock market value vs GDP (adjusted for overseas sales)
Ø Enterprise value (equity market capitalization plus debt) compared to gross cash flow (EBITDA)
Ø The earnings yield relative to interest rates, or
Ø The P/E ratio based on next year’s (hoped for) earnings; i.e., the forward P/E
RE: The Swedish housing crash and banking crisis of the early 1990s, a disaster that it managed to repeat a generation later, this time with considerable company, including the U.S.
This normally staid country, outside of its coed sauna culture, was nearly bankrupted by a massive housing boom-cum-bust in the early 1990s. This crash was so severe that it caused the Swedish government to nationalize all of its banks, at a GDP cost of about 4%. In the process, it guaranteed and protected all deposits in return for complete ownership of its banking system. In a sneak preview of what happened in the U.S. with the Troubled Asset Relief Program (TARP) in 2008, Sweden’s policymakers took equity positions in their banks; eventually, it sold these stakes for an amount that repaid half of its outlays. (During the frantic panic of 2008 and 2009, one of the wildest predictions I made was that the very unpopular TARP would turn out be a windfall for U.S. taxpayers. This view was ultimately vindicated as the U.S. treasury eventually sold off the equity it received in banks like Citigroup for tens of billions of profits – back when that seemed like serious money.)
Yet, less than twenty years later, Sweden was right back in full-blown bubble mode again (showing that the Swedes are adept at more than just blowing glass). Of course, during the first decade of this century/millennium, it wasn’t only Sweden that had a monstrous mania in housing. Iceland, Ireland, Portugal and Spain were all fully caught up in the hysteria. The subsequent implosion nearly brought down these countries and triggered horrific suffering for their citizens. During the worst of the housing crash induced Great Recession, Spain’s unemployment hit 30% – far worse than the 20% rate seen in America during the depression-wracked 1930s.