Don't confuse soaring stocks with real economic growth

All the money the FED has printed has to go somewhere. It has gone into the stock market and housing, again. The stock market is completely detached from reality. It is like stamp or baseball card collecting. The reason you’d buy a stock is because the price will go up. But why should the price go up? Why should you own a stock? Dividends are rare and not a good return. P/E ratios are ridiculous. There is no real reason why prices should go up other than someone will, foolishly, pay more.

As the article says asset appreciation isn’t economic growth. A day of reckoning awaits.

Some dividends are good, but it can also depend on when you bought your stock. Some of the stock I own is presently paying a dividend of 50% based on the price I paid a few years ago. And that’s out of very solid net earnings. If I had put it in savings, it sure wouldn’t be that. Some I bought longer ago than that is paying even more. It’s not always about price appreciation.

But sometimes price appreciation is rewarding over time. Some stock traders are looking for short term gain, but an ordinary investor needs to think in the very long term.

Some P/Es truly are ridiculous. I presently think that’s true of CAT, for example. A P/E of 105 seems like an unreasonable expectation to me, infrastructure bill or no infrastructure bill. I could be wrong, of course. I didn’t like CAT over $80, but now it’s $158. So…

But on the other hand, USB at 16 or COP at 13 is pretty close to their historic averages.

As to housing, I think it depends on where you are. Around here there has been some appreciation in the last few years, but nothing spectacular. The one thing I am noticing, however, is that the “low end” housing is getting more active. Normally that portends upward buying by everybody at all levels. If you can sell your $60,000 house, you can buy that $125,000 house. If you can sell the $125,000 house, you can buy the $175,000 house, and so on.

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