Current Market Valuation


Aggregate index score shown is the equally weighted average of our six core valuation models, shown below. Each model in the index uses historical data to determine a baseline. Current model values are expressed in terms of the current data's number of standard deviations above or below that baseline trend.

Updated November 25, 2022

CMV Aggregate Index Score - Speedometer Chart
CMV Aggregate Index Score - Timeline Chart

Models are updated at end of each week, or as data becomes available. For much more detail on each model, click into their respective detail pages, below.

Core Valuation Models


The Yield Curve Model: Strongly Overvalued

Updated November 25, 2022

Summary: When short term (3-month) Treasury yields are higher than long term (10-year) yields, it is a bearish signal that is almost always followed by economic recession.

Currently: The 10-year Treasury rate is 3.68% and the 3-month is 4.41%, for a spread of -0.73%. Since 1950 the historic average spread has been 1.51%. The current spread is 1.8 standard deviations above the historic trend. We consider this Strongly Overvalued.

Chart: US Treasury Yields, 10-Year minus 3-Month Yield Spread
Chart: US Treasury Yields, 10-Year minus 3-Month Yield Spread

The Buffett Indicator Model: Fairly Valued

Updated November 25, 2022

Summary: The Buffett Indicator is the ratio of the total value of the US stock market versus the most current measure of total GDP.

Currently: The total US stock market is worth $43.0T, the current GDP estimate is $25.8T, for a Buffett Indicator measure of 166%. This is 0.9 standard deviations above the historic trend of 128%. We consider this Fairly Valued.

Chart: US Market Value to GDP Ratio, % Over/Under Historic Trend
Chart: US Market Value to GDP Ratio, % Over/Under Historic Trend

The Price/Earnings Model: Overvalued

Updated November 25, 2022

Summary: The PE Ratio Model tracks the ratio of the total price of the US stock market versus the total average earnings of the market over the prior 10 years (aka the Cyclicly Adjusted PE or CAPE).

Currently: The current CAPE ratio is 29.1. This is 45% above the long-term historic trend CAPE of 20.1, or approximately 1.1 standard deviations above trend. We consider this Overvalued.

Chart: US Cyclicly Adjusted Price Earnings (CAPE) vs Historic Trend
Chart: US Cyclicly Adjusted Price Earnings (CAPE) vs Historic Trend

The Interest Rate Model: Fairly Valued

Updated November 25, 2022

Summary: Low interest rates should generally drive higher equity prices. This model examines the relative S&P500 position given the relative level of interest rates.

Currently: The current S&P500 ($4,026) is currently 0.9 standard deviations above its historical trend. The 10-year US Treasury interest rate is 3.68, about 0.7 standard deviations below trend. Netted together, this composite model suggests the total market is Fairly Valued.

Chart: Composite of Relative S&P500 vs Relative 10Y Treasury Bond Rates
Chart: Composite of Relative S&P500 vs Relative 10Y Treasury Bond Rates

The Margin Debt Model: Undervalued

Updated October 31, 2022

Summary: Margin debt is money investors borrow to invest in stocks. High margin indicates bullish investors, and tends to lead stock market corrections, particularly after margin rates begin falling from a peak. This model looks at changes in margin as a percent of total stock market value.

Currently: As of October 31, 2022, total US margin debt was $650B, a decrease of $359B year-over-year. This represents a yearly decrease of 0.91% of the value of the total US stock market. This is about 1.3 standard deviations below the historical trend, indicating the market is Undervalued.

Chart: 12-month Change in Real Margin Debt as a % of Total Market Value
Chart: 12-month Change in Real Margin Debt as a % of Total Market Value

S&P500 Mean Reversion Model: Fairly Valued

Updated November 25, 2022

Summary: An extremely straightforward model stipulating that at some point, eventually, the S&P500 will tend to return towards its historic trend line.

Currently: The S&P500 is at $4,026, or approximately 33% above its exponential historic trend line. We consider this Fairly Valued.

Chart: S&P500 % From Exponential Trend Line
Chart: S&P500 % From Exponential Trend Line

Other Posts


Market Performance During Recessions

Posted November 04, 2022

Market Performance During Recessions

In the 11 recessions since 1950, the S&P500 drops an average 20% during the recession, and then recovers almost 40% in the following 18 months.

How the Fed Changes Interest Rates

Posted October 28, 2022

How the Fed Changes Interest Rates

A quick breakdown on how the Fed actually implements interest rate changes, post-2008.

The Data on Day Trading

Posted November 16, 2022

The Data on Day Trading

A collection of published, peer-reviewed studies on the performance of retail day traders.

Ending Payment for Order Flow

Posted June 01, 2022

Ending Payment for Order Flow

The SEC wants to end Payment For Order Flow (PFOF). That is great news as PFOF incentivizes brokers to harm their retail traders.

The Impact of Narcissistic CEOs

Posted May 15, 2022

The Impact of Narcissistic CEOs

Narcissistic CEOs of public companies are shown empirically to be more likely to make adjustments to their firm's GAAP earnings. These adjustments are larger in scale, and lower in quality than adjustments made by non-narcisstic CEOs.

The Case for Transitory Inflation

Posted March 16, 2022

The Case for Transitory Inflation

As inflation continues upward, a look back at what caused it and the Fed's response going forward.

Inflation vs Interest Rates

Posted November 12, 2021

Inflation vs Interest Rates

Inflation is skyrocketing - how long can interest rates stay so low?

S&P500 P/E Ratio vs Interest Rates

Posted November 06, 2021

S&P500 P/E Ratio vs Interest Rates

The stock market may be low given strong corporate earnings versus super-low interest rates.

Fed Balance Sheet vs S&P500

Posted September 14, 2022

Fed Balance Sheet vs S&P500

Fed spending (quantitative easing) has been rising. Does this prop up stocks? Raise inflation?

On The Radar


Timely links to external news and articles, usually valuation related, with occasional commentary. Most recent items shown below - for more, check the Radar page.

Tuesday, 15 November 2022 FTX’s Balance Sheet Was Bad

And yet bad as all of this is, it can’t prepare you for the balance sheet itself, published by FT Alphaville, which is less a balance sheet and more a list of some tickers interspersed with hasty apologies. If you blithely add up the “liquid,” “less liquid” and “illiquid” assets, at their “deliverable” value as of Thursday, and subtract the liabilities, you do get a positive net equity of about $700 million. (Roughly $9.6 billion of assets versus $8.9 billion of liabilities.) But then there is the “Hidden, poorly internally labeled ‘fiat@’ account,” with a balance of negative $8 billion. I don’t actually think that you’re supposed to subtract that number from net equity — though I do not know how this balance sheet is supposed to work! — but it doesn’t matter. If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?” You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison.

What Levine is doing is special. Give this man a Pulitzer.

Saturday, 12 November 2022 FTX says ‘unauthorized transactions’ drained millions from the exchange

FTX moved users’ funds to offline wallets early Saturday morning after a wave of “unauthorized transactions” drained hundreds of millions of dollars from the beleaguered cryptocurrency exchange. Ryne Miller, the general counsel at FTX US, didn’t confirm a hack, but said on Twitter that the company made the move to “mitigate damage” caused by the potential theft, as transferring funds offline, or to “cold storage,” helps prevents outsiders from gaining access to them.

The millions in funds evaporated from the platform shortly after FTX filed for chapter 11 bankruptcy on Friday, affecting the domestic FTX US trading platform, the global version of FTX, and Alameda Research. It’s still unclear how much is missing from the exchange, but a report from CoinDesk suggests the amount could total over $600 million, while the blockchain analytics company, Elliptic, puts this number at about $473 million.

One can only hope that the missing funds belonged primarily to Silicon Valley VC tech-bro libertarian clowns and not to the working-class folks that they've been pushing their ponzi scheme onto.

Friday, 11 November 2022 ‘It’s All Gone’: FTX Bankruptcy Has Retail Traders Bracing for Losses

Investors with crypto on the FTX platform — who numbered more than 5 million worldwide at the peak — will be closely watching the bankruptcy proceedings for any hope they might be refunded. However, many are resigning themselves to the fact that their holdings may be gone forever.

“The company and Sam Bankman-Fried seemed trustworthy,” said Justin Zhang, a 34-year-old engineer in Los Angeles. “I thought FTX US was different because of all the regulations put in place, but it’s not.”

As incredible as it was predictable.

Wednesday, 9 November 2022 Is This Crypto’s Lehman Moment?

Indeed, the sale of FTX to Binance may turn out to be the most gripping crypto narrative of the year — a “Succession”-level drama involving rival billionaires, rumors of sabotage and high-stakes battles over the future of the industry. It’s a stunning, sudden fall from grace for one of the crypto world’s biggest celebrities. And it signals that the industry, already reeling from a brutal year of losses, may be in for even tougher times.

Monday, 7 November 2022 Tyson Foods CFO Arrested After Authorities Say He Fell Asleep in Wrong Home

John R. Tyson, Tyson Foods Inc.’s chief financial officer and son of the meat giant’s chairman, was arrested over the weekend after authorities said he fell asleep in the wrong house.

Mr. Tyson, 32 years old, was found asleep in a woman’s bed at her home in Fayetteville, Ark., on Sunday morning, according to a preliminary arrest report filed by the Fayetteville Police Department.

...

Mr. Tyson, the great-grandson of Tyson Foods’s founder, was promoted to the CFO role for the $24 billion meat company in September and took over the job at the start of October. He is the youngest chief financial officer serving at a company in the S&P 500 or Fortune 500, according to Crist Kolder, an executive-search firm.

Before taking over as CFO, he had been serving as Tyson’s executive vice president of strategy and chief sustainability officer, roles he still holds.

Absolutly breathtaking that investors in a public company would put up with this nepotism. No one on that board should have any credibility whatsoever. Just imagine how poorly other parts of this company might be running.

Wednesday, 2 November 2022 Stocks Drop After Strong ADP as Fed Decision Looms

The Fed is expected to raise rates by 75 basis points, extending its most aggressive tightening campaign since the 1980s. The decision will be announced at 2 p.m. in Washington and Powell will hold a press conference 30 minutes later. He may emphasize policymakers remain steadfast in their inflation fight, while leaving options open for their December gathering.

“Markets want clarity on where the Fed will at least pause the current rate hike cycle, but Chair Powell is not really in any position to provide that just yet,” said Nicholas Colas, co-founder of DataTrek Research. “For every sign the US economy is slowing (housing, commodity prices, retail sales ex-inflation) there are others that say labor market conditions remain strong.”

Very odd and seemingly counterintuitive that stocks should fall on news that the labor market is doing great. But the market wants some level of confidence on when/where rate hikes will eventually stop, and the continued stregth of the economy despite rate increases to-date makes that a very hard question to answer.

Tuesday, 1 November 2022 What Moneyball-for-Everything Has Done to American Culture

The religion scholar James P. Carse wrote that there are two kinds of games in life: finite and infinite. A finite game is played to win; there are clear victors and losers. An infinite game is played to keep playing; the goal is to maximize winning across all participants. Debate is a finite game. Marriage is an infinite game. The midterm elections are finite games. American democracy is an infinite game. A great deal of unnecessary suffering in the world comes from not knowing the difference. A bad fight can destroy a marriage. A challenged election can destabilize a democracy. In baseball, winning the World Series is a finite game, while growing the popularity of Major League Baseball is an infinite game. What happened, I think, is that baseball’s finite game was solved so completely in such a way that the infinite game was lost.

Compelling piece about baseball but actually about everything. You get what you measure, and the cloud computing explosion has us measuring more than ever.


Mortgage Giant Rocket Plunges Back to Earth, Hit by Rising Rates

Getting potential customers to trade a 3% mortgage for a 6% one is like “pushing rocks up hills,” said Colin Wyzgoski, who quit a job as a banker in August after taking time off because of work stress.

“When the fish are jumping in the boat, the job is one thing,” Rocket Mortgage Chief Executive Bob Walters said. “When you’re competing with a lot of other people, it’s a different thing.”

I'm sure it's unfair and presented out of context, but that's still a hell of a quote from a chief executive.


Why Mortgage Rates Are So Darn High

For the past decade, the spread between a measure of average national mortgage rates and 10-year Treasury yields has averaged 1.8 points, according to figures tracked by Autonomous Research. This year began right around that level. But with Treasurys yielding over 4%, the spread now at roughly 3 points is about as high as it has been this century.

Other times that the spread has seen comparable widening were in late 2008 and March 2020, when the financial crisis and pandemic, respectively, were driving investors to the haven of Treasurys. In both cases, the Federal Reserve stepped up to buy more mortgage bonds, bringing spreads and mortgage rates down, as spreads on mortgage bonds are a key component in the mortgage rates ultimately charged to borrowers.

This time, that isn’t happening.

Friday, 28 October 2022 We Should Just Accept We’re Going to Have a Blah Economy

If you follow financial commentary, it sounds like we’re about to hit the inflection point — that moment when the economy turns and we enter a recession; the stock market crashes, inflation deflates, people lose jobs and housing prices tank. But if there has been one thing consistently true over the past two years, it is that what everyone consistently predicted has turned out to be wrong. That’s because we’re in uncharted territory. We have never before turned the economy off, then turned it back on again as we did in the pandemic.


Welcome to Hell, Elon

the problems with Twitter are not engineering problems. They are political problems. Twitter, the company, makes very little interesting technology; the tech stack is not the valuable asset. The asset is the user base: hopelessly addicted politicians, reporters, celebrities, and other people who should know better but keep posting anyway. You! You, Elon Musk, are addicted to Twitter. You’re the asset. You just bought yourself for $44 billion dollars.

The problem when the asset is people is that people are intensely complicated, and trying to regulate how people behave is historically a miserable experience, especially when that authority is vested in a single powerful individual.

Wednesday, 26 October 2022 Fed’s Yield-Curve Barometer Starts Flashing Recession Risk

The 10-year dipped as much as 0.08 percentage point below the three-month in US trading Wednesday, after brief and smaller inversions Tuesday and in early August.

This is my most closely watched indicator. Bad times ahead.

Thursday, 13 October 2022 ‘Soft Landing’ Is Unlikely for US Economy, JPMorgan’s Dimon Says

Jamie Dimon said the Federal Reserve probably can’t cool the red-hot economy without bringing on a recession.

“I don’t know if it could be a soft landing -- I don’t think so, but it might,” the JPMorgan Chase & Co. chief executive officer said at an industry conference in Washington Thursday, adding that the alternatives would be a mild or a severe recession. “In a tough recession, you could expect the market to go down another 20% to 30%.”

Valuation models easily support another 30% drop from here, particularly if rates keep increasing.

Wednesday, 5 October 2022 Elon’s Back

All of this seems unlikely, though, and I assume that the deal will close. The stock closed at $52.00 yesterday, very close to the $54.20 deal price and up 22% from Monday’s close of $42.54. Several reports suggest that the deal might close “within a matter of days” or “as soon as next week.” Last night Musk tweeted that “Buying Twitter is an accelerant to creating X, the everything app,” which sounds exhausting. The app will do everything, but it will start with two functions: You can read tweets, or you can be shot on a rocket into space. Choose wisely.

Why? Why would you spend this much time and money trying to get out of the deal, and be this annoying about it, and then just unconditionally surrender two weeks before trial? One possibility is that it became increasingly obvious to Musk that he was going to lose the trial, and that didn’t seem fun, so he seized the initiative (?) by surrendering instead. 3 If this did go to trial he’d have to testify (and be deposed this week), his text messages with his friends have become public and more might come out, and the whole thing would be more distracting, unpleasant and embarrassing than he really wanted.

Similarly, Jessica Lessin’s theory is that Musk “has bigger challenges to contend with elsewhere. Spending hours and hours preparing for a trial everyone thought he was going to lose didn’t rank high on the list.” Musk’s efforts not to buy Twitter were becoming too distracting, so he decided to become the owner (and interim chief executive officer!?) of Twitter instead to minimize distraction. That seems right. Sure, running Twitter will be distracting and time-consuming, but in a fun way. Trying to get out of running Twitter was probably fun initially, but now it has become a drag.

National treasure, Matt Levine.

Tuesday, 4 October 2022 Opendoor Follows WeWork Into Non-GAAP Land

Consider loss-making mobile-games company Skillz Inc., which claimed last year to be profitable on an adjusted ebitda basis, when adjusted for the cost of acquiring new customers. Yet user acquisition marketing expenses were almost two-thirds revenue that year. When Skillz sought to reduce marketing spend in recent months, its revenue plunged, and so has the stock. (Skillz has said the metric helps investors understand “the value of existing users on the system.”)

Adjusted ebitda is especially problematic because companies have huge discretion about what to include. Last week, Singapore-based Grab Holdings Ltd. vowed to break even on an adjusted ebitda basis by the latter half of 2024, but its definition includes more than half a dozen add-backs. This isn’t unusual.

Great article on one of my favorite accounting / financial statement analysis red flags.