00:00 Speaker A
George, let me talk to you now. Because a lot of people are focused on, are we in an AI bubble? I would argue that we may be seeing signs of a broader stock market bubble. And I am saying that I am not saying that I am right. These things are hard to predict. Maybe you have no idea what you're talking about. But are there any signs that investors are feeling too anxious about owning the stock here?
00:29 george
oh yeah. And the percentage of American households that own stocks is now at an all-time high. So are we rich? Are we in a bubble-like situation? Yes, I agree with that too. But I would say that the trending deals, whether it's AI, whether it's space, whether it's defense technology, things like that, are much more in a bubble than, for example, healthcare, which you just brought up. It's a stock market, not a stock market. So we look at stocks that have a bright future, are likely to do well, and are not so overvalued that they have a low margin of safety. But you wouldn't say, “I'm not going to own AI.” I'm not going to own Google or Amazon. Because they spend too much money and it's not realistic. You are your own person, you are balanced and diverse. You are exposed to everything. You can also wait for something a little more appealing and a little more expensive. And the other comment about small-cap stocks is that the Fed is still cutting interest rates, and small-cap stocks are carrying much more debt than some of these giant stocks. In other words, they earn more money simply by refinancing their debts, lowering the interest rate on their debts, reducing their repayments, or paying them off. I mean, they're winning a lot right now.
01:54 Speaker A
Sam, you are a master of all things data. I've seen many cycles. Do you see irrational exuberance in the market?
02:04 Sam
Well, as George was saying, yeah, in terms of valuation through the end of October this year, I think it was trading at two standard deviations above the average S&P 500 P/E ratio. We're looking at the Buffett Index, which is S&P 500 market cap divided by nominal GDP, and normally it would be between 100% and 120% tense, as it was before the tech bubble burst in 2000, the 2007 financial crisis, and the 2020 coronavirus bear market. But today it's about 190%. Well, valuations are up, but I'm inclined to say they could last a little longer. Well, there has to be a trigger, uh, so far we haven't found it yet.
