Good morning, it's Paul here!

Market musings

Confidence seems to be returning to the US markets, after a wobble last week before hurricane Irma. I do wonder if anything can stop this bull market? A commentator wryly remarked yesterday that because everyone is expecting a pullback, he thinks it's unlikely to happen. So an expensive market just keeps getting more expensive.

Historically, when markets reach the euphoria stage (which is where we are now, in my view), then it always ends in tears. Absolutely always. It's just that we don't know when. Meanwhile the good times can keep rolling. This does feel similar to 1999 though, in terms of market sentiment, in my view - i.e. getting very toppy, especially for technology & other growth stocks.

The complicating factor now is ultra-low interest rates. In the past, a decent, growing company, on a PER of 20 would have seemed quite expensive. However, now that interest rates are close to zero, then a (growing) earnings yield of 5% (the reciprocal of a PER of 20) actually looks quite good. Mind you, that assumes earnings keep growing forever, which of course they won't. As we're seeing in the hospitality sector, once demand drops, then the operational gearing kicks in, and massacres earnings (more of that below, re Tasty (LON:TAST) results today).

On the bull side of things, I am mindful that once-in-a-lifetime (or maybe one off, irrespective of timescale) changes are occurring to whole sectors, due to internet disruption. So you could argue that companies like Amazon , Google , and others, are becoming so dominant that nothing seems likely to stop them, other than Government intervention to break them up. Trump has already made complaints about Amazon destroying competitor businesses which previously paid taxes. Since Amazon barely even tries to make much profit, it pays little corporation tax. Hence Government tax incomes are hit by the company's relentless march to global domination. Surely, sooner or later, these dominant (arguably monopolistic) US large companies are likely to face forced break-up? Maybe that could be the trigger to eventually end this long bull market? I don't know, but it's all fascinating.

I was looking at the valuation of Shopify Inc ( $SHOP ) yesterday. It's on a forward PER of 837.8. That might seem like insanity, but when you look at the growth &…

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