World share market pricing- Part 5: Growth in Profits & Dividends – Why USA leads & Australia lags

Today’s article looks at running rates for growth in earnings and dividends in each market as a context for assessing over-pricing on traditional metrics like P/Es, div yields, and price/book ratios.   The stand-outs are Sweden (Spotify), Netherlands (ASML), Japan (macro & micro reforms), and the US (strong earnings & dividend growth engine). The Aussie share market has done poorly on earnings and dividend growth, not just relative to other countries, but in absolute terms.  Why? Two words – Banks. Miners. Both sectors peaked a decade ago. Earnings and dividends per share have not even kept pace with inflation. Share prices have risen well head of earnings and dividends. The US market may appear very expensive on some metrics, but this is mostly underpinned by much stronger earnings & dividends.

World share market pricing- Part 4: Profit Margins & Returns on Equity– US highest, but sustainable?

This instalment delves deeper into pricing and valuations for the 20 largest share markets in the world. It goes behind initial pricing metrics like p/e ratios, dividend yields, and price-to-book ratios, to look at underlying corporate profitability. The US market appears on the surface to be more expensive than other countries (higher p/e, lower div. yields, higher price/book, etc), but US companies are the most profitable in the world, which justifies higher pricing. However, US company profitability is currently running at very high – and probably unsustainable - levels, similar to the 1990s ‘dot-com’ boom which collapsed in the ‘tech-wreck’ crash & US/global recession. Company profitability has been much lower in Australia than in the US for many decades (aside from one brief period). Why?

World share market pricing- Part 3: Forward P/E ratios & earnings growth assumptions

Not only do global share markets appear expensive relative to reported profits, dividends, and book values (Parts 1&2), the ‘forward’ price/earnings ratios are even higher, as they assume outlandishly high profit growth for the coming year. This is a double-layer of over-pricing – ambitious pricing of current profits, plus ambitious assumptions of future profit growth. It is not just the US – in fact, US profit outlooks are probably more achievable than most other countries, including Australia, where pricing is off with the pixies! I also take a look at the positive and negative forces driving global profits. The media always focus on the negatives, but actually there are quite a few positives. What are the risks and were are the cracks likely to appear?

World share market pricing- Part 2: P/E ratios, Dividend Yields, Price/Book – all appear very high!

Most share markets – including US and Australia in particular - appear to be very expensive on three widely-used pricing metrics – price/earnings ratios, dividend yields, and price-to-book value ratios. Each indicates high pricing relative to historical averages, and also relative to underlying fundamentals like profitability and sustainable growth rates. The US in particular stands out as being expensive on these measures, even after allowing for its stronger fundamentals relative to other markets. Given the Australian market’s much weaker underlying fundamentals, Australia is probably even more over-priced than the US at current levels. These simple pricing indicators are not a bad starting point, but they gloss over a host of differences in each market, like returns on equity, dividend pay-out ratios, earnings grow

Share Market Pricing per Country – how does your country rate?

Here’s an update on share market pricing around the world, based on the two most widely used measures -  price/earnings ratios and dividend yields. USA and India are way out in 'expensive' territory. Are these justified? Australia appears less expensive – but still over-priced given its market structure and sector mix. At the 'cheap' end are Italy, Brazil, Hong Kong, and Saudi Arabia – does ‘cheap’ mean ‘good value’? Is global share market over-pricing a problem? Is a crash imminent? Why have I remained reasonably bullish on global/US shares despite increasingly expensive pricing?

July 2025 snapshot: Share markets up for 4th month, inflation easing, more rate cuts soon

Another month of good gains on global share markets across almost all industry sectors and countries, despite Trump’s frenzy of deals, adjustments, backflips, side-deals. Inflation continues to ease, but central banks remain cautious and reluctant to cut rates further for now. But bond yields rose at the long end, reflecting fears of higher inflation ahead. Global growth, spending, and employment all remain reasonably strong – defying wide-spread predictions of slowdowns & recessions. On commodities markets, oil and gold kept rising on inflation and Middle East troubles. Iron ore was finally boosted by much-awaited Chinese stimulus.

Chinese steel production – the ‘Sydney Harbour Bridge’ Index’ – how is it holding up?

China builds another Sydney Harbour Bridge worth of steel every 10 minutes! (with iron ore and coal mainly imported from Australia). China’s steel production has been the largest single factor that has driven Australia’s economic growth, prosperity, living standards, tax revenues, share market returns, and even house pieces, so far this century. But with China’s property / construction market collapsed, its economic growth virtually stagnant, and population now declining, has this slowed China’s steel production? - and Australia’s economic growth engine? My ‘Sydney Harbour Bridge Index’ is a simple way of keeping track of this key activity. It measures the number of ‘Sydney Harbour Bridges’ worth of steel China producers per hour. Where are we now? The growth era is behind us, but steel production is holding up remarkably well

2024-5: another year of double-digit returns for diversified portfolios. Did yours earn near 12%?

2024-5 was the third straight year of solid double-digit returns for diversified ‘passive’ ETF investors. A standard 70/30 (‘balanced’) fund or ETF portfolio should have returned near 12% after fees. Did yours? Problem is – most industry, corporate, retail super funds returned less than this. Why? Most have big holdings of opaque, illiquid assets, and/or pilfer your life savings to spend on marketing, sponsorships, and political donations. Even small amounts of under-performance can compound into very large differences in your future wealth and lifestyle. Here are the returns of major asset classes in 2024-5 and a 70/30 pro-forma portfolio mix.

Half-time 2025: Good start for 80% of share markets. Defying tariffs, turmoil, tiresome predictions

In first half of 2025 - 80% of world share markets are up, and 57% are up by more than 10%.   A good start to another good year despite a constant chorus of wrong predictions of imminent recessions and corrections by economists and ‘expert’ commentators.    It’s been a broad global rally, NOT just ‘US big-tech’ lifting the world. Can the rally continue? There have been plenty of longer rallies in the past!

The US stock market is the second LEAST concentrated stock market in the world! Why all the fuss?

Alarmist commentaries allege 'concentration' in the US stock market. Nvidia has shot up to 6% of total US market value. But this is actually the second SMALLEST 'largest stock weight per country' in the world. Only Japan has a less concentrated stock market. The 5 largest US stocks comprise 22% of total US market value, but there are 20 countries where more than 22% is in just ONE stock. The 10 largest US stocks comprise 31% of total US market value, but there are a dozen countries where more than that is in just ONE stock. In Australia there is also rising concern that CBA is now 12 % of total ASX market value. Actually, this is still relatively low. What concerns me is NOT concentrations, but excessive VALUATIONS, and over-confidence that earnings and dividends will rise to justify current prices. &

June 2025 snapshot: another great month (and financial year) for shares and diversified investors

Another month of strong gains on global share markets, across almost all industry sectors. Gold and oil prices spiked briefly after the US bombing of Iran, but receded by month end. Industrial commodities are mostly down on global slowdown fears plus over-production. Bond yields are down on global slowdown fears, and the US dollar continues to slide as per plan. For the 2024/5 financial year, diversified growth/balanced portfolios posted another year of above-average double-digit returns, despite all of the dramas and scares during the year.

'Time-in-the-Market' -v- 'Timing the Market'. Which is better? US share market outcomes

Share market returns over all holding periods - even up to 10, 20, and 30 years - are little more than a coin toss. 'Time in the Market' only works if you get the Timing right, which is mostly luck. Finance textbooks and retirement calculators are based on nice, smooth, theoretical curves that assume constant 'median' returns over long periods. But in the real world, only ONE person in the population gets the median. Half will get MORE (sometimes a lot more), and half will get LESS (sometimes a lot less). There have been decade+ periods of zero or even negative real returns. By the time you realise you're in the unlucky wrong half, it may be too late to adjust your strategy.

US Government has previously defaulted on Treasuries. They are not entirely risk-free!

As the US government teeters toward yet another debt crisis, it is useful to remember that US government defaulting on Treasures is not new. The US failed to pay maturing treasury bills three times in 1979 when Congress didn't legislate to raise the debt ceiling in time. The creditors sued for unpaid interest but were denied by the Courts. These were 'temporary' defaults and were rectified quickly (the principal, not the interest), but they shocked people who had believed the US government would always pay its debts. The default crisis was a final nail in the coffin for Jimmy Carter and Keynesianism, paving the way for the 1980s boom under Reagan with the revival of free market capitalism. Are we at another turning point now? Today, the US deficit and debt load are more than THREE TIMES WORSE (relative to GDP) than in 1979.&

Virgin IPO – My 3 simple rules for IPOs (or: ‘This stinking mess again?!’)

Rule 1: If Private Equity is selling - Run. In the other direction. Fast. You can be sure the accounts will be riddled with fudged numbers, hidden liabilities, non-existent 'assets', and a pandora's box of under-handed skullduggery. Rule 2: Any ai (automated idiot) bot will tell you that the 'i' in IPO stands for 'initial'. But this is no 'virgin'. It's been around the block a few times. (Misleading PR. Refer to Rule 1). Rule 3: Ignore the glossy PR, high pressure sales tactics, highly-polished accounts, and do your own research into the business and industry. In this case, why would I want to be part-owner of an under-capitalised, foreign-controlled player in a highly parochial market that has never profitably supported more than one dominant player, which is a government-protected, ex-gov department that wrote the book on political schmoozing?

May 2025 snapshot: Shares rebound + the latest on inflation, rate cuts, and the TACO trade

Share markets surge back in May after three negative months under Trump.  My base case scenario - 'TACO' (Trump Always Chickens Out) is on track. (I didn't come up with that name - I wish I had!) Moody's strips the US government of its Aaa credit rating and shares surged, just like they did after the S&P downgrade in 2011. Labor wins 'landslide' election in Australia (how 34% of the primary vote is a landslide is a mystery to me) - so it's all systems go for even more government spending and 'tax-the-rich!'

RBA Dep Gov opens keynote speech on trade war impacts on Australia with another of my charts!

On 22 May, RBA Deputy Governor Andrew Hauser gave a keynote address outlining his observations from his trip to China in the middle of April, days after Trump launched his 'Liberation Day' tariff war on the world, aimed primarily at China.  As China is by far our largest export buyer, it is our largest source of export and tax revenues, and has been the largest single source of wealth and prosperity for Australians so far this century, he was keen to assess first-hand the likely flow-on effects of the trade war on the Australian economy, and the RBA's monetary policy thinking. The Dep Gov needed a killer chart to open his address, and I am once again incredibly honoured that he contacted me for permission to use another of my charts!

US Shares: ambitious multiples on ambitious accelerating profit outlooks. But powering on regardless

In the March qtr reporting season, S&P500 companies posted good earnings growth of +13% for the past 12 months, after decent +9% growth in the prior 12 months.  Consensus forecasts for the next two years have been cut over the past month (tariff impact fears) but they are still forecasting an acceleration of earnings to +15% growth in calendar 2025, plus a further +15% growth in 2026. That's still incredibly ambitious! Current pricing is also a very bullish 28 times trailing earnings, and 25 times the next year's forecast earnings. These are very optimistic multiples on very optimistic accelerating earnings outlooks - a double layer of over-confidence - and highly vulnerable to negative shocks.  But investors have shrugged off Trump's tariffs, negative GDP, and Moody's credit downgrade. So far so good!

My latest webinar for IFPA- Elections, inflation, rate cuts, shares, Trump: is there a grand plan?

Here's my latest webinar for the IFPA's Investment Insight series from 9 May 2025. It's a rollicking romp through some critical issues facing long-term investors in these exciting times.  Topics include - elections - productivity - inflation - rate cuts - share market action & valuation levels - and the dreaded 'T' word! Is there a grand plan behind Trump's frenzy of policies?

Slides from my session at the Australian Shareholders' Association seminar on 7 May 2025, Sydney

Here are the slides from my session at the Australian Shareholders' Accociation seminar on 7 May 2025, Sydney. Highlights: 4 things about the future we can predict with certainty. 4 things about the future we can be reasonably certain about. Plus we cover - human nature - investor behaviour - bubbles & busts - inflation - longevity - what's behind Trump's agenda, and will it work?

April 2025 snapshot- Share markets ended around flat in April - did I miss anything?

  Big moves in share and bond markets with Trump's 'reciprocal' tariffs, then their sudden deferral a week later. More rebounds, or more falls ahead? Big moves also in currency markets - Trump talking down the dollar is working. Will Trump's tariffs bring inflation or recession, or both? Why tariff-induced price rises are not necessarily 'inflation'. US GDP contraction + updates on commodities, gold, bitcoin, inflation, interest rates, credit.

US shares 'CAPE' ratio update after the fall - Still vastly over-priced, but not a timing indicator

Even after the recent price falls, the 'CAPE' ratio for the US share market is still a very high 33.6, indicating the market is still around 100% over-priced relative to underlying real earnings. Only a fall of around -50% (like the 2000-2 tech-wreck, or the 2008-9 GFC) would bring the US market back to 'fair' pricing on this measure. But CAPE is a pricing measure, not a timing tool. In prior cycles, the market has kept running higher for many years before finally crashing - eg in the 1920s and 1990s. The high CAPE means high vulnerability and sensitivity to negative shocks. The current environment is producing a few of those!

Is the US dollar in decline? or on its ‘last legs’? Hardly! The problem is the dollar is too strong

The US dollar is hardly in decline or on its last legs. The main problem is that it's too strong - demand exceeds supply.  The biggest enemy of US producers and exporters is not China. The chief culprits are Japan, Europe, and UK, as they have trashed their currencies to help their exporters, far more than China has. Trump needs to bring down the dollar, but can he do it without crashing stock markets and sending bond yields higher?  What are the implications for Aussie investors?

Labor -v- Libs: which side has been better for the Aussie share market?

Looking at share market returns under every PM and government since Federation - right-leaning governments win, with significantly higher average returns than left-leaning governments. Left-leaning PMs presided over the worst return periods for the share market, and also the best return periods. However, most of the big differences are due to lucky (or unlucky) timing, and/or delayed causation from prior governments. Our governments on both sides deserve credit for creating favourable conditions for investment. 

Company insolvencies highest in 35 years - and we’re not even in ‘recession’ yet!

Company insolvencies in Australia have soared back to levels not seen since the deep 1990-1 recession. Business is doing it tough - on recession footing already. But the rapidly expanding government sector is doing fine - accounting for almost all of the growth in jobs and economic 'activity' (and artificially suppressing inflation and unemployment numbers), while businesses suffer. 

March-2025 - Snapshot: Trump Slump continues - What's moving markets and why?

  Here's my monthly wrap-up of global financial markets for Aussie investors -  Share markets are down - but how serious is it? Currency markets - big moves are afoot. Can Trump talk down the Dollar? Where is the 'safe haven' money going - if not into bonds or US dollars? Updates on inflation, interest rates, recession fears, and plenty more.

Labor -v- Libs: which side has a better record on Deficits & Debts? Here are the facts

'Left' governments have run deficits more often than 'Right' governments, and the Left have also run larger deficits on average than the Right. But timing is everything! - the Left happened to be in power during the big deficits and debts in the two World Wars, when spending was bi-partisan. My verdict? - Equal points to Left and Right - but poor scores for both post-GFC. Both sides could have used windfall revenue gains to put our house in order to better prepare for global challenges, rather than increase spending and debt.

‘Buying the dip?’ – ‘Catching Knives’ or ‘Bagging Bargains’? – the Aussie share market experience

Following my story on US market dips, here is the same analysis for the ASX: The Aussie market has had 36 dips of -10% or more since 1920.  Buying the dips still resulted in more 'Knives' than 'Bargains', and below average returns overall, but the outcomes were significantly better than buying the dips in the US market. 83% of dips on our market were led by falls on the US market. Of the few dips that were due to local factors alone, most were 'Bargains'. Where are we now? Will I be buying the dip here as the US boom deflates?  

After the mini-correction, should I ‘Buy the dip?’ - Am I ‘Catching Knives’ or ‘Bagging Bargains’?

The US stock market has had 31 'dips' of -10% or more since 1900. We look at what happened in each case if you 'bought the dip'. In most cases, a 10% dip turned out to be just the start of a much larger fall (further -15% fall on average), and for a much longer period (more than a year of further falls on average). Overall, buying the dip resulted in poor returns over subsequent 1, 3, and 5-year periods, but there were several times when 'buying the dip' led to high returns. Where are we now? How does today's market compare?

Australia’s aging population - are age pensions, benefits, and tax breaks sustainable in future?

  Many retirees live more frugally than necessary, and die with as much Super as they had at retirement. One possible reason may be a rising fear that the current government age pension system is not sustainable and may not be there for life. Despite our aging population, Australia is probably best placed of any country in the world to maintain its government age pension system. Fears of its demise are probably over-done. However, it is probably inevitable that the age pension, and/or the generous tax-breaks and benefits that go with it, will need to be scaled back in future. Future retirees should aim for financial independence, not welfare reliance, to be safe. 

I need your Help! - Opal Card survey - Black or Gold? Am I an 'Adult' or a 'Senior'?

Being over 60, I am eligible for a Gold Opal card, which means much cheaper transport fares for the rest of my life. It is a non-means-tested financial benefit purely because of my age - I am no longer an 'Adult'. I make the case for both - What should I do?