How SWPL's Can Predict Bubbles

SWPL (or "Stuff White People Like") when I first read their site I found to be viscerally HILARIOUS. I would just guffaw and heartily so because I found the stuff just so damn funny and so damn accurate. On a deeper level though I didn't really know why it resonated with me so well, but after sitting here at the hospital waiting for a buddy of mine to come out of the urgent care, my super awesome economic genius mind has come up with it.

SWPL exposes the fake, shallow tastes of either faux intellectually elitists or the brain-dead, automotonic herds and delivers to them the mockery and insult they so richly deserve.

For example - "Grad School." HOW GREAT IS THAT? You have some idiot that chose an undergrad degree that was so worthless, they go back for MORE of the same. In reality they are an idiot, BUT, because they have a masters in "fillintheblankhere" they think they're smart.

Or for the "brain-dead herd of lemmings" crowd - Professional sports. Again, how great is that? You have some idiot whose entire LIFE'S WORTH is based on whether or not one group of big guys throws the ball better than another group of big guys, discernible only through the color of the jerseys they wear. But, ohhhhhh wrath upon thee that dare insult the team that these morons have vested so much emotion, psychology and (foolishly) cash into simply because they wear the blue jersey!

But the ultimate kicker for SWPL is that these people are COMPLETELY oblivious to their idiocy. They don't realize they're being made fun of and most of them even think they're smarter than the average person (ever go to a "wine and cheese party?") They just plain don't get the fact that they are the butt of the joke.

Of course there's a problem. SWPL's are not some small group of people. They're the majority of people! And because this is a democracy and a relatively free market we genuinely intelligent people must suffer their idiocy.

For example television.

Um, please somebody explain to me why there are GLEE PARTIES?????

You want TV shows to throw parties over? Try Firefly. Try Cowboy Bebop. Try Venture Brothers. Try classical Bugs Bunny. Try Hogan's Heroes. Try Family Guy.

But GLEE????

Another example - the movie industry.

Why am I relegated to marginally good movies starring Jason Statham and cartoons like Despicable Me? Why is it for every "Saving Private Ryan" there's a score of "Eat PRay Love" or "Sex in the City 14" movies?

Going green anyone? Great, I get to pay higher gas prices, higher heating bills, higher electric costs all because it's fashionable to hate fossil fuels.

Even voting patterns.

Why do I have to face a 9+% unemployment rate and a doubling of the national debt?

Because Obama and socialism is just the latest SWPL craze.

Now I could go on, but hopefully I've managed to do two things;

1. Entertain the regular and genuinely intelligent readers that visit the ole Capposphere and
2. Anger and insult SWPL types to the point you might actually be listening now BECAUSE

I am going to lay down some super economic genius that is going to benefit EVERYBODY.

401k's are SWPL.

Yes, sorry to say, 401k's, 403b's, IRA's and whatever other retirement plan you've put together for yourself is SWPL.

Now, this is not to say saving for retirement is foolish, it's not. BUt what we have here is the "brain-dead herd SWPL" members flooding a market to the point purchasing stocks in the US just plain ain't worth it. Specifically, since the government gives tax breaks to invest in (primarily) stocks, what has happened is by default the government has ordained stocks as the defacto retirement vehicle.

Now I've pointed this out before and to great lengths. I also pointed it out probably 5 years ago and the article, though pure genius, went nowhere (because it wasn't SWPL). But now MAYBE, JUST MAYBE, people will listen to me.

This recent run up in the stock market from a DJIA of 7,000 to 12,000 has people very happy and excited. The problem is that the reason you buy stocks is NOT because you will sell them for more in the future. You buy them because of the profits they will (hopefully generate)

To measure this ratio of the price you pay to the profits you'll make, there is a thing called the P/E ratio. It takes the price of a stock and divides it by the earnings per share, showing you essentially how much you are paying in stock price for $1 in earnings. The higher, the worst the deal, the lower, the better.

Now the average has been since 1880 a ratio of roughly 15. Meaning you paid $15 in stock price for $1 in earnings. However during the peak of the Dotcom Bubble the P/E peaked at 45. That bubble burst, bringing the ratio down to 22, STILL NOT A GOOD DEAL.

But, ANOTHER SWPL fad came in - home ownership and condos and mcmansions!

THis drove the P/E ratio up again to 28, only until we found out the SWPL fad of buying a house you can't afford was not a sustainable economic behavior.

The Dow Jones dropped to 7,000 and with it the P/E ratio reached 14!

HURRAY!!!! LOOK AT THAT!!! THE STOCK MARKET IS ACCURATELY VALUED!!!!

NOT UNDERVALUED

ACCURATELY VALUED.

And so what do people do with stocks that are neither a steal nor overpriced, but just sanely valued?

A buying frenzy.

They drive the Dow Jones back up to 12,000 because SWPL's like to pay high stock prices for low earnings resulting in a P/E that is now around 24, implying a 30-40% overvaluation (denoted by the latest quick jump at the end of the chart).

Now Professor Robert Shiller, who is a real intellectual, not only provided this information, but logically concluded stocks are now overvalued again.

But ohhhhhh, my goodness! The SWPL's don't like that! They want stock bubbles! They want happy fuzzies for everyone! They want unicorn 401k's where you never have to work and solely rely on forever increasing asset prices to pay for your retirement. And they go out of their way to find a rationale or reason to continue living in SWPL Land.

Well, there's just one more problem with that guys.


See, while arguments can be made about whether you use earnings, EBIT, EBITDA and other things that aren't the bottom line, ultimate what drives stock prices are DIVIDENDS.

Because (and here's the economic lesson of the day), it is the only real cash flow a stock generates.

Oh, sure, you may sell the stock to another person generating a capital gain. But that didn't come from the stock. It came from another person. And the only reason that person paid you money for that stock is why?

Because the only thing a stock really generates is dividends.

And it is here, the only one TRUE cash flow that makes it to the stock holder and the only one TRUE cash flow that provides a stock with value that the situation is dire.

Below is the "dividend yield" for the S&P 500. This mathematically is the dividend per share divided by the price per share. In other words the rate of return you can expect from dividends.

And while the history of the dividend yield shows a rough average of about 5%, notice the general trend downward?

It reached a low back in the Dotcom bubble of 1.8%. Wow, that's a GREAT return! Let me get my checkbook out!

Of course there was a dose of sanity when the stock market collapsed this last time around, driving the dividend yield up to a whopping 3%.

But oh no. We can't have that! That's not SWPL! SWPL's like over valued stocks! We don't want any of those icky yuck gross dividends! And so with the reinflation of the stock market bubble the Dow Jones magically doubled in 2 1/2 years with no real economic growth, no real improvement in our economic future, sending the dividend yield back to 2%.

Now economists can go ahead and pull out their hair (like I did) about why the American public just plain doesn't get it and keeps on investing in overvalued markets. They can rack their brains asking, "did these people NOT just go through two massive bubbles??? Did they not learn their lesson? How did they DOUBLE the value of the stock market when the economy is in such dire shape and there's really no economic hope for the future?" But they will simply increase their blood pressure.

For there is no "logical" or "sane" reason these bubbles persistently and constantly form. It's much simpler. It's the same thing that causes people to make "going green" a hobby. It's the same thing that sends millions of people to fork over $10 a ticket to see mediocre movies. It's the same thing that makes people listen to something as boring as public radio.

It's SWPL!

Enjoy the decline!