September 2026 Equity Valuations: Above Trend and Beyond Normal Bounds

Let’s look at the broad level graph of the monthly close for the Dow Jones Industrial Average over the last 10 years (as of September 11, 2026), as reported by MarketWatch.

Starting from the low observed on March 1, 2020, the DJIA stood at 21,917. The most recent value for DJIA as of September 11, 2026 is 52,573. The total return during this time is 140%, and if we were to annualize the return, you are looking at a rate of 18.6% (you calculate it by dividing the most current value by the previous value, and then raise the result to 1 divided by time in years, and then you subtract 1 from that result, and then you convert to percentage by multiplying by 100).

Doing the same for the S&P 500, we observed a similar elevated return profile.

Starting from the low observed on March 1, 2020, the DJIA stood at 2,584. The most recent value for DJIA as of September 11, 2026 is 7,656. The total return during this time is 196%, and if we were to annualize the return, you are looking at a rate of 20%. This is almost double the historical standard over the last 50 years. I intentionally anchored the analysis at the March 2020 COVID low because it captures the full effect of the fiscal and monetary interventions that reshaped the post‑pandemic market environment. While this starting point inflates returns relative to neutral baselines, it is appropriate for evaluating the consequences of policy actions on equity valuations.

If the S&P 500 had grown at its historical long-term rate of approximately 12%, the index would be around 4,600 today (=(1.12^6.534)*2,584). In other words, the S&P 500 is about 66% (=(7,656 – 4,600)/4,600) above where long-term historical compounding would place it. All this indicates that we are in bubble territory. The question then is not if there will be a reversion to the mean, but rather how that will manifest.

A word of caution is warranted: As J.M. Keynes stated, “markets can remain irrational longer than you can remain solvent.” Although we cannot pin-point the exact day that the mean reversion will occur, I do believe we can know the season (i.e. time range) when that will happen. We will explore that in a future post.

FDIC Bank Failures: What the Numbers Look Like

Here is a brief illustration of the number of bank failures that I calculated per the FDIC public listing.

This metric is a lagging indicator of economic downturn, as you can see from the years preceding the last Great Financial Crisis of 2008 – 2010. It’s also a lagging indicator when the economy has begun to improve. Said another way, the years preceding an economic downturn is marked by a relatively low number of bank failures; and the years after the economy has begun to improve there is still relatively high number of bank failures.

Price Stability in a Fixed-Money System

This is a follow up topic discussed in a previous post about economic theory with respect to  monetary systems, particularly a fixed-money system. Here is the question that was asked:

How does a fixed-money system limit variability in prices of good, when price variability is inherent to commodity-based, fixed-exchange monetary systems and when the pre-Fed era saw more variability in price?

A fixed-money system (e.g. gold-standard) does not limit price variability of goods. Price stability is not necessarily linked with a fixed-money system (e.g. gold-standard); variability of prices is part of any economy. At a basic level, all prices depend on the law of supply and demand; and that depends on the productive capacity of a society. As output increases, assuming a stable supply of money, then you’d see prices of goods decline (less money chasing more goods). What does this mean? It means the standard of living is increasing.

Now, with respect to the prices of gold, don’t take my word for it, look at this table published by the National Mining Association listing the historical average price of gold (http://www.nma.org/pdf/gold/his_gold_prices.pdf):

Pre-Fed era, price of gold in 1833 = $18.93; and price of gold in 1913 = $18.92.

Post-Fed era, price of gold in 1914 = $18.99; and price of gold today (as of 4/28/23) = $1,999.

Treasury Bills Yields: Why Has the 4-Week Bill Rate Fallen

First, let’s take a glance at the current conditions surrounding the Treasury yield curve. Here are two points in time – March 1, 2023 and April 21, 2023. We compare the spread of the various Treasury maturities vs. the 10-year Treasury

Date	1 Mo	2 Mo	3 Mo	4 Mo	6 Mo	1 Yr	2 Yr	3 Yr	5 Yr	7 Yr
4/21/2023	0.21	(1.41)	(1.57)	(1.62)	(1.50)	(1.21)	(0.60)	(0.32)	(0.09)	(0.05)
3/1/2023	(0.66)	(0.81)	(0.89)	(1.01)	(1.19)	(1.05)	(0.88)	(0.60)	(0.26)	(0.16)

Source: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2023

On March 1^st, the 4-week Treasury Bill rate was 0.66% higher than the 10-year Treasury rate. As of April 21^st, the 4-week Treasury Bill rate was 0.21% lower than the 10-year Treasury rate.

Now, let’s take a look at the trend of the 4-week Treasury Bill rate since March 1, 2023:

 

We can clearly see that after March 31, the trend has been clearly on a downward path.  

Fundamentally all prices follow the law of supply and demand all things being equal, the higher the demand, the higher the price; conversely, the lower the demand, the lower the price. Incorporating the supply side of the analysis, the same demand outcome will occur if supply is either held constant or increased at a slower pace than demand.

At a basic level, what we have seen for the 4-week Treasury Bills is that the demand of loanable fund from the government has declined, but the amount of money that the public has supplied hasn’t fallen at an equal or higher rate. Put another way, while the offering amount (supply) to sell Treasury Bills has fallen, the demand to purchase hasn’t fallen as much. That is, demand exceeds supply. And in the context of Bills (or any fixed income security for that matter), higher Bill prices means lower interest rates. You can see this by looking at the auction amounts from 4/20 and 3/2:

Auction Date	Offering Amount	% Change In Offering Amount	Total Tendered	% Change In Total Tendered
4/20/2023	50,000,000,000	-33.33%	150,597,577,600	-20.56%
3/2/2023	75,000,000,000	-	189,563,268,500	-

In the broader context of total government debt, the total debt held by the public has declined by approximately $24 billion since March 1, 2023; and the total government debt has increased only by approximately $1 billion, which is low, say if you compare the Feb 1 to March 1 period when total debt held by the public and the total government debt increased by approximately $23 billion and $4.5 billion respectively. Currently (4/20) total government debt stands at $31.45 Trillion.

The question then becomes why the decline? The answer lies in the current “debt limit”. By law the government is only able to borrow a maximum of approximately $31.4 Trillion. Currently (4/20) total government debt stands at $31.45 Trillion. The way the government is getting around to continue to borrow is to use what’s called “extraordinary measures”, which it can only legally do for a certain period of time. Right now the government can only borrow those funds that mature. For example, if only $50 billion of 4-Week Treasury Bills are due to mature, that’s the maximum the government can offer to purchase. That is ultimately the reason why the interest rate of Treasury bills have declined (i.e., higher demand and lower supply of T-bills).

Economic Framework to Understand Boom-Bust cycle

Introduction:

The following series of notes represent the outcome from dialogue had with respect to the theoretical economic frameworks. This is important to understand because how we think about economic systems – which all are inherently complex – will help us forecast where it is heading. In other words, having proper perspective of the way things should be and the way they are now helps us frame the present circumstances in such a way that we can understand (or at the very least try).

The following perspective is merely a point of view and do not claim to be perfect. My goal is that it will be taken as a means to stimulate dialogue and thought.

Topic 1. If a fixed-money system limits the boom-bust cycle, why did the more fixed-money systems of the pre-Fed era have so many more booms, busts, panics, and depressions?

Three points on this question:

- First, all man-made systems are imperfect, so no man-made system will prevent “boom, busts, panics, and depressions” from occurring.

- Second, without going into the rabbit hole of precisely defining each term, yes, the pre-Fed era had “boom, bust, panics, and depressions.” But to say that there were more or less, masks some important distinctions: pre-FED, “booms, busts, panics, and depressions” were for the most part parochial, both in location and/or markets (e.g. the railroad investment mania of the 19^th century had little impact on the average person and impacted mostly the investor class). It is not the number of “booms, busts, panics, and depressions” that is germane, what is important is their magnitude. Read economic historian Charles Kindleberger’s Manias, Panics, and Crashes. His classic book goes through the history of manias, panics, and crashes, and then lists the top 10. If my memory serves me right, 8 out of the 10 crashes occurred post Fed era. At the time the book was written, the crash of 2008 had not happen, and most certainly that one would have made the list. Let’s put aside the 2020 crash due to the lockdown, as that was a very unique event in human history, what becomes apparent is that each successive crisis post-Fed era are more pronounced and impact is broader (aka contagion risk).   

- Third, as briefly mentioned in my second point, a fixed-money system would limit the boom-bust cycle, but mainly in the context its broad economic impact. I do not know the exact number of boom-busts in the pre-Fed era, but what I am certain is that you will rarely see a boom-bust, say, in the likes of the ‘Great Depression’ or ‘Great Recession’. What you will find in the pre-Fed era are many localized issues (e.g., bank runs in the specific regions; or investment crashes that would impact the money centers without much impact to the broader population, etc.).

What’s Up and Down with Japan’s Economy

This post is simply to provide a brief explanation of what is currently happening with the Japanese economy.  As recent news have explained, there has been tremendous pressure in the Yen, which has caused it to depreciate relative to the US Dollar. For example, on January 1, 2022, you needed to pay about 115 Yen to purchase $1; and as of July 4, 2022, you now need approximately 135 Yen to purchase the same $1. This means that so far this year the Yen has lost about 17.4% in value relative to the Dollar.  At a basic level, the loss in value has to do with supply and demand issues: people are selling the Yen and buying US Dollars.

Why are people selling the Yen? Because investors have determined there are better returns in an alternative currency (i.e US Dollars). And right now, in terms of investment returns, the US provides an appealing opportunity. Japanese bonds (10-years) are currently paying somewhere in the neighborhood of 23 basis points – about 2.5% less when compared with similar US bonds. Furthermore, with consumer price inflation running hot and as a result the US Central Bank has begun to increase rates, this means that from an investment perspective US bonds are increasing their appeal. As such, people sell bonds and buy US treasuries – which essentially means selling Yen and buying Dollars.

This puts additional downward pressure in Japan for the demand of their bonds. This causes bond prices to fall, thereby increasing yields. On top of this market phenomenon, as part of its monetary policy, the Central Bank of Japan is committed to maintaining a maximum of 25 basis points for its 10-year debt. But as the bond selling pressure increases, the BOJ is doing what they can to assure that interest rates do not exceed the central bank policy target rate of 25 basis points. This means that any excess supply of debt, the BOJ is buying. And when the BOJ buys, it is increasing the money supply, which devalues the currency. It is becoming a pernicious cycle.

How long with the BOJ continue to do this? We don’t know for sure. What we do know with fair certainty is that what the BOJ is doing is not sustainable. Judging from prior history (see Asian Crisis of 1997-1998 to get a sense of what could unfold), we know that this will not end well.

What is the US Treasury Yield Curve saying?

Yield curve inversion occurs when short-term rates are higher than the long-term rates. Historically, this has been a predictor of recessions, which it is normally witnessed within a year after the inversion occurs.

Banks typically make money when borrowing money at the short end of the yield-curve and lending at longer end of the curve. In other words, they borrow at a lower rate than what they lend, netting the difference. An inverted yield curve is generally not good news for banks. 

At the moment, based on the yield curve rates reported on February 14, 2022, I do not see evidence of an inverted yield curve when measuring the difference between the 30-year rate and the 3-month rate.