Tuesday , 17 May 2022

Current Financial Markets Are Completely Detached From Reality

…Small investors are piling into overvalued markets but the smart guys – billionaires and company insiders – are heading for the exits. What do they know that you don’t?

We’re not forecasting that a market crash is imminent but we think it is wise to exercise some caution because financial markets are completely detached from reality…

  1. The average Price/Earnings ratio in the S&P 500 is 44, which is about 3x the historic average. It’s only been higher two other times — just before the 2000 crash, and just before the 2008 crash. (As the name suggests, a company’s Price/Earnings (P/E) ratio measures its share price relative to its per-share earnings. Analysts and investors use P/E ratios to compare companies’ relative values.)
  2. In the United States alone, Almost 10 million people remain unemployed in the U.S..
  3. Thousands of small businesses are forever shuttered. Rising capital costs and labor shortages may close thousands more in the coming months.
  4. Before COVID-19 struck, out of 3,000 large, publicly traded US companies, there were about 400 “zombie – companies that cannot generate enough operating income to cover their interest payments – and now there are more than 600 zombie companies, with $2.6 TRILLION in total debt.
  5. Meanwhile, US Treasury bonds are no longer the “risk-free” investment that they once were. Last year, when markets melted down, foreign investors and central banks didn’t rush into U.S. Treasuries but, instead, sold $1 trillion of U.S. Treasuries overnight…
  6. Despite what the fanatics proclaim, cryptocurrencies are not yet a stable store of value. For example, in the past month, bitcoin plummeted over 40% – and then quickly rebounded 10%.

So, [given the above,] where can the rational, cautious investor safely invest capital at times like these? Fortunately, there are still pockets of value where you can make money…[but] you need to…

  1. be extremely disciplined – with both your capital and time horizon and
  2. know where to look (NOT in US markets)

…This type of investing is not for everyone:

IF

  • you lack the patience for your stock prices to increase,
  • you cannot imagine suffering 10%, 20%, 30% losses, even though they’re temporary,
  • you’re constantly checking the value of your portfolio…

THEN you’re not cut out for this type of investing strategy…[so] you can:

  • close this email, and you can
  • ignore this week’s remaining emails.

BUT, if you have a long-term investment horizon with a classic asset allocation, then the risk is minimal, and the rewards are potentially unlimited…

Stay tuned for tomorrow to see how you can invest in real value and create true long-lasting wealth.

To your investment success,

Tim Staermose,
Chief Investment Officer, SovereignMan.com

Editor’s Note:  The above article has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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