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Once again the stock market is in full bubble mode. The market was already
overvalued earlier this year and the froth continues to build. Valuations are off the chart and euphoria is setting in…[while,] at the same time, you have inflation eroding the purchasing power of regular Americans not participating in this casino. All the signs of a bubble top are there – massive speculation, unexplainable valuations, and blind optimism – even though the fundamentals don’t make any sense. [This article substantiates that contention.]
The above introductory comments are edited excerpts from an article from mybudget360.com entitled We are absolutely in a stock market bubble: corporate equity valuations now higher than peak reached in 2007. Crestmont P/E of 26.3 is 90 percent above its average of 13.9.
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Further edited excerpts from the article are as follows:
The stock market is a poor indicator of the overall economy but it does show how those with disposable income to invest are thinking:
- Internet chat forums are full of people pumping up stocks
- Penny stocks are surging in light of people looking for the next free lunch which was very common during the tech boom of the 1990s
- People are throwing caution to the wind and trying to time the market
- People are going all in on stocks fully ignoring bonds as a part of a balanced portfolio.
Once again the stock market is in full bubble mode. The market was already overvalued earlier this year and the froth continues to build. Valuations are off the chart and euphoria is setting in…[while,] at the same time, you have inflation eroding the purchasing power of regular Americans not participating in this casino.
All the signs of a bubble top are there – massive speculation, unexplainable valuations, and blind optimism – even though the fundamentals don’t make any sense [as outlined below].
Corporate equity valuations
A good way to look at values is to take the value of corporate equities and measure them against GDP (the supposed true indicator of output from our economy). Stocks should be a reflection of what is being produced in the real economy. The market, of course, is merely a proxy for what is happening in the real world and when it loses this position, problems begin to arise.
Take a look at current valuations:
Euphoria
The current stock market is more speculative than it was in 2007 and we all know what came after that…The S&P 500 is up 192% since 2009 so, of course, people are going to get wide eyed when they see things like this. Why balance your portfolio when you can go after big gains? Of course, this is when the public gets burned and a big part of this run has come from easy money policies that have already eroded purchasing power for many Americans...People want to be the next millionaire even though there is no logic (or profits) from the companies they are investing in. People are looking to get rich without any actual work.
Valuations out of sync
…The market is looking extremely over valued:
The Crestmont P/E is at 26.3 which is 90 percent higher than the average of 13.9 going back to 1870. This is an important metric because it takes a look at current price and measures it against actual earnings. According to this measure, people are heavily overpaying for stocks today.
Half of Americans do not own any stocks so this is very much a sideshow to them. Inflation has eroded much of their purchasing power over the last generation. Access to debt was confused with actual wealth when in reality, wealth continues to aggregate in fewer and fewer hands and the mass public with investable disposable income is trying to get rich quick. As usual, similar to the tech boom and real estate boom, the public is the last to the party right when the bubble is inching closer to a bust.
Conclusion
The above are all fairly clear signs that the market is overvalued and a correction is imminent… When the Crestmont P/E is valued at 90 percent above its historical average you know something is going to give.
Then again, irrational exuberance can last a lot longer than you think.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.mybudget360.com/stock-market-in-bubble-cynk-pe-valuations-at-record-levels/ (If you enjoyed this post click here to subscribe to a complete feed and stay up to date with today’s challenging market!)
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