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:
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.
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!)
Follow the munKNEE!
Trying to predict markets more than a couple of days into the future is nothing more than a “wild ass guess” at best but, that being said, we can make some reasonable assumptions about potential outcomes based on our extensive analysis of these 6 specific price trend and momentum indicators. Read More »
Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett and it is now at the second highest level in the past 60 years – even surpassing the levels reached in 2007. Read More »
Is this stock market decline the “real deal” (that is, the start of a serious correction of 10% or more) or is it just another garden-variety dip in the long-running Bull market? Read More »
The 10-year yield’s Death Cross has proven to be a pretty significant risk-off shot across the bow over the last decade and this matters today because the 10-year yield put in a Death Cross back in early April of this year. So what does the 10-Year’s Death Cross mean for stocks this time? Read More »
The financial markets are drastically over-capitalizing earnings and over-valuing all asset classes so, as the Fed and its central bank confederates around the world increasingly run out of excuses for extending the radical monetary experiments of the present era, even the gamblers will come to recognize who is really the Wile E Coyote in the piece. Then they will panic. Read More »
To ignore all the compelling charts and data below would be irresponsible and, as such, will NOT go unnoticed by institutional investors. Such bearish barometers for stocks worldwide will, unfortunately, be ignored by the ignorant and gullible hoi pollo causing them severe financial loss as investor complacency in the past has nearly always led to a stock market crash. Read More »
In their infinite wisdom the Fed thinks they have rescued the economy by inflating asset prices and creating a so called “wealth affect”. In reality they have created the conditions for the next Great Depression and now it’s just a matter of time…[until] the forces of regression collapse this parabolic structure. When they do it will drag the global economy into the next depression. Let me explain further. Read More »
Brace yourself! The stock market is ripe for a nasty selloff according to a number of politicians and even more market pundits – but not so fast. Two very reliable long-term recession indicators strongly suggest that a correction – or worse, the end of the bull market – is highly unlikely given the current state of the economy. Let me explain. Read More »
We look at this market and we see “too much.” Too much divergence, too much complacency, too much embedded downside risk…the list goes on and covers many things. Let’s make the rounds and see what we find [and what it means for the immediate well-being of the various stock markets.] Read More »Read More »
There are a number of potential pitfalls out there for the market but, right now, the behavior of the main catalysts for a major correction suggest that there continues to be more right than wrong with the market. Let me explain. Read More »
Some investors are sure we’re heading for a crash because we’ve had such an uninterrupted rise in stocks but these things can last much longer than most people realize. While a crash is never out of the realm of possibilities, just because stocks are up doesn’t mean they have to immediately crash. Eventually they will be right. It’s the timing that gets you on these type of calls. Read More »
This is not going to end well, I tell you. The stock market is significantly overvalued at 123%. The question is: “When will it happen?” I think it happens soon. Read More »
If you follow the mainstream financial print media, you may have seen that many prominent publications have recently called this stock market a ‘bubble’ and many are waiting for the elusive stock market crash! In our view, however, such bearish ‘bubble’ sentiment is precisely the reason why, in our opinion, the party is likely to continue for at least another 2-3 years. Here’s why & what sectors to take full advantage of. Read More »
Back in the 1940s Donald Bradley developed a means to forecast the stock market using the movement of the planets which, according to the noted technical analyst William Eng in his book Technical Analysis of Stocks, Options, and Futures, is the only ‘excellent’ Timing Indicator. Below are current Bradley timing model charts indicating a major turning point in the stock markets is imminent. Read More »
While the majority is looking at the Megaphone Pattern correction since the 2000 high and is expecting the market to go back to the lower trend line of this pattern and to make new lows, I think that it will not happen. The opinion of the majority can be used as a contrarian indicator. I think that a healthy correction in this new Secular Bull Market could push the Dow Jones to 12500-13500 (end of 2015 – half 2016) followed by a second leg up of this new Secular Bull Market. Read More »
The U.S. stock market has been closing at one record high after another but, despite the seemingly unending investor optimism more than five years into the current bull market, some worrisome issues are continuing to build under the surface. Like all past bull markets, the latest episode will eventually come to an end and a new bear market will begin and it has the potential to be even worse than the two previous downturns since the start of the new millennium… Read More »
As Warren Buffett is famous for saying “…be fearful when others are greedy and greedy when others are fearful” and now is such a time. The crowd can be right for a long time, but they are rarely right at extremes and, while this time may be different, the probabilities suggest that at the very least it will be a more difficult environment for equities going forward. Read More »
The 4 fundamentals and technicals discussed in this article accurately called stock market crashes in 2000 and 2007 and these same market metrics are again TODAY warning that a possible financial tsunami is brewing on the horizon. No one knows for certain WHEN the tsunami will hit Wall Street…but, without question, today’s stocks exhibit extremely exaggerated valuations, and extremes never last, so make no mistake, a major stock sell-off looms. Read More »
The S&P 500 is now up over 180% since troughing in March 2009 and it has been almost 3 years since the stock market experienced a 10% correction. Historically, market corrections happen approximately every 2 years on average. [As such,] we think that this rally is getting very long in the tooth and we wouldn’t be surprised if we have a healthy pullback in the coming weeks or months. Read More »
For US stocks — and by implication most other equity markets — the danger signals are piling up to the point where a case can be made that the end is, at last, near. Take a look at these examples of indicators that should scare the hell out of anyone with a big stock portfolio. Read More »
You can call this current stock market a blowoff or call it a Wile E. Coyote moment or call it a divergence or call it a disconnect or call it a lapse of judgement. You can call it whatever you want but I call it the “Honey Badger” market because this is one “crazy, nastyass” stock market – and I can’t believe I’m watching it happen all over again. Read More »
Greed may have been good for Gordon Gekko. but in the investment world it rarely is. As Warren Buffett is famous for saying “…be fearful when others are greedy and greedy when others are fearful” [and now is such a time]…to start showing some level of fear here in the face of extreme greed by the crowd. The crowd can be right for a long time, but they are rarely right at extremes. While this time may be different, the probabilities suggest that at the very least it will be a more difficult environment for equities going forward. Read More »
Are we in the third phase of a bull market? Most who will read this article will immediately say “no” but isn’t that what was always believed during the “mania” phase of every previous bull market cycle? With the current bull market now stretching into its sixth year; it seems appropriate to review the three very distinct phases of historical bull market cycles. Read More »
Are we near the end of one of history’s great stock market rallies? I don’t think so. Yes, prices are in the upper half of their long-term trends, but it’s not what you might call “scary-overvalued.” There is still plenty of room on the upside before historical precedents are violated. Let me explain further. Read More »
I’d argue that the record low volume shows investors aren’t looking ahead as much as looking behind and reminiscing at how good things have been over the past five years or so. They’re expecting more of the same even though it’s mathematically impossible people. Read More »
The health of a market is best assessed along three vectors: fundamentals, technicals (price action) and sentiment and this is what each is saying about the health of the markets these days. Read More »
For today’s seriously overextended and overvalued US stock markets the best-case scenario is a full-blown correction approaching 20% emerging soon while the worst case is a new cyclical bear market that ultimately leads to catastrophic 50% losses. Read More »
In the midst of all the optimism we see towards key stock indices these days, there are two leading indicators that are flashing warning signals. They say, “Be careful, and don’t get caught up in the euphoria.” Read More »
No stock can resist gravity forever. What goes up must eventually come down. This is especially true for stock prices that become grotesquely distorted. We have been – and still are – living in another dotcom bubble, and – like the last one – it is inevitable that it is going to burst. Read More »
Is the current stock market correction simply just a dip within an ongoing uptrend OR have the “bears” finally awakened from their winter hibernation? [Below are my views on the subject plus those of several others to help you arrive at an informed conclusion]. Read More »
It’s frustrating to see key stock indices keep pushing higher when historically proven market indicators are all warning of a crash ahead. Irrationality is exuberant to say the very least, and that’s why I believe this rally is counting its last days. Read More »
There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this “cut and save” article. Read on! Words: 974 Read More »
With both the fundamentals and the technicals saying the stock market is a risky place to be, we await its crash back to reality. Here’s why. Read More »
So much analysis we see and hear lately is concerned with whether the stock market is in a bubble or not. The truth of the matter, however, is that bear markets do not begin due to bubble-level valuations being reached and then bursting, but in anticipation of half a dozen mitigating factors as outlined in this article. Read More »
It is hard to know what to buy or sell let alone just when to prudently do so. Thank goodness there are indicators available that provide information of stock and index movement of a more immediate nature to help you make such important decisions. This article describes the 6 most popular Momentum Indicators. If ever there was a “cut and save” investment advisory this is it! Words: 1234 Read More »
Remember the game Musical Chairs? It seems that investors on Wall Street have been playing this game recently, as more and more we are seeing signs that the current bull market may be reaching its final stages. Each new sign that appears represents just one more chair being taken away from the game. The question investors need to ask is “where will I be when the music stops”? Read More »
The benefits of being able to detect a bubble, when you are in its midst, rather than after it bursts, is that you may be able to protect yourself from its consequences. [Below are possible] mechanisms to detect bubbles, how well they work and what to do when you think a particular asset is in one. Read More »
Below is a description of what I believe to be the best stock market indicator – ever. I am referring to the percentage of S&P 100 stocks above their 200 DMA which gives traders a clear early warning signal of impending serious market downturns and later safe re-entry points. Read More »
Everyone is worrying that we are at or near a market peak and this has investors extremely hesitant to buy stocks for fear of a big decline or perhaps even a crash. Obsessing over the risk of a crash, however, could lead to analysis paralysis but there is a basic investing strategy that can save investors from losing too much hair as they make the decision to buy stocks. It’s called dollar-cost averaging. Let me explain how it works and why it’s great for investors with long-term investing horizons. Read More »
Since the U.S. stock market still appears to be trying to make up its mind which way things will go from here, this appears to be as good a time as any to expand on the idea of using the VIX to “buy the freaking dips.” Read More »
Following the 2007-09 financial crisis, many investors decided they needed insurance on their portfolio to protect against the possibility of another “black swan” event and poured money into a host of new funds that were supposed to help if there was another downturn — long/short funds, tail risk strategies, absolute return funds, option hedging strategies, tactical asset allocation funds and the like – but they missed the idea completely. They were trying to plan ahead for uncertain events that could surprise everyone. Of course this is impossible, because you can’t hedge out the risks of unknown events – they’re unknown after all. So how should an investor protect oneself from another such occurrence? The answer is below. Read More »
We fail to pay attention to the warnings signs as long as we see no immediate danger and keep our foot pressed to the accelerator believing that since it hasn’t happened yet, it won’t. This time is only “different” from the perspective of the “why” and “when” the next major event occurs. Below are analyses and exhibits to support that contention. Read More »
It’s a boom time for doomsayers according to the cover of Barron’s and such paranoia-inducing prognostications are only going to get bolder, and more frequent, thanks to the fact that billionaire George Soros’ hedge fund firm has increased its bearish bet on stocks – a put position on the S&P 500 Index – by a staggering 154% in the most recent quarter…accounting for 11.13% of his holdings…implying that the stock market is headed for a nasty fall. The efforts of the doom-and-gloom crowd to try and scare you stockless aren’t going to succeed this time, though, and here’s why. Read More »
Remember, the trend is your friend and now you have an arsenal of such indicators to make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a “cut and save” investment advisory this article is it. Words: 1579 Read More »
The markets are considerably, fantastically overbought and that whatever happens after this “Wall Street Party” is going to be a sort of catastrophe. Here’s why. Read More »
The Small Dogs of the Dow is a simple and effective strategy that has outperformed the Dow and the S&P 500 significantly over the last 20 years. Let me present this in simple terms: Read More »
The Fed has manufactured a parabolic move in the stock market…which is much more aggressive (and thus even more unsustainable) than witnessed at either the 2000 or 2007 stock market tops. Parabolas always collapse – there are never any exceptions – so when the pin finds this bubble it’s going to take down not only our stock market, but unleash a destructive force on the global economy. Read More »
Current macro conditions indicate that we are in a sweet spot for equity returns…that global growth is continuing and there is little or no tail risk in the immediate future. It’s time to get long equities…but I have this nagging feeling that these market conditions are too good to be true. If you look, there are a number of technical and fundamental clouds on the horizon. Read More »
There’s no fear anymore – anywhere – and I’m talking about the type of fear that overwhelms investors – and, in turn, the market. The surest indication of this can be found in the following chart. Read More »