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.
The above are edited excerpts from an article by Vronsky (gold-eagle.com) entitled Ominous Signs For Stocks Forecast Lower Prices.
The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (sample here) 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.
Vronsky goes on to say in further edited excerpts:
The following ominous signs – plus the US T-Bonds/Dow Ratio accurately – called the BEAR MARKETS of 2000-2002 & 2007-2008:
- S&P500 dividend yield historically too low
- S&P500 price earnings ratio historically too HIGH
- NYSE margin debt at all-time record high
- Warren Buffett’s favorite evaluation metric: Total Market Value/GNP
1. Today’s dividend yield is at:
- the lowest level ever except in 2000 when it sparked a bear market andthe S&P500 lost 51% in value during the subsequent two years…
2. Today’s S&P500 P.E. ratio is at:
- the same level it was in early 1973 just before stocks crashed 45%…
3. Today’s NYSE margin debt is at an all-time high.[It is:]
- higher than in 2000 – when stocks subsequently plummeted -51% – and
- higher than in 2007 – when the Dow Index subsequently was hammered down -54%…
4. Today’s Market Cap/GNP Ratio is the second highest valuation (i.e. over-priced)…since 1950. [It is:]
- Warren Buffett’s favorite valuation metric to determine whether stocks are undervalued or overvalued [and, as such,] demands close attention as…[he] makes all his money investing in stocks. (Noteworthy is that his flagship Berkshire Hathaway recently announced their cash position has been rising rapidly to historically high levels. Obviously, this is done by dumping stocks from its portfolio.)
Warren Buffett’s Berkshire Hathaway’s cash hoard has surged 30% to more than $48 billion, since the end of 2011…[and, as such,] one must ask WHY…[he is doing so] if all is hunky-dory in the stock market. Why is Warren Buffett dumping stocks from his investment portfolio to build a record cash level to more than $48 billion?!
To try to clarify this cash conundrum, let’s take another careful look at the above bar chart again. Notice that in mid-2007 his cash position was about what it is today. Buffett was building a cash pile with the fore-knowledge that a market decline was brewing on the horizon. Likewise today, it seems reasonable the sly Oracle of Omaha has been aggressively building a giant cash pile (by selling stocks) in anticipation of the forth-coming stock market decline of substantial magnitude – and that’s just classic Buffett.
In addition to the four ominous signs described above in detail:
the US T-Bonds/Dow Ratio accurately called the BEAR MARKETS of 2000-2002 & 2007-2008 [and look at where the ratio is today!]
In my opinion fundamental & technical factors are again ripe for another possible BEAR MARKET DEBACLE – Fed driven levitation and tapering notwithstanding.
…As the world famous writer John Steinbeck once said – and all prudent investors should remember his sage logic – “The study of history, while it does not endow with prophecy, may indicate lines of probability.”
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.
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