The dangerous parabolic rally in stocks continues with valuation now at the high end of the range for the last 15 years. Price/revenue is back over 1.7 after briefly falling to 1.68. The stock market is grossly over valued and the dip buyers are really pushing their luck!
Taxes should be much higher than now. Obama promised to tax the rich and investing class but has failed! Start by increasing the capital gains tax to at least 50 percent. There should be no distinction between long and short capital gains, tax all capital gains at least 50 percent. Tax dividends at 50 percent also and stock buybacks at 60 percent. All up to $35,000 interest income tax free. It is time to soak the WALL STREET trash with very high taxes.
Median stock valuation in January 2000 was lower than now! This is sure fire evidence that the stock market is a more dangerous bubble today than then. The median stock P/E and P/S is 20 and 1.8 today compared to P/E 16 and P/S 1.4 in January 2000. The mother of all bear markets will follow this FED induced bubble.
Financial assets are grossly over valued and setup for a huge crash soon. The exits will be crowded and the bust will be on and years of gains gone for good. I believe this is the bubble to end the bubble era and if you are late to sell you will be very very sorry! There is smoke in the theater but the fast money #$%$ does not yet see the fire. Let the buyer beware that the sell off in junk bonds is a warning for risk assets! There were warnings in 1929 too before the big crash and those who sold early missed the crash. Are you a bagholder or will you purge your greed and sell? Bulls make money, bears make money, pigs get slaughtered!
It is a very long painful decline to 750 from here but if you sell now, you can avoid the awful pain the greed filled speculators will endure for sure.
I won't even bother posting the link because if I do the thread will be deleted. You can find the information discussed here on David Stockman's Contra Corner. Lots of speculators and punch drunk fund managers will tell you that valuations today are reasonable or even cheap, but the valuation data does not support this! Lets compare the median stock valuation today versus January 2000. In January 2000 the median stock P/E was 16 compared to 20 today, the median stock price/revenue was 1.4 then compared to 1.8 today, the median price/book 2.2 then compared to 2.5 today. Now just imagine how high the median stock valuation will be if the market valuation increases to year 2000 mega bubble levels!
Investors and speculators have been starved for yield thanks to the worst and most misguided monetary policy ever! They have been chasing junks bonds and leveraged convenient light junk bonds for the past three years! The greatest junk bond bubble ever is just starting to unwind and crash. The worst has yet to come! Good bye bull market and say hello bear!
No, you should not short the stock market yet. There could still be another big rally with all the funny money out there. You should be selling the stocks you own though as the stock market rallies. The bull market has matured and risks are increasing! Even IF perfection is achieved I do not think the S&P 500 will be much higher than 2400 ten years from now. The valuation is already very high!
Historians will look back at this period and agree that this is the greatest financial asset bubble ever. The FED lowers rates to near zero percent and kept them there for almost six years while their balance sheet grows to over 25 percent of GDP this year from only 6 percent of GDP in year 2008. This is financial repression on steroids and it squeezes what is left of the middle class like never before while the Wall Street fast money #$%$ prosper! This is immoral and wrong! While this mess is going on global debt has increased over to 100 trillion dollars and 185% of global GDP! This massive debt will crowd out growth and lead to another great depression!
The bulls ignore a big problem manifesting now: rising labor costs which include wages, taxes, increasing healthcare costs, and pensions. These costs are increasing at faster rate and creates a huge problem for the FED. Labor costs are increasing while wage growth is still very low! Soon these increased costs will be passed on to the consumer and higher inflation. Sooner or later the FED will be forced to increase rates and then the real fun begins. The trillions of dollars in financial engineering and bubble finance encouraged over the last five years by very low interest rates will unwind and the bust will begin! If you still hold stocks consider getting a little closer to the exit!
Market is going down because the fundamentals are not good. Increased wage pressure is not good for extremely high profit margins and Europe and China are like a house of cards!
I think the S&P 500 will be near 2322 ten years from now. This is how I calculated the projected price target. S& P 500 revenue should grow about 4 percent per year for the next ten years and grow to 1688.86. The median valuation for the S&P 500 since 2000 is 1.375 times revenue and 1.375*1688.86 is 2322 . That is total capital gain of 17.7% from 1972 for the next ten years! That is still a great return for those who bought at the bottom in March 2009 which is .038 + (2322/667)EXP.0613 -1 = 11.8%/year. Buy low and get rewarded with high returns and buy high and get punished with low returns, it is as simple as that!
Inventories added 1.66% to GDP growth for second quarter 2014. Without inventories GDP growth was only 0.7% in first half of 2014. So the 4 percent GDP growth for Q2 is NOT even close to as good as it would appear.
The new jobs are mostly minimum wage jobs and even after employment disposable income will not increase much because as income increases all the government welfare transfer payments decrease.
Study the long term chart of the S&P 500 and notice the bearish mega phone pattern. The market has rallied from the bottom of the mega phone and now is approaching the top around 2180. After that it is HAMMER TIME! You bulls better be ready to sell or get slaughtered! The stock market should make a lower low than in March 2009 and that means lots of pain!
Valuations are very high now and this will significantly lower future returns in stocks. The S&P 500 may rise to 2800 ten years from now, but that is only about 40 percent gain in ten years compared to 23% annualized capital gains since March 2009. The easy money has already been realized in stocks and before long volatility will surge and returns will be much lower. The slope of the uptrend from 2009 is over 60 degrees and way too steep and cannot be sustained much longer. At the current rate of appreciation, the S&P 500 would be 15,700 ten years from now and almost 4 times the valuation at the peak of the Dotcom bubble in March 2000!
Come down to the southern tip of Florida and see how it feels to live without AC!