Beware the Stock Markets: Valuations are Getting Very Stretched

Beware the Stock Markets: Valuations are Getting Very Stretched, by Michael Ballanger. The US stock markets have been setting record highs on a wave of optimism since Trump was elected, but is it warranted?

As for markets around the globe, I am going to tell you exactly where we are in history.

The Case-Schiller Index (The cyclically adjusted P/E (CAPE), a valuation measure created by economist Robert Shiller”) now stands over 27 and has been exceeded only in the 1929 mania, the 2000 tech mania and the 2007 housing and stock bubbles. …

In most hyperinflationary spirals including the Weimar, Zimbabwe, Argentina, and more recently Venezuela, the stock market parabola is the first event that occurs prior to the inevitable bubbling up of goods and services inflation. …

To illustrate this point, look no further than the point-and-figure chart for the Dow Jones Industrials. Richard Russell used to warn us about advances that wound up looking like a “rope” and how they would always, always, always reverse into a shedding of tears.


US stock market as a trader sees it, this year.

Since his election, bond yields rose in anticipation of inflation as Trump rebuilds America. The money has to come from somewhere, so it will be newly manufactured — mainly as new bank credit, but maybe also some disguised printing. Many investors dumped bonds and bet on shares, as you would in response to news of such an impending construction boom.

Donald Trump may or may not be able to “Make America Great Again” but stocks right now are priced to reflect an America made “GREATEST EVER, AGAIN” and do not reflect anything more than excess liquidity from this massive bond liquidation.

Why the overvaluation? Youth and inexperience perhaps:

The market is being run up by the drunken youth of a generation that has never experienced a bear market that did not get rescued by Central Bank intervention. Unfortunately, I am not yet old enough to have forgotten 1981-1982 or 1973-1974 or the DotCom collapse in 2001 so I simply cannot buy into a stock market rally underpinned totally by liquidity and hope and fuzzy- cheeked code-writers.