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Are Stocks Overvalued By $4+ Trillion? Quantifying The Fed's Impact On The Stock Market
A few months ago we penned an article titled: "Bond Yields Imply The Fair Value Of The S&P Is 750" and this was when the 10 Year was still above 3.00%. It is now around 40 bps tighter, meaning the fair value of stocks is even lower based on the historical 75% regression pattern we indicated back in June. Today, David Rosenberg also chimes in on this ridiculous divergence between the S&P and bonds, and in graphic form shows that should the gap ever close, it would lead the stock market to its fair value, which ironically, is just around the March 2009 lows of 666.
Folks — something has to give ... yields on the 2-year T-note (thin line, right hand side on chart below) has a 75% POSITIVE correlation with the S&P 500 and just hit a cycle low. Either it's a short or the equity market is ... take your pick.
As a reminder, historically bonds are right... about 100% of the time.
And with the S&P's market cap at $10.5 trillion, meaning each S&P point is equivalent to about $9 billion dollars, the impact of the Fed's intervention on stocks is roughly $4.4 trillion. Alterantively, one can argue that stocks are right, and bonds are wrong. Since the bond market is double the size of its smaller stock cousin, it would means that the Fed's endless interventions have mispriced just under $9 trillion worth of fixed income assets.
And people want to play in a market that is as ridiculously out of sync with reality as either of these?
Good luck.
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If people are still buying, then it's not a bubble.
http://forums.wallstreetexaminer.com/blog/5/entry-177-the-bubble-playbook/
LMAO!!! That's a good one there.
What 'people are still buying', B.S.Bernanke and Geithner?
Perhaps a reversal in the USD will help? Now there's a possibility (despite everything)!
http://99ercharts.blogspot.com/2010/09/usd_6752.html
I think it is impossible to determine where stocks should be because the FED has intervened in everything from FX-stocks-bonds-mortgages-whatever else.
Like you mentioned earlier the one thing that is certain is the dollar weakness directly tied to the aforementioned. Stocks indexes are underperforming almost every commodity. So fuck it.
Dow 1971 +/- a couple years basically. That and alot of 0's where there currently is a stock with a price. So who knows exactly. (but that's sort of the point of WHY you seek change)
It's all about Glass/Steagall baby. Or die.
Unless the average person thinks they are retarded to be the one person through the exit slot, where millions are. Someone HFT better not call fire in such a crowded room.
compared to the AUS/JPY then S&P 500 is rich by 2% right now (short term)
AMZN, SPG, TOL, NFLX, ... come on now .. you have to be a complete idiot to not see who's wrong here.
Need not worry...the FED'S balance sheet just keeps growing and growing.. When the dollar finally cracks and the dumping begins, GAME OVER. The FED will finally lose its century long grip on America...It's nothing but a trap, and they are just scrambling aimlessly trying to keep the door open.
Tyler & ZH dudes - you'll love this one. HFT bots go nuts in Bernie's once beloved NASDAQ,. This time GOOG ticks off low trade today of $52.55. Nuthin' to see here folks, move along.
http://www.youtube.com/watch?v=HEPnIP1bKzg&feature=feedu
I enjoyed another one of his videos where he actually showed DARK POOLS live. You could see them coming in and buying or selling, then disappearing. Pretty freaky.
Looks like Reggie Miltons TOS account. The 'I told you so' blowhardness gives it away.
doubtful.
the bond market is easily 400% of the value of the stock market.
as the idea of higher long rates becomes more of a reality, the bond cash flows to stocks.
game-set-match.
The bond cash flow to stocks?
Why have commodities been outperforming stocks?
The PD's are buying stocks and bonds via the FED, everyone else is getting pushed out and buying commodities.
I believe that TD has posted stocks priced in gold and has shown that stocks haven't done shit.
Just to follow up on this idea. Who ever is selling all the bonds, not just treasuries, but corporates, must be do something with that money. (Not any new issues, but existing) The move in the market suggests that money is flowing into equities, but not from retail.
Look at the ICI data set, money is pouring into taxable bond funds. Again, who ever is selling these bonds may be buying stocks on the other side.
over what time period?
i'm guessing if you look at it the other way, gold priced in stocks has not done shit
cherry pick a time period if you wish.
I'll go 5 years
http://finance.yahoo.com/echarts?s=SPY+Interactive#chart2:symbol=spy;range=20000129,20100901;compare=gld;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
What time period would you like to choose?
Great stuff - a bunch of the girls in my office own Apple and are talking bout it daily around the water cooler and buying more because its a money machine. So 1999. We are very close to the edge.
Yup. Meanwhile, *nobody* I know is buying gold stocks. Heck, even my hardcore gold-bug buddy recently sold all his and bought (with a huge mortgage) a rental condo in, of all places, Vancouver, Canada.
Stocks are going up the down escalator. This could turn out to be truly frightening.
> which ironically, is just around the March 2009 lows of 666 based purely on bond yields.<
GAAP earnings will be around $66 and
with a 1% low growth/no growth GDP, a 10 multiple is about right and
in line with the
historical record.
Unfortunately, the
fed is intent on
fleecing us with
POMO to feed the banks, who are in
turn selling the
inflated stock they buy back to
us at even more inflated prices.
Ben's running a
Ponzi.
If the indece of the S&P were adjusted for inflation, then it would probably match the yield curve fine.
It does not matter whos r ight / wrong Trillions are clearly missalocated, any1 whos holding Paper will get burned
The Fed can keep rates as low as it wants anywhere along the yield curve -- it represents infinite demand.
At the same time, the unsustainability of this game (and hence the true value of the USD--which is obviously not just related to mere supply) is becoming more accepted by the day.
Gold, the bond market and stocks moved more or less in the same direction between 2000 and 2007 -- up.
Rosenberg's assumption of a binary choice between bonds and equities is flawed IMO, at least for significant periods of time.
And it's all in AAPL
Overpriced? What does that mean?
When the supply of the alleged "store of value" in an economic system is infinite, what sense it is to value anything relative to the alleged "store of value"?
I been say'n that myself. Even if I was wanting to buy stawks I cant becuz they is being costing way too much. So, I just watch the Fed makes a bubble and read the zero hedge and laugh my ass off. I would have been short losing mo money but thanks to zero hedge I be knowing the robots be doing crazy things and to stay outs the stawk market. Thank you zero hedge for saving me from more ruin. I is bankrupt as it is.
Buttcathead? Can that really be you from Golden Slacks? Just remember youre not bankrupt long as you still got some Hormel chilli!
Perhaps the bond market whould awake to the Zimbabization of America
"Are Stocks Overvalued By $4+ Trillion?"
I don't know dude. True price discovery is a myth in most markets. So what's your point?
Can you publish your 'Traders Bible' so we can live the pure life as physical entities typifying your abstraction? Just searching for ways to ease and calm your disgust, my friend.
Well 1 thing we can prove true just from simple common sense is this stock market wouldnt be doing jack shit without trillions in FED intervention over the last 2 years and would be lucky to be above 5,000. Can you even begin to deny that? Just give me ONE DAY of markets opening and 'trading' just between floor buyers and sellers and lets see what we've got then!
That chart is pretty ridiculous, to wit: bond yields perfectly correlated with stock prices? Yeah right. Notice how the chart conveniently only goes 1999-present, not the past 20-30 years (which would show it to be utterly and patently ridiculous as a predictive tool).
Thus, any conclusions drawn from that chart are utterly ridiculous.
I've never seen such shoddiness on Zerohedge.
Giant Squid's Ponzi profits and Helicopter Ben's bubble machine Banks are 1999-present game changers.
Never underestimate the power of "make believe", especially by those with a currency printing press.
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