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Guest Post: Chart Of The Week - Stocks Are Overvalued

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Chart Of The Week: Stocks Are Overvalued

A chart from dshort.com of the Q-Ratio suggests stocks are remarkably overvalued.

You won't hear anything about it from the mainstream financial media or the Federal Reserve, but this chart is screaming "stocks are extremely overvalued." Please visit dshort.com's excellent overview Market Valuation: The Message from the Q Ratio for additional charts of the Q Ratio, a measure of stock market valuation.

Although the mainstream financial media is touting low price-earnings ratios and permanently rising profits as the backdrop for a permanently bullish stock market, this chart reveals that stocks are more overvalued now than they were just prior to the Great Crash of 1929. Only the bubble of the dot-com era reached a higher extreme.

There is literally no reason to be bearish on stocks, at least in the mainstream media ("don't fight the Fed," etc. etc.), and there is always a chance that overvalued stocks can become even more overvalued (the "party like it's 1999" phenomenon).

What's remarkable about this chart is the consistency of the highs and lows going back 100 years: the tops and bottoms are within a few ticks of each other, except for the dot-com bubble and the current bubble, both of which were blown by vast expansions of credit, State backstopping/intervention and leverage.

It's also interesting to note that the Federal government and the Federal Reserve intervened so massively that the market wasn't allowed to fall to previous cyclical lows. That further suggests that when the market overcomes the forces of intervention, it might fall below previous lows in a counter-reaction.

But not to worry--that's "impossible."

 

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Sun, 04/03/2011 - 11:04 | 1129673 digalert
digalert's picture

Double top?

Sun, 04/03/2011 - 16:00 | 1130239 French Frog
French Frog's picture

we have just pierced previous resistance at 1.06 and 1.08 and we have good support at 0.30/33 which gives us a tradable channel size of 0.73/0.78; being now above the 0.30/33 - 1.06/08 channel, the measured move would take us to 1.79/86; a possible double top indeed but not for a while;

an extremely bullish picture is developing using that Q Ratio: stock might look overvalued now but using the ratio the technical picture says that longer term there is plenty of upside left for stocks to be even more overvalued; this is not something that i think should happen but with qe3+ possibly around the corner, one can't discount that possibility, no matter how repugnant it appears to the rational mind;

and as we know, stocks can remain overvalued for a lot longer than people (bears/shorters) can remain solvent

Sun, 04/03/2011 - 16:29 | 1130308 Highrev
Highrev's picture

Dot-com snapback bitchez!

 

That was fun. :-)))

Sun, 04/03/2011 - 21:48 | 1130996 Ted K
Ted K's picture

Interesting, when it coincides with CNBC pimp daddies and sell-side whores dumping their crap on retail investors, all of the sudden Keynes instantaneously becomes a genius worth quoting.  The magic of lying with no conscience.

Sun, 04/03/2011 - 11:08 | 1129677 vote_libertaria...
vote_libertarian_party's picture

So what does a .30 mean in S+P price?  350?

 

And what does it mean if there is rising input costs, inability to raise prices and rising interest rates?

 

I'm just saying...

Sun, 04/03/2011 - 12:36 | 1129818 stickyfingers
stickyfingers's picture

If regression to the mean really works, .30 will be on the way to a lower low since the high, according to the chart, was 1.82.

Sun, 04/03/2011 - 11:14 | 1129684 Korrath
Korrath's picture

I have no doubts at all that this market is highly over-valued.  I also have no doubt that when the correction comes it will be a massive run for the exists that will resemble a panicked stampede...the major problem I have is WHEN does this happen?  

I'd loved to start pilling on my position in SPXU, but each time I think a new black swan/cluster-fuck event will finally give us the correction, the market takes one glace at the event, yawns, then closes 15 points higher.

Sun, 04/03/2011 - 11:48 | 1129742 watmann
watmann's picture

dont try to predict when it will happen. Dont look for an event to make it happen, That wont happen. Dont read zero hedge articles and think they have any immediate bearing, they dont. we are in a fiction vs. fact mode. it will happen. it has to.

 

just a question of when.

Sun, 04/03/2011 - 12:21 | 1129796 YesitStrue
YesitStrue's picture

It seems that since the mid eighties, the Fed has controlled the markets. Sure there have been corrections, but as this chart illustrates, they can be ended with massive infusions of cash. I have expected a much deeper correction since 2003, but so far it has been denied. The only condition I can see that might inhibit the Fed is if we can no longer sell bonds and our debt interest goes out of control. However, I am beginning to believe they have a plan for that too. 

Sun, 04/03/2011 - 13:18 | 1129892 Squid Pro Row
Squid Pro Row's picture

The only condition I can see that might inhibit the Fed is if we can no longer sell bonds and our debt interest goes out of control. However, I am beginning to believe they have a plan for that too.

I think you are correct.  Until the world devises an alternative to the dollar, the US is nearly free from market discipline.  Interest, debt repayments, budgets, etc. mean almost nothing when you can freely print money and exchange it for real goods (this dynamic exports the inherent inflation problem).

The US prints about $4B/day and exports about $1.5B/day of those dollars for imported goods.  Those are the numbers regarding the efficacy of the inflation export mechanism.

Other nations surely know this and so far have accepted it gleefully.  How, why, and how much longer are the questions.  My guess is that they enjoy the stability garnered from the arrangement and that a change will not come any time soon.

 

Sun, 04/03/2011 - 13:59 | 1129968 Snidley Whipsnae
Snidley Whipsnae's picture

"Other nations surely know this and so far have accepted it gleefully.  How, why, and how much longer are the questions.  My guess is that they enjoy the stability garnered from the arrangement and that a change will not come any time soon."

Some other nations are hedging their dollars with PMs, as are most central banks that used to sell gold into the market. That is one change that I have seen the past few years.

 

Sun, 04/03/2011 - 13:54 | 1129955 Kimo
Kimo's picture

"However, I am beginning to believe they have a plan for that too. "

 

Yes.  And its the consequences that keep me awake at night.

Sun, 04/03/2011 - 16:34 | 1130322 Reese Bobby
Reese Bobby's picture

Try thinking about puppies...

Mon, 04/04/2011 - 01:33 | 1131470 chocolate starfish
chocolate starfish's picture

Korrath, there is so much residual momentum that the market is sure to take a good long time rolling over. It could easily be another year before things start getting really scary.  Meanwhile there's a perilous temptation to look like a genius and pick the top.  Utterly pointless.  Don't sell on news or fundamentals.  Don't try to second guess what Bernanke is going to do.  Just follow the price action.  

Look, all we know is that when this mother rolls over, it will stay rolled.  So set up a childishly simple chart with a very long term momentum indicator and wait for it to fire off short.  When it finally does, sell everything.  Until then, stay long.  Why make it any more complicated than that?

Sun, 04/03/2011 - 11:13 | 1129685 Hedgetard55
Hedgetard55's picture

There is no such thing as "Overvalued" or "Undervalued" when the buyer of size can print as much money as he wants.

Sun, 04/03/2011 - 11:53 | 1129752 bankrupt JPM bu...
bankrupt JPM buy silver's picture

agreed.

Sun, 04/03/2011 - 14:21 | 1129969 akak
akak's picture

There is no such thing as "Overvalued" or "Undervalued" when the buyer of size can print as much money as he wants.

Utterly incorrect.

Like so many others who focus on the nominal and not the real, you confuse price with value.

Sun, 04/03/2011 - 14:29 | 1130051 Hedgetard55
Hedgetard55's picture

I understand the difference quite well, thank you.

 

I understand the nominal prices will increase as the currency gets debased, thank you. Which was my point.

 

So go fuck yourself.

Sun, 04/03/2011 - 14:48 | 1130087 akak
akak's picture

If you do in fact understand the real difference between price and value, then your first post is nonsensical --- so which is it? 

PS: Prices in nominal, and arbitrarily printed, fiat units do not necessarily convey value.

PPS: Your hyperdefensive resort to profanity implies, at least to me, a failure to fully grasp the concepts which you claim to comprehend.

Sun, 04/03/2011 - 17:09 | 1130394 Hedgetard55
Hedgetard55's picture

Value is a function of what price someone will pay you - nothing else, fucktard. So fuck off.

Sun, 04/03/2011 - 17:18 | 1130404 akak
akak's picture

Thank you for finally demonstrating that your lack of financial intelligence is on par with your lack of civility.

But I will throw you an undeserved bone:  Value and price are two completely separate concepts.  Is a pound of tin priced at $1.50 in 1973 dollars more or less valuable than the same amount priced at $7.00 today?  You say you grasp the concept of nominal vs. real prices, but your "definition" above utterly refutes that claim.

Sun, 04/03/2011 - 17:31 | 1130460 Hedgetard55
Hedgetard55's picture

Fuck you prick.

Sun, 04/03/2011 - 17:36 | 1130473 akak
akak's picture

Cheers!  It's been delightful chatting with you too.

Sun, 04/03/2011 - 17:54 | 1130503 Hedgetard55
Hedgetard55's picture

Akak,

     Who the fuck are you to tell me I don't know the difference between real and nominal? You don't know shit from shinola about me.

 

     The "value" of something is whatever the price of the last marginal buyer willing to buy it from you is. If you can't understand that then you are fucking hopeless.

 

     Saying the market is "overvalued" is meaningless if the marginal buyer is the Fed through it's proxies the PDs, and Ben does not give a fuck what the price is, only that he will pay a higher one than is currently being offered.

 

     And if you can't understand that, then I suggest it is you that is the fucking moron here, not me.

Sun, 04/03/2011 - 18:10 | 1130523 akak
akak's picture

Who the fuck are you to tell me I don't know the difference between real and nominal? You don't know shit from shinola about me.

I am merely somebody who has seen you repeatedly demonstrate the inability to distinguish the real from the nominal.

   The "value" of something is whatever the price of the last marginal buyer willing to buy it from you is.

No, you just defined "price".  Well, in a circular kind of way, which is not even helpful.  And I will repeat it again, because you simply do not seem willing to grasp or even acknowledge the salient fact here:  Price does NOT necessarily equate to value!  They are two fundamentally different concepts.

   Saying the market is "overvalued" is meaningless if the marginal buyer is the Fed through it's proxies the PDs, and Ben does not give a fuck what the price is, only that he will pay a higher one than is currently being offered.

I never said nor implied that the market is "overpriced" --- that is a nonsensical statement.  What I DID imply is that it is overvalued, and increasingly so as the Fed steps in and distorts the market to its advantage.

If these are such elementary facts to you, then why are you so incapable of logically discussing them?

Sun, 04/03/2011 - 18:17 | 1130542 Hedgetard55
Hedgetard55's picture

" Price does NOT necessarily equate to value!  They are two fundamentally different concepts."

 

     Bullshit! Price IS the value - the value of the last marginal buyer, what he is willing to pay based on his belief of what the value is. And you can't see that???

 

     Now, if you have a different definition of value, good for you, but don't dog me because I use the common sense definition. You can call a dog a cat all day long, it does not make it true.

    

Sun, 04/03/2011 - 18:29 | 1130556 akak
akak's picture

In your initial post here, you claimed that "There is no such thing as "Overvalued" or "Undervalued" when the buyer of size {i.e., the Fed} can print as much money as he wants".  But that is so illogical, indeed absurd, that I am shocked that any reader of ZeroHedge (aside from Leo or RobotTrader) would make such a claim.

What you are explicitly stating is that the creation of arbitrarily large amounts of fiat currency out of thin air can impute value to the market, but that is nonsense --- all it can do is add to prices.  You are implicitly claiming what so many Keynesians like to do, that money = wealth, when of course nothing could be further from the truth.

Why is this not obvious to you?

Sun, 04/03/2011 - 18:44 | 1130583 Hedgetard55
Hedgetard55's picture

I implied no such thing you fucking liar.

Sun, 04/03/2011 - 18:47 | 1130589 akak
akak's picture

"There is no such thing as "Overvalued" or "Undervalued" when the buyer of size  can print as much money as he wants".

Your own words are there in black and white claiming otherwise.

Sun, 04/03/2011 - 18:46 | 1130586 Hedgetard55
Hedgetard55's picture

Akak,

 

     Go fuck yourself and your fucking lies, you arrogant fucking turd.

 

    

Sun, 04/03/2011 - 18:51 | 1130599 akak
akak's picture

Hedgetard, I like you too.

But you're still utterly confused on the concepts of price vs. value.

Sun, 04/03/2011 - 19:21 | 1130670 Raymond K Hessel
Raymond K Hessel's picture

OMG, I just finished this thread.

Please stop it.  You're both making me laugh so hard, I can't breathe.  I can't breathe.

Sun, 04/03/2011 - 23:49 | 1131318 nwvandelay
nwvandelay's picture

+222

Bravo to both hodgefucker and alex! - this little sequence has improved the drudgery of my monday considerably :)  keep up the good work lads

Sun, 04/03/2011 - 18:19 | 1130537 Hook Line and S...
Hook Line and Sphincter's picture

Hedgetard,

You are not wrong, yet you could be righter. Listen, and I think you will get it...

You may not like the nuances around how Akak corrected you, however, it's never too late to go a step deeper from your traditional well stewed concept that has become a part of your perspective. Nobody really knows you here, so swallow your embarrassment (if you feel none, then maybe it'll be clear after the short comparison below), but you do need to reconsider your definition of value. Extricate yourself from the semantic word prison of pre-ordained concepts.

A relative "value" can be in the tentative sense what the last marginal buyer is willing to buy it from you for.

An absolute "value" is the consideration of above, but framed appropriately by subordinating the above relative definition to the underlying knowledge that its tentative fiat based unit of account is distinct and separate from its essential value.

 

Sun, 04/03/2011 - 18:35 | 1130573 Hedgetard55
Hedgetard55's picture

Again, bullshit. How can you separate the "tentative fiat based unit of account" from the price, since the price is in that unit of account? How can you say it is "distinct and separate from it's essential value" when the price paid is in that fiat based unit of account???? You make no sense, anymore than akak does.

Sun, 04/03/2011 - 18:50 | 1130584 akak
akak's picture

You are so hung up on the fiat currency paradigm that you clearly cannot conceive of measuring value in any other terms --- and true value can NOT be measured in nominal dollar prices.  When one is using a constantly shrinking yardstick, one cannot be expected to make meaningful measurements much less comparisons, both of which are fundamentally essential to any financial and economic thinking or discussion.

Just as an example, let's say we forget about dollars altogether, and use ounces of silver, or bushels of wheat, or average labor hours, as our economic measure to assess the value (again, NOT the price) of a given stock, commodity or market.  Can you not grasp how this would lead to a radically different perspective on just how fairly (or unfairly) valued those stocks, commodities or markets might be?

Despite your assertions to the contrary, you are hopelessly focused on nominal prices, and cannot seem to see beyond those nominal prices to the underlying values.

Sun, 04/03/2011 - 18:55 | 1130602 Hedgetard55
Hedgetard55's picture

Fuck you akak. I understand that measuring prices in silver or gold will yield different results from fiat currency. What fucking hedgetard here does not understand that?

My SLV went up 90% in 2010. The market went up whatever, but priced in silver it "dropped". You think I dont understand that, asshole? Fuck you.

So now you are determining "underlying values" better than the market? "Underlying values" is merely a bullshit term for what YOU THINK those assets are "really worth". Well, guess what? Ben does not agree with you. And he has a lot more money than you, prick.

 

Sun, 04/03/2011 - 19:01 | 1130623 akak
akak's picture

You claim you understand the difference, but then you turn around and make statements directly contradicting that difference, so how am I supposed to interpret such jibberish?

Your initial comment here ---- ""There is no such thing as "Overvalued" or "Undervalued" when the buyer of size can print as much money as he wants" --- directly states that the Fed can add VALUE to the market via running the fiat currency presses.  I say that arbitrarily ramping prices only adds to prices, but does nothing to add value to anything at all --- but you claim the opposite.

You're clueless.

Sun, 04/03/2011 - 19:11 | 1130648 Hedgetard55
Hedgetard55's picture

Fuck off, asshole. Your definition of value is different from everyone else's. I poijted out that running the presses devalues the d=currency and that in real terms the prices are not as good as they appear, but you conveniently ignored that, because you are a worthless fucking turd and liar so go fuck yourself and the whore you call your wife - unless of course your buddy here is your "wife".

Sun, 04/03/2011 - 19:50 | 1130660 akak
akak's picture

Yet you still believe that the Fed, via running the printing presses, can add VALUE to the market, so explain that please.

Are you Ben Bernanke?  Or are you coming on to me?  Or both?

I bet you're a total top --- ooh Daddy!

;-)

Sun, 04/03/2011 - 19:04 | 1130629 Hook Line and S...
Hook Line and Sphincter's picture

Hedgetard deals in fantasy, fiat, and contrived wealth, where there is no such thing as absolute value at a deeper level than he is psychologically willing to accept right now. I repeat...Hedgetard is not a retard, just challenged by his belief system. As long as he chooses to dream the elites demand of him, he can perpetuate his delusion through endless hours. The only disturbance to his lack of readiness will be the very real consequence of what his finances will look like after the devaluation.

Sun, 04/03/2011 - 19:08 | 1130639 Hedgetard55
Hedgetard55's picture

Fuck you, you lying motherfucker, and take akak's dick out of your mouth for a second.

Sun, 04/03/2011 - 19:18 | 1130662 Hook Line and S...
Hook Line and Sphincter's picture

Sweetheart, no need to get so mean! Now, about that SLV you own...I sure hope you sell at least some of it and put it into PHYSICAL. SLV has had no outflows for a week or two, which means it likely has no metal left and is thus no good for putting out fires where the sovereigns sucking up the real thing. Your SLV could quite possibly be in the outhouse real soon. Trade in for some PSLV would you? Hook Line and Sphincter cares for you, and wants the best for your delusional self because you likely have a family.

In case you didn't know, and I know that this will be difficult for you to understand as well, but since you own SLV, and have a fiat bias, please my dearest try to comprehend that the anus revolves around the TP, and PM wealth is the reality that Charmin revolves around the bung.  

Sun, 04/03/2011 - 19:23 | 1130677 Hedgetard55
Hedgetard55's picture

I have a "fiat bias".

Like your bias for dick? Fuck you and your butt pirate buddies.

 

Sun, 04/03/2011 - 19:37 | 1130713 akak
akak's picture

I have a "fiat bias"

Admitting that you have a problem is the first necessary step towards resolving it.

Congratulations!

Sun, 04/03/2011 - 19:40 | 1130717 Hook Line and S...
Hook Line and Sphincter's picture

Again, my darling Hedgetard...

  • The sun is AU, and that's the yardstick you are looking for. Quit crying because you've lost your reference point. Fiat is the planet that circles around it.
  • Your dark stinky finger of ignore-ance is the digit that itches your anus while you sleep at night, NOT the other way around!

Oh yeah, and quit dreaming of surrogating for me with Akak! That, my delectable servant, no manner of groveling will allow.

 

 

Sun, 04/03/2011 - 19:17 | 1130663 Raymond K Hessel
Raymond K Hessel's picture

That last line made me laugh out loud.

Sun, 04/03/2011 - 20:57 | 1130892 Nnthnt1
Nnthnt1's picture

whatever your notion of value is, its almost as abstract as 'beauty' or 'god'. I want you to explain, how are you going to use your concept of value in real life?

Are you going to refer to the ''real' value in 10 years of a company as the value the company wuold have had today?

yes price is not value. BUT tard has a point and it's this: even 'value' has to be evaluated with contemporary prices (scarcities). If your value here (book value=assets) is inflated then the real value stays the same OK (whatever that is) but what about the nominal value?

considering that

 - the 2000 stock bubble had by far the highest peak and

 - Q ratio is the multiple of PRICE to BOOK value

I wanna say: Maybe this time it's truly different?!

Maybe corporations, because of the computer age, have found a way to utilise their ASSETS (read book) better to generate profit. In other words, PRICE should be FUTURE EARNINGS.

I'm not a growth guy, completely the opposite. But maybe a cross industry comparison or cross time-snapshot comparison just makes more sense to call companies 'over' or 'undervalued' than a historical comparison of MKTCAP/BOOK??

Sun, 04/03/2011 - 11:15 | 1129688 Gloomy
Gloomy's picture

Stuff like this is just so clueless. Do you really think there is any chance of the market falling significantly with the Fed involved so deeply? Yes, there will be a crash, but only after hyperinflation makes further Fed intervention ineffective.

Sun, 04/03/2011 - 11:18 | 1129689 Hedgetard55
Hedgetard55's picture

It's astonishing that we have given a private corporation, run by an unelected and unaccountable Chairman, the ability to debase the currency to whatever level he desires. It is not just a stealth tax, or taxation without representation, it is downright theft for everyone who holds dollars or cash equivalents.

Sun, 04/03/2011 - 13:29 | 1129913 Rynak
Rynak's picture

I'm happy to see someone else besides of me, calling out this kind of inflation for what it is: A destructive stealth-tax.

Sun, 04/03/2011 - 17:52 | 1130498 Founders Keeper
Founders Keeper's picture

[It's astonishing that we have given a private corporation, run by an unelected and unaccountable Chairman, the ability to debase the currency...]---Hedgetard55

Good post, Hedgetard55.

It IS astonishing. Congress has an affinity for off-loading their Constitutional responsibilities. Consider also their determination to side step their Declaration of War powers. Astonishing indeed.

 

Sun, 04/03/2011 - 11:20 | 1129696 Gloomy
Gloomy's picture

Stuff like this is just so clueless. Do you really think there is any chance of the market falling significantly with the Fed involved so deeply? Yes, there will be a crash, but only after hyperinflation makes further Fed intervention ineffective.

Sun, 04/03/2011 - 11:34 | 1129714 huggy_in_london
huggy_in_london's picture

It is possible.  The equity market is a big place, and for every buyer there must be a seller.... so sure, it is very possible you get a crash even with the fed trying to pump money in.  Sentiment is everything with the equity monkeys.  Perhaps you are right, perhaps its rampant inflation that makes investors to sell out any USD they have.. which of course means selling USTs and equities.

 

Sun, 04/03/2011 - 12:54 | 1129851 RockyRacoon
RockyRacoon's picture

Volume is a factor that must be considered, as well as the makeup of the so-called buyers/sellers.   Algos don't make the same "decisions" as humans.  At least humans tend to think that a contrarian view is advantageous at some point.

Sun, 04/03/2011 - 14:00 | 1129971 Kimo
Kimo's picture

"which of course means selling USTs and equities."

not equities, which are priced in inflated dollars, thus moving with inflation.

Sun, 04/03/2011 - 16:29 | 1130311 Reese Bobby
Reese Bobby's picture

Once again, you make little sense.  It's like you've been exposed to important concepts but once they churn through the meat grinder in your head they are useless...

Sun, 04/03/2011 - 19:35 | 1130702 ATG
ATG's picture

For every buyer there can be a thousand or more sellers

Pays to follow the Big4

Sun, 04/03/2011 - 13:46 | 1129944 Johnny Lawrence
Johnny Lawrence's picture

Gloomy: Your post reeks of "this time is different."

Sun, 04/03/2011 - 15:47 | 1130226 Gloomy
Gloomy's picture

No, its the same story as its always been once free markets cease to function and are directed by corrupt governments.

Sun, 04/03/2011 - 11:31 | 1129712 bania
bania's picture

the best/simplest historical stat IMO is the dow yield - less than 3% sell everything, more than 6% load up.  Currently sitting at 2.75%.

Sun, 04/03/2011 - 11:33 | 1129715 TruthInSunshine
TruthInSunshine's picture

I would argue that equities on U.S. exchanges are more overvalued now than they were in 2007, which was the last time many were confidently claiming that Bernanke would never let equity markets crashed.

Before that, there was a whacko equity market in 1999, when many confidently claimed that Greenspan would never let equity markets crash...

Before that, there was...

I could go on for quite some time.

See what I'm saying?

Have faith in the Bernanke put at your own peril, traders of the world rejoice, stocks are killing it, shoe shine boys are recommending crapshit bank shares, meet the new Ponzi which will end like the last Ponzi...and so forth and so on.

Sun, 04/03/2011 - 11:35 | 1129719 augie
augie's picture

Agreed. Well put, I wouldn't have posted if i had seen this first.

Sun, 04/03/2011 - 13:51 | 1129951 Johnny Lawrence
Johnny Lawrence's picture

Well, based on P/E10, stocks aren't as overvalued as 2007, but we're getting there: http://dshort.com/charts/SP-Composite-PE10.html?SP-and-PE10

But we're still about 45% above the market's historical inflation-adjusted P/E.  And everytime the P/E10 has exceeded 20 (avg is ~ 16.3, we're at 23 now), the market has experienced a very harsh correction, bring it below the historical average.  Not a market timing device by any means, but it's been 100% accurate over the past 140 years.

Sun, 04/03/2011 - 11:33 | 1129717 augie
augie's picture

Stocks over valued? yeah tell my /es puts that. Its all fake. Bet with the fed untill it fails. Why are we trying to be rational about something that is clearly manipulated beyond any reasonable "guidence." If you're still investing based on anything other than the feds intention you are a fool. Peroid.

Sun, 04/03/2011 - 16:07 | 1130255 candyman
candyman's picture

Agreed, so where does this put Caldaro's analysis? Does that site even have to exist?

Sun, 04/03/2011 - 11:36 | 1129720 Robslob
Robslob's picture

They are painting the charts with worthless money printing which leaves this "hot money" literally nowhere else to go...it damn sure isn't going into new business development which tells you everything you need to know.

But who really cares on this board (apologies to Robo, MathMan and Leo; HarryWagner R.I.P.) what happens to stocks...what does this mean for real money and does it ultimately matter?

I know some wealthy guys that are buying physical (gold only) like I have never even heard nor seen spoken openly before...buying supplies, backpacks and fallout properties...meanwhile the wives think they are all crazy?

Who is right...if the answer is nobody then that presents the "mad max" scenario and with all the exchanges going global all of the sudden it must be "On Like Kong"!

Sun, 04/03/2011 - 11:37 | 1129722 Caviar Emptor
Caviar Emptor's picture

There are plenty of spooky market valuation stats out there which confirm over and over that we are trying to reproduce what happened in 1999-2000: creating a stock market bubble. 

But it's not going to be something for nothing for the country as a whole: each mega crash has set us back huge financially and in many other ways, including an insidious loss of quality of life. 

Sun, 04/03/2011 - 11:44 | 1129733 TruthInSunshine
TruthInSunshine's picture

The Bernank finds Zen

He seeks to be the bubble

Bearded bubble blown

Sun, 04/03/2011 - 11:46 | 1129737 Josh Randall
Josh Randall's picture

Well if this weekend's revelations show nothing else, we know Banking stocks are over valued to the upteenth degree. $1000 default loans my @ss

Sun, 04/03/2011 - 11:44 | 1129739 savagegoose
savagegoose's picture

so eventually the FED will own everything? as they can print all the money they want and after all, it is legal tender YOU have to accept it.

Sun, 04/03/2011 - 11:53 | 1129756 Robslob
Robslob's picture

I only HAVE to accept it long enough to convert it into REAL MONEY.

 

There...fixed.

Sun, 04/03/2011 - 11:57 | 1129760 john39
john39's picture

He'll of a plan they put together. And we are letting them get away with it.

Sun, 04/03/2011 - 12:58 | 1129860 RockyRacoon
RockyRacoon's picture

Some are, some aren't.   If the current market zeitgeist is "every man for himself" then the increased purchases of physical PMs is the sane man's way of doing just that:  Looking out for #1 (and family). 

Sun, 04/03/2011 - 11:48 | 1129747 slaughterer
slaughterer's picture

Looks like there is plenty of room to run until we hit Q = 1.82, the previous top.  Look for this top to be broken sometime in July, 2011.

Sun, 04/03/2011 - 11:48 | 1129749 The Axe
The Axe's picture

The only thing that would start a down swing is computers hit sell button, I don't think they have a sell button..in fact..the advent of algo killing HTF computers could make the market go higher then ever thought possible..

Sun, 04/03/2011 - 12:35 | 1129817 YesitStrue
YesitStrue's picture

I believe this is true. The HFTs seem to suspend volume in the market on days when you would expect a decline and actually end with a slight increase.

Sun, 04/03/2011 - 11:51 | 1129753 prophet
prophet's picture

One must wonder whether replacing many of the companies that comprise the index has any value at all.

Sun, 04/03/2011 - 12:59 | 1129864 RockyRacoon
RockyRacoon's picture

The composition of the index is formulaic; they don't pick 'em out of a hat.

Sun, 04/03/2011 - 13:10 | 1129887 prophet
prophet's picture

that was an attempt at humor:

the Q ratio looks at replacement value

some companies are not worth replacing

Sun, 04/03/2011 - 14:07 | 1129991 Kimo
Kimo's picture

So true, a remarkably pointless exercise.

Sun, 04/03/2011 - 16:38 | 1130326 Reese Bobby
Reese Bobby's picture

Did I hear gears grinding?  Is that smoke coming out of your ears?

Sun, 04/03/2011 - 11:54 | 1129754 dbTX
dbTX's picture

I believe a Presidential candidate in 2012 who is knowledgable of the markets, understands the situation we're in, who is not afraid to tell the truth and presents a plan to restore sanity to the US financial system can be a winner. Hello the Donald.

Sun, 04/03/2011 - 12:22 | 1129800 Mesquite
Mesquite's picture

Yes...

But will the Banksters allow that to happen..

(I note he is wisely cautious in that area..)

 

Sun, 04/03/2011 - 12:39 | 1129826 Central Bankster
Central Bankster's picture

Donald Trump is a complete moron.  He had the greatest gravy train market of a credit bull market and STILL managed to go bankrupt in real estate several times.

Sun, 04/03/2011 - 13:25 | 1129907 pesamystik
pesamystik's picture

Donald Trump? You are truly a straight up moron. The guy is a cartoon cutout of someone who knows about business. 

Ron Paul is the obvious choice here.

Sun, 04/03/2011 - 17:56 | 1130508 dbTX
dbTX's picture

I didn't suggest Trump would be a great POTUS, I contend he has the ability to be a winner. Trump may be a lot of things but a moron is not one of them, he is a very savvy guy. 2012 will not be about the economy or the wars it will be a one issue campaign, BHO and there is no one in the field with the balls to take Obama on. Trump has nothing to loose politically by attacking Obama in a personal way which is the way to defeat him.

Sun, 04/03/2011 - 11:56 | 1129764 99er
99er's picture

DWCF

Dow Jones US Total Stock Market Index

http://99ercharts.blogspot.com/2011/04/dwcf.html

 

Sun, 04/03/2011 - 12:10 | 1129774 FranSix
FranSix's picture

The interesting thing about the q-ratio is the similarity with the rally out of the bottom after the 1929 stock market crash.  The great difference here is the peak in year 2000 was without historical precedent.

If you adjust for inflation, then the chart makes more sense, though the amount of inflation in the 1990's was probably unchecked.

http://www.youtube.com/watch?v=WQeGGpCGs8g

Sun, 04/03/2011 - 12:03 | 1129775 gigeze787
gigeze787's picture

This Dshort.com chart is worth a look too:

http://dshort.com/articles/three-valuation-indicators.html

Its coming. But if Fukushima, Libya, Bahrain, Yemen, Syria, Ivory Coast, the declining labor participation rate, and stagnant wages can't sustain more than a 6% correction...the Bernanke Bubble is just going to get bigger.

Sun, 04/03/2011 - 12:12 | 1129782 John Law Lives
John Law Lives's picture

There are big differences between the current "bubble" and the internet "bubble" of the late 1990s.  There were millions of good paying new jobs created in the decade of the 1990s.  There were many innovative products brought to market in the 1990s that improved communication and work productivity.  The current bubble comes in the wake of surging unemployment, belt tightening, a rapid rise in Food Stamp participation, a surge in home foreclosures, consecutive years of $1+ Trillion budget deficits, and a soaring federal debt etc.  The current bubble is far more insidious.

Sun, 04/03/2011 - 13:03 | 1129873 TruthInSunshine
TruthInSunshine's picture

There are big differences between the current "bubble" and the internet "bubble" of the late 1990s.  There were millions of good paying new jobs created in the decade of the 1990s.  There were many innovative products brought to market in the 1990s that improved communication and work productivity.  The current bubble comes in the wake of surging unemployment, belt tightening, a rapid rise in Food Stamp participation, a surge in home foreclosures, consecutive years of $1+ Trillion budget deficits, and a soaring federal debt etc.  The current bubble is far more insidious.

+++

You sir, are correct.

Sun, 04/03/2011 - 13:27 | 1129909 css1971
css1971's picture

Facebook....

Twitter...

the iPad.

ummmmm yeah.

Sun, 04/03/2011 - 14:26 | 1130048 John Law Lives
John Law Lives's picture

Facebook, Twitter and the iPad were possible because of advances in communication and computing technology brought about in the 1990s.

Sun, 04/03/2011 - 21:21 | 1130946 bothsidesnow
bothsidesnow's picture

How do you explain the possible valuation of Facebook 80-100 billion with 2,000 employees now that my friends is the problem. So each Facebook employee is producing that much value. Now that's the problem with the economy and the fact that most people use Facebook for a fucking popularity contest. 

Sun, 04/03/2011 - 13:55 | 1129960 Johnny Lawrence
Johnny Lawrence's picture

Well, I see the differences in what you're saying, the internet-boom driven stock market was far more overvalued than the current.  I would argue that the market didn't correct enough in 2000-2002.

Sun, 04/03/2011 - 12:13 | 1129787 plocequ1
plocequ1's picture

So, Stocks are overvalued. Dont say it too loud. Pumpmaster Hal might hear you

Sun, 04/03/2011 - 12:26 | 1129805 Caviar Emptor
Caviar Emptor's picture

The ultimate irony is that all this has been tried many times before. We're all familiar with governments that tried to create monetary wealth through various tricks even when their currency was at the center of the financial universe (Roman sesterces, Spanish doubloons, Pound Sterling, Byzantine bezant) and those were gold-based currencies. The pure paper debasements have gone down in a fireball at a faster clip: Germany, Argentina, Hungary, Zimbabwe and now the USA. 

So the conclusion to the story has already been written. Of course there's still a chance to change the course: that would involve austerity for everyone through fewer imports and more efficient use of resources.....nahh that'll never fly. Money porn is too addictive. 

Sun, 04/03/2011 - 12:40 | 1129824 Jason T
Jason T's picture

Need more black swans to put a fork in this thing.  Seems we're in an environment where they are coming.  

Sun, 04/03/2011 - 12:43 | 1129837 Caviar Emptor
Caviar Emptor's picture

Everybody's fixated on black swan events but often the floor is merely rotting underfoot as your looking at the sky. Changes can take time to brew and give way suddenly. 

Sun, 04/03/2011 - 12:46 | 1129840 the mad hatter
the mad hatter's picture

you need to BTFD in this ridicule of a joke farce market.

Sun, 04/03/2011 - 12:50 | 1129848 Snidley Whipsnae
Snidley Whipsnae's picture

James Turk has an interesting take on dollar/PMs in his latest KWN missive... He says if gold goes into backwardation like silver, and stays there for some time, that it will be an indication that people/govs/businesses are deserting the dollar for commodities and especially PMs...

I think he has a point.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/4/2_James_Turk.html

Sun, 04/03/2011 - 13:01 | 1129872 Bill Lumbergh
Bill Lumbergh's picture

I have been referring to that website for a good while for insight into current market valuations.  Of course with the copious amounts of money being printed to prop up the entire world banking system when reality sets in is the question.  There are very good arguments for the market to continue higher as well as for a break of the 2009 lows.  Currently the Russell 2000 is testing all-time highs while copper and semiconductors are not confirming this action (my apologies to Robo claiming the market is so strong and not heeding the advice of his hero Quint Tatro to follow the SMH).

Sun, 04/03/2011 - 13:23 | 1129900 Groty
Groty's picture

If stocks only sell off a measely 6% in the face of historic earthquakes, a tsunami, middle east revolutions, sovereign European debt crisis, peaking margins and rising raw material costs, and stocks regain that 6% correction in all of about 10 trading days, there's just no way stocks will sell off on valuation.

Only when the FED mops up excess liquidity will stocks sell off.  And it's very questionable if they will withdraw liquidity prior to the election. 

Either complain about it or embrace it, but The Bernank Put is very real. 

Sun, 04/03/2011 - 19:12 | 1130652 Truthiness
Truthiness's picture

+1

Sun, 04/03/2011 - 13:23 | 1129901 trendybull459
trendybull459's picture

There is few things FED shut up and Abama quite,on which stay US world poer dominance:military power and $,if one of the things going out-second get intakt,this is what we have see now-however they can not let dollar to fall to much,because then the american power will be in question.From another point we are at the moment from where US debit allready can not be apid out without to loose dollar power-so it looks second option starting fall out and option of World military dominator starting this kinds of wars,inflation price of the commodities USA government compensate its debit by making all world debited by high food and energy prices.Look,the Libyan oil long ime already in stream into those ordering it,but porices artificially stay high.Main problem is that future prices disconnected from real prices,but because it benefiting every one,but not consumer who pay final price and participating in the shortening USA debit,because profit from the oil going direct to USA government,so,now they get 108$ price compair to the 70$ just 3-4months back-do get idea guys?You who pay for all this bullshit created to pay to lessen debit,inlcuding huge ETFs market-which feeding banks and big brokerage houses-no $ going to the economy.

Sun, 04/03/2011 - 13:59 | 1129967 SME MOFO
SME MOFO's picture

Are you the homeless guy who hangs out in front of the van buren starbucks?

Sun, 04/03/2011 - 16:33 | 1130321 Reese Bobby
Reese Bobby's picture

Are you Ivana Trump?

Sun, 04/03/2011 - 13:25 | 1129905 css1971
css1971's picture

Meh.

 

The monetary system changed in 1971, none of the charts before that point are relevant today.

 

Sun, 04/03/2011 - 13:29 | 1129915 Reese Bobby
Reese Bobby's picture

I wouldn't use Fed data for much of anything unless it was printed on toilet paper.

 

And in any case, the B/S data is not entirely clear to me.

For example:

"Balance Sheet of Nonfarm Nonfinancial Corporate Business"

"Market Value of Equities Outstanding (includes corporate farm equities)"?

Besides, shouldn't stocks trade for more than replacement value if they can generate a healthy return on capital?

 

To me, the valuation of stocks depends on your view of inflation.  Public companies that can pass on cost increases seem a lot better than fixed income at current valuations.  PM's might be better, but most people have some diversification in their portfolios...

 

Sun, 04/03/2011 - 13:33 | 1129921 trendybull459
trendybull459's picture

Current situation is like in the WW2 when russians left without bullets was taking nife on weapon top and running with "Ura" on germans-usually it was compleated at very vey high costs,forexample taking some bastion with 20germans by loosing 100soviets.Or psiho atacks of Germans in WW1 and WW2,going by the line refilled immeduately by new soldier during falling one solder after other-as i got it from movies it also was successfull for once or two,then it was absolure crash and "Degtyrev" automatic weapon was shooting all thoose lines and russians was running and killing thos psycho atakers by hand or nife.Thats why this FED ambitions is nothing but Psycho attack on general world investment crowd,which got crashed allready few times,but i think according to the natura law now its not effecting us,because some left nohting to loose,FED is a nazi trying to make us affraid of its power,but you americans instead talking bu bu bu FED,have to go into streets and onfiscated from the FED weapons of the mass distructions:derivatives markets,power prointing money and whole World asking what is Wrong with americans???We watching you sleeping with hand into mouth,like some russian Bear and not one really knows for how long you will be sleepy.Staert awake,shake you fucking FED and freedom mass populations.Ask Russia to help making its rubble convertable world currency and you will see how quick FED will jump from seat and starting make $ up

Sun, 04/03/2011 - 13:42 | 1129938 Reese Bobby
Reese Bobby's picture

We're thinking of adopting the Russian model where all of the country's productive assets are simply handed over to a few dozen degenerate friends of a dictator.  It seems to have worked out so well for the average Russian who couldn't tell if oil was $10 or $90 a barrel based on their quality of life.  What a shame... 

Sun, 04/03/2011 - 14:23 | 1130036 Kimo
Kimo's picture

"We're thinking of adopting the Russian model"

    Perhaps, that was his point.

Sun, 04/03/2011 - 16:25 | 1130299 Reese Bobby
Reese Bobby's picture

Well that makes a lot of sense.  Thanks for the irrelevant input from the cheap seats of intellectual laziness...

Sun, 04/03/2011 - 13:51 | 1129949 ivars
ivars's picture

Soon. A bit now, down to 10500, a bit up to 11500 in June and the after July, a sharp downturn till 7000 in March 2012:

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=0#p30485

 

Sun, 04/03/2011 - 14:04 | 1129982 grid-b-gone
grid-b-gone's picture

Diravitives are another meaningful recent change. Supporters claim they help manage risk better, but as we have seen with MBS, if a market can be driven higher, beyond historical extremes, the rewards are also greater than historical trends and precedent.

Sun, 04/03/2011 - 14:13 | 1130001 mogul rider
mogul rider's picture

Just in time for Joe Sixpack to show up and Mrs Watanabe is dead so what does that leave us..

My god this will be ugly.

All you advisor types out there. Have a heart. Tell Sixpack to go home.

Don't do what I know you're gonna do. Put them on the right side of the trade this time.

Don't sell them your Netflix as you leave the room.

It just ain't right to put them in now. Your rep will be fucked forever.

Wait! it is already? Sorry go ahead then.

Sun, 04/03/2011 - 15:31 | 1130189 SqueekyFromm
SqueekyFromm's picture

Well, I am not even going to pretend I know what a "Q ratio" is, soooo I looked it up!!!

Q ratio is a method of measuring publicly traded companies in an effort to predict their stock market potential. Also known as Tobin's Q in honor of the economist who created the formula, Q ratio is reached by dividing a company's market value by the replacement value of all of the company's assets. A ratio higher than one suggests that a company is overvalued, while a ratio of lower than one is considered low and indicates that a company may be undervalued. This ratio is also often used to measure the market as a whole and signal to investors whether prices in general will be rising or falling.

http://www.wisegeek.com/what-is-a-q-ratio.htm

Soooo, now this Internet Article makes sense!!!

Squeeky Fromm, Girl Reporter

Sun, 04/03/2011 - 15:32 | 1130192 everycentometal
everycentometal's picture

first off 100 years does not make a relevant slice of history, secondly, the top 20% in this country own 85% to 90% of the wealth (stocks etc). so sitting around trying to figure out what will happen to stocks is a trivial pursuit (unless everyone here is a part of the top 20%). Do you think i am going to take stocks or pm's for the food i grow, my storage of food and water, ammo, weapons, shelter etc.? no. you better bring something that you can truely barter. unless your wealthy quit worrying about nonsense and focus on the necessities of life.

Sun, 04/03/2011 - 19:19 | 1130669 Herman Strandsc...
Herman Strandschnecke's picture

Yea, and even if you manage to profit by selling off over valued stocks you will pay tax on it.

Sun, 04/03/2011 - 16:43 | 1130341 RunningMan
RunningMan's picture

What is notable with this data is the peak to peak of the Depression years, ~8 years from 1930 to 1938. While we have had 11 years since 2000, the last mega-peak in the Q-ratio, and are above the long run average, I believe that we can still go much higher. The Fed fears an uncontrolled nose dive, as the wealth effect is the only thing that kept these past three years from being worse (they were bad enough, bull market notwithstanding).

I think animal spirits and poor employment are driving more people to speculate in this market to just get by, similar to the tech bubble of before. What the Fed fails to realize is that this could be the final straw, as if many lose more in the market (and they will), we will have a lasting depression, and several generations unwilling to buy equities for some time.

Sun, 04/03/2011 - 19:23 | 1130675 Bill Lumbergh
Bill Lumbergh's picture

"The time to have been pessimistic was last fall rather than now.  In the past we have always emerged from a period of depression with industry on a better basis because of efficiency and economy made necessary when business was bad."

- Wall Street Journal, Friday June 20, 1930

Sun, 04/03/2011 - 17:00 | 1130379 flattrader
flattrader's picture

Tyler(s),

You could have skipped the largely worthless analysis from CHS and just published the dshort.com post.

Like I keep telling you, there is decent original content there.

Sun, 04/03/2011 - 17:41 | 1130476 Roger Knights
Roger Knights's picture

Stocks are high and their dividend yield is consequently low. Why? The yield of competing investments (bonds & Treasuries) is lower. Once Treasuries fall and their yield rises, that will drain $ from stocks and their price will fall. The Fed can't prop up Treasuries forever. Even if it buys 100% of new issues (indirectly), it wouldn't be able to absorb selling of old issues too.

That process has already started, in a mild way. What will accelerate it will be the psychological bubble-pop of increased defaults or reschedulings of the bonds of state and local jurisdictions in the summer. Major institutions will start to think, It Can Happen Here (and thus could affect Treasuries too).

Heck, now that world finance is globalized, rising yields in European sovereign debt would also drain money from stocks worldwide. The house of cards over there could start to crumble any month. Japan’s need for cash won’t help.

Sun, 04/03/2011 - 19:07 | 1130638 g3h
g3h's picture

Q ratio is not conclusive.

Mon, 04/04/2011 - 00:43 | 1131408 SqueekyFromm
SqueekyFromm's picture

Well, I just learned what a Q ratio is, and it looks pretty stupid to me that stuff over "1" is over valued. Mostly, a company is worth more than the sum of its parts but if you took the Q ratio seriously, you could buy some airplanes and trucks in the same amount as FedEx, and whoosh, by Q Ratio reasoning it would be worth as much as FedEx. But I bet the new company couldn't get a phony mortgage document from point A to Point b as quickly or cheaply as FedEx!!!

Isn't this what Goodwill is all about??? (The accounting type, not the charity store.) I mean if the ratio gets too high, then it probably is bad, but probably 10% or so isn't too over-valued.

Squeeky Fromm, Girl Reporter

Sun, 04/03/2011 - 19:22 | 1130668 ATG
ATG's picture

As we saw in the 1990s, irrational exuberance can last for a long time, five years or longer, particularly when primed by the Fed pump and Treasury extravagance

Sun, 04/03/2011 - 20:03 | 1130775 FoieGras
FoieGras's picture

Another interesting but ultimately worthless indicator. This won't make or save you any mooney. Markets don't trade on non-sense like that.

Sun, 04/03/2011 - 20:31 | 1130836 Nnthnt1
Nnthnt1's picture

haha, 'impossible' as in bernanke's speech at CNBC featured in "inside job": A housing decline would be hiiighly unlikely

Sun, 04/03/2011 - 22:13 | 1131072 Bansters-in-my-...
Bansters-in-my- feces's picture

Sounds like the USA needs some good old fashioned "DEMOCRACY"

Your Goverment says they give other countries democracy but fail to dish it out at home.

Guess they figure you's don't deserve it.

Mon, 04/04/2011 - 01:15 | 1131452 everycentometal
everycentometal's picture

we were founded as a Republic not a democracy. democracy is a hair away from being a dictatorship. someone or something gets 50.1% of the vote and the other 49.9% get disenfranchised. every state in this union was established as a Republic, thats what I belong to. peddle democracy somewhere else.

Sun, 04/03/2011 - 23:44 | 1131300 Sherman McCoy
Sherman McCoy's picture

The market's overvalued? Really? Well then, get short, my man, and see what happens! Looking at "value" as a determinent of price has cost more people more money than any other approach extant. I'll start looking for your nam ein the Forbes 400 though, just in case your dumbass azpproach actually works.

 

All my stocks look like they're going up, think I'll just stick with 'em until old Tyler Durden informs me of the next "Hindenburg Omen" sell signal. That's the last sure fire, can't lose sell signal I read about on ZH. It was a funny one!

Mon, 04/04/2011 - 00:04 | 1131348 sbenard
sbenard's picture

Facts are now fiction. Data is irrelevant. Information is immaterial. News is now inconsequential.

We have printed prosperity now!

Do NOT follow this link or you will be banned from the site!