When Risk-Return Makes No Sense: How To Deal With An Overvalued Market

Tyler Durden's picture

As SocGen's Dylan Grice points out, we have gotten to the point where the Shiller PE demonstrates S&P valuations are now back in the highest valuation quintile: in other words the market is now more expensive than during 80% of the time. The risk-return at this point makes little sense, because as Grice points out the 10 year return using this quintile as an entry point is just 1.7%, compared to 11% for the lowest quintile. So what should one do: "Go take a holiday if you can. Avoid the ?boredom trades?." If those two are not an option, Dylan provides some trade ideas.

But before we get into it, some amusing observations by Dylan on the Fed's track record of fixing the economy:

It seems central banks botch exit strategies more often than not. In 1994 Greenspan?'s cack-handed removal of the emergency stimulus implemented during the S&L crisis triggered a bond market collapse which severely dented that year?'s equity returns. In 1998, the tardy withdrawal of the emergency stimulus implemented during the Asian crisis created the tech bubble. And in 2004, a similarly delayed withdrawal of the emergency stimulus implemented to combat the tech bust spawned the housing/credit bubble.

Dylan is confident, as are we, that the QE end in less than 24 hour is just a temporary blip in an otherwise determined push to kill the US middle class and especially the savers among it.

Will the botched exit from this emergency stimulus resemble that of the 1994 vintage (bearish for risk) or those of 1998/2004 (bullish)? I suppose central banks might get lucky and smoothly engineer a ?normalisation? without any painful withdrawal symptoms ? but in the real world credit growth remains subdued, as it did in Japan. If the economy doubledips -? and Albert makes a convincing case it will - and fading stimulus leaves the economy in default-deleveraging mode, there won?t be any exit strategy. There will be more QE...

And here we get to the meat of the matter: the market is now way overbought.

If only my crystal ball was clearer ... fortunately though, no crystal ball is needed to see that equity markets are expensive. According to Robert Shiller?s latest data, the S&P500 is back in its highest valuation quintile. The risk is there - as it always is - but the returns aren?t. So what do you do? Go take a holiday if you can. Avoid the ?boredom trades?. But if you have to do something ? some cheap stocks and sectors to think about are given inside.

A way to visualize the expected returns from a trade inception point in any given quintile:

The chart above shows the 10y real returns which have accrued to investors using each valuation quintile as an entry point. If history is any guide, those investing today can expect a whopping 1.7% annualised return over the next ten years.

The bottom-up picture tells the same story. Regular readers know that I use a residual income model to estimate the intrinsic value of each stock in our universe (developed market, large and medium cap non-financials in the FTSE World Index). I aggregate those into an intrinsic value for the market. A more detailed discussion of the calculation is given here, but all I really do is assume that a company which earns only its required return is worth no more than its book value. By capitalising expected excess returns (defined as RoE less required return) onto book value I arrive at an intrinsic value which I can compare to the market price. This gives me an intrinsic value to price (IVP) ratio, the market aggregate for which is given below. When the IVP ratio is 1.0, estimated intrinsic value equals market price. The market is ?fair value? which means it can be expected to deliver the required return (which I set at 10%). This was where we were a year ago. Today, the market is roughly as expensive as it?s recently been.

With Ben Graham investment principles now completely useless courtesy of momentum chasing algos, could the IVP be the next most useful way to shotgun investing?

The IVP ratio isn?t the perfect model by any means and there are a few things about it which make me uncomfortable (e.g. using forecasts to calculate future excess returns). But on balance I think it ticks more boxes than it misses. For one, I like the absolute (as opposed to relative) nature of valuations thrown out. For another, it seems to work. The following left chart shows the performance of stocks over time when sorted into deciles according to their IVP ratios: the higher the IVP ratio, the higher the returns. The right chart shows cumulative returns since 1986 of a hypothetical long-short strategy in which we buy the highest IVP decile stocks and sell the lowest. Both show that there is some sort of ?edge? to be had in purchasing stocks with higher IVP ratios.

Where should investors focus for potential cheap IVP values:

The next chart shows where the geographical value is. The UK has an aggregate intrinsic value above its market capitalization, while the Eurozone looks less egregiously expensive than the rest. I also find it interesting that Japan looks so expensive using an IVP framework. Funnily enough, I think there may be good speculative reasons for owning Japan (which I?ll try to write up shortly) but the investment case is weak. Even though PB and PE ratios are historically low, the earnings power of Japanese assets is even lower and by anchoring valuation on the earnings power of assets the IVP framework picks this up.

And if investing in "cheap" Chinese stocks is not the most appealing options, here are the sectors which make the most compelling investment proposition.

The following chart shows the sectors trading below intrinsic value. Although a cursory look reveals a heavy resource bias, some interesting sub-sectors emerge. For example, integrated oils are cheap. True, they always seem to be. They?re ?too big? and have gone ?ex-growth.? But the long-term growth numbers I'?ve used for them (e.g. Royal Dutch Shell) are actually negative so they allow for this. And if we overpay for strong growth, mightn'?t we underpay for weak growth? According to Factset, Integrated Oils have been one of the best-performing sectors over the last 15 years returning 12.3% annualized, against 8.5% for the World.

Refiners and construction materials are interesting too, with names like Valero and Lafarge operating in depressed sectors in sluggish developed markets. Surely these are interesting places to look? Among the drillers, Transocean ? the market leading deep-sea driller in an oil market increasingly reliant on deep-sea fields for future growth ? is trading below estimated intrinsic value on our IVP analysis and as such, statistically, it has a higher ?expected return? than other stocks in the market.

Although I exclude financials from my screen (as I?m not sure screening is the right way to look at financial stocks) it?s an interesting sector so I'?ve run the numbers. ?Diversified Financials? includes guys like ING, JP Morgan and BoA, the rest are self explanatory ? the results suggest potentially lucrative pickings here if you can get comfortable with the balance sheets. A big if, I know, but I guess fortune favours those who do their homework.

And finally, here are the names of the individual companies thrown up as having estimated intrinsic values higher than their market values. The names help show who?s driving the sector numbers above, but some notable names from sectors which don’t stand out as cheap include Kingfisher, Finmeccanica, AstraZeneca and Western Digital.

Our caveat: any valuation metric is ultimately merely an affirmative bias for an investor to proceed with putting down capital after already having decided to do so. Our contention, as has been for the past 12 months, is that the only real metrics investors should keep an eye out on are the Fed's H.4.1 and H.3 statements. Everything else is a first through 100th derivative of the greatest excess liquidity flood in the history of the world. When that dries out, babies and bathwaters will get the same March 2009 treatment as they always do when the market realizes the utopia of Dow 36,000 will not occur absent hyperinflation.

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sweet ebony diamond's picture

i am proud to have the first post here.

i love hank paulson.

Cognitive Dissonance's picture

I prefer my Paulson ground into hamburger. Double ground please, with a pinch of garlic.

MsCreant's picture
When Risk-Return Make No Sense: How To Deal With An Overvalued Market?

Don't invest.

SheepDog-One's picture

MsCreant I totaly agree, when markets make no sense and are obviously overvalued, but dual citizenship thieves have control of the printing press and laws, I'm standing far clear of it all. Who knows what these insane lunatics have up their sleeve next!

Just as likely as any other outcome, they may very well right now be deciding THEIR best 'exit strategy' would be carrying out massive false flag attacks on us and plunging the whole thing into martial law!

Problem totaly solved for them, zero economic problems on their part as the slate is wiped clean! And if any of us peasants get uppity about it, they send out the Obama private military that is outlined and funded in the Deathcare bill!

Bottom line is we assume a lot about how theyll keep it going as a farce forever, but history shows at this point in what we're doing, the next steps are very ugly.

Astute Investor's picture

Similar message from Jeremy Grantham given GMO's current seven-year return forecast.




4shzl's picture

It amazes me that people continue to make a living by propagating the myth that stock prices in the current environment are a function of "value."  Stock prices are a national security priority: higher = more secure.  Unlike other asset prices, they are easy to manipulate -- therefore, they will be manipulated.  Yes, eventually, this will end badly, but that eventuality may not come for years, or even decades.  Stand aside, or get steam-rolled.

Deep's picture

i love all these people who come onto this site and just say the market is manipulated. Why the crash in 2008-2009. where was the manipulation. For every buyer there is  seller. People have bought into a massive recovery, you guys are acting like little babies, "OH THE MARKET IS NOT GOING MY WAY, SO IT MUST BE MANIPULATED" 


DaddyWarbucks's picture

Those who are worthy of attention don't usually speak profanely, your post does you and us a disservice.

4shzl's picture

The 2008/09 sell-off was primarily the result of election-related uncertainty about the consistency of govermental intervention.  Once it became clear that Barry was just another sock puppet, it was game-on again.  I have no equity positions, short or long, so this observation is not about my way vs. your way.  Mostly, it's about the unwillingness of those who are deeply invested in free market ideology to recognize that their views are largely irrelevant in the present context.  Deep = shallow, imo.

Deep's picture

there you go agian with the manipulation. The nasdaq run in 2000, was that manipulated?

I am as bearish as anyone, and just started shorting on friday, have been scaling into it, did more today. But in I know when to get out, i will not hold it forever as it seems some people are doing on this site, thus the " THE MARKET IS MANIPULATED LINE BECAUSE I AM LOSING MONEY"  GIVE ME A BREAK. But to say the market is manipulated. Yes it is maniplulated in a small way, but to come and say, the whole thing is manipulated is doinG a disservice to yourself.

No More Bubbles's picture

Hey Nimrod - YOU GROW UP!  Better yet - WAKE THE F&*K UP!

Regardless of what the market is doing (up or down) - it's rigged.  It was FORCED DOWN and intentionally crashed so the Financial titans (Crooks) could strongarm congress into handing over Billions (Actually TRILLIONS) over to these thugs!

If you want to know these people have complete and total control, listen to Barton Biggs mention the exact S&P low of 666 in this video several weeks before.



Socrates's picture

Having worked as a broker trading my own funds on Wall Street for 25+ years, the only thing I can say with certainty is that ther mkt is, at all times, rigged.

To speak in your terms, you don't know your ass from a hole in the ground. Do you really think that the overnight gaps that have taken the mkt higher have been coincidences? Or how about the 40 of 42 days, presented here in a study, where the Fed bought from broker-dealers in a quid pro quo where the Dow exploded 100+ points in anywhere from 30 minutes to the last 2 minutes?

Exchanges exist for one reason - to make its members wealthy. Or as said in a book around 1940: "Where are all the Customer's Yachts?"

Cognitive Dissonance's picture

Folks, the President and Intelligence Czar still have the power to "order" companies to cook the books. Why do you think the SEC is NOT investigating what is obviously insider trading and manipulation of reporting, disclosure and what not?

Because it isn't illegal and thus they have nothing to investigate. The laws and Presidential orders over the past 10 years have allowed unlimited tampering in the so called "free" markets. This is being done with the full knowledge and agreement of CONgress, the judiciary and the executive branch. The con, the Ponzi isn't a Ponzi because it's legal.

Where is the outrage, especially here on ZH? I've posted this article a number of times and no one comments. Hello? Is there anyone out there? And this only scratches the surface. There is a pile of Presidential orders that have been kept secret and hidden from the public disclosure. You don't even know what you don't know.

Intelligence Czar Can Waive SEC Rules


SheepDog-One's picture

Cognitive Dissonance yep thats exactly right, as posted before here on Zerohedge- Wall St and the Govt have the clearance to report whatever they want, 'mark to fantasy' and kicking the can down the road while they try to draw in some suckers is not a game Im willing to play at this juncture.

How are you supposed take a serious attitude looking at squiggly line charts and economic data, trying to figure out what the direction will be, when its all far worse than a Mafia ran rigged casino with magnetic roulette wheels, loaded dice, and marked cards?

Its appreciated, and I've made a few Youtube videos using your article and info on the reality that we're in an official state of economic martial law where basically anything goes. Im not playing musical chairs with these termites.

Cognitive Dissonance's picture


Care to pass on those video links? If nothing else, I would like to view them.

SheepDog-One's picture

Sure Cognitive Dissonance I'll link them here later, but my channel is davids11131113 just look for the 'economic martial law already declared' I think is the vid name.

sweet ebony diamond's picture

I will comment.

It is adhocracy.

A complete joke.

They ("our leaders") are stupid.

Hence, my first post (for which I apologize but the pressure was on).

Attitude_Check's picture

While the authority could be (is?) abused, the apparent purpose is to prevent using publicly disclosed accounting information to release national security information indirectly.  If used for the stated purpose, it sounds reasonable to me.


The existence of the memo delegating authority for something that has been done since 1934 doesn't by itself mean that there is a vast government conspiracy to fudge ALL financial numbers for all companies.  Not that I wouldn't put it past either the last administration, or this one, to push the envelope on this to broaden the scope past the original intention.


I could be the main reason for the lack of investigations and enforcement.  So the principle isn't directly stated to anyone, but the new "rules" are practically obvious whe all the cops are fired, and the rest are only donut eaters (SEC?).

Seal's picture

a little note also that Congress is exempt from insider trading rules

B9K9's picture

I'm amazed that people are still amazed. I've previously posted various observations that by their very actions we know the power elite have failed.

To wit, monetary theory postulates that demand is simply a function of supply: increase liquidity & lower rates and people will naturally resume consumption. Wrong - and Ben knew it, which is why the PTB actually had a 3-part strategy:

  1. Control the message through a vast propaganda campaign (ie green shoots) extolling the virtues of leverage and the necessity of 'getting back in on the ground floor';
  2. Purchasing MBS to set an artificial floor in mortgage rates; and
  3. Gunning the various indexes to give a semblance of stock market gains.

Number one didn't require any capital at all, whereas numbers two & three only required a few $trillion of freshly printed Benjamins. Since actual dollars are a mere fraction of the total credit-money system, Ben knew from the git-go he needed extreme leverage in an attempt to sway 'animal spirits'.

The techniques the power elite have employed to date have no theoretical basis in fiscal, monetary, Keynes, Austrian, etc schools of economic thought. These actions are pure desperation made up on the fly.

You are absolutely correct in indentifying that the outrigh fraud and illegal acts are being justified in the name of 'national security'. What they're telling you is the alternative is worse. How much worse?

How do you think these types of historical events turn out? That things somehow just get better and we all go back to watching Idol? Why - 'cause we're 'Mericans? LOL

Cognitive Dissonance's picture

"It seems central banks botch exit strategies more often than not."

If the husband breaks a dish or two every time he's asked to help out in the kitchen, it doesn't take a rocket scientist to figure out he's deliberately breaking them so as not to be invited to "help" in the future. If the central banks botch exit strategies more often than not, and they supposedly are the rocket scientists, maybe, just maybe, they're doing this on purpose. 

"I suppose central banks might get lucky...."

I gave up believing in luck and coincidence in the markets in particularand the economy in general about 10 years ago. It's a rigged game, thus when looking for responsible parties, try talking to those who set policy and those who run the frigging game. That would be CONgress and the Fed, in case I left any doubt who I meant.

"If only my crystal ball was clearer ... fortunately though, no crystal ball is needed to see that equity markets are expensive."

And yet the relentless drive higher continues. Most be more of that luck and coincidence.

B9K9's picture

Whose risk? Yours? Mine? If I am given fraudulent, non-recourse counterfeit tickets, and an exhange accepts them as ready cash, am I at risk?

Do I care if I play Monopoly with wild abandon and lose? Do I stay up at night fretting over my losses? Or do I wake up with no rememberance as I scrounge around for some breakfast materials?

yoodman_jimmyy's picture

Looks like a lot of switching between carry trades amongst the lowest yielding currencies (Yen, USD, and CHF) to keep the equity and futures markets propped up.  What a joke.

SheepDog-One's picture

Seems to me we're back at DOW 14,000 bubble top, lots of 'how to invest in this bull market' articles were around back then too. No one understood WHY you should 'invest' or why anything even had any business being at those levels, just that you better be in because real estate and stocks only go UP!

Hearing the exact same thing today with every article theme being 'Sure its all overvalued, but guaranteed to only be more overvalued tomorrow, so buy stawks'!

I believe now its musical chair time and there sure arent many sturdy looking chairs around, and the chairs arent for you and me anyway! Unless youre on Geithners speed-dial list, I wouldnt be in this market, something wicked this way comes, no question about it.

HumbleServant's picture

I think oil prices are going to trigger the next leg down just like they did in the summer of 2008. 

Our company is seeing 6% to 10% increases in all plastic prices from our suppliers within the last month.  All of them are saying that resin prices have gone up and there is nothing they can do about it.  How many things are made out of plastic in this world?

I think the $4.00 per gallon fuel prices tipped the scales in the sub-prime mortgage meltdown.  That psychological $3.00 barrier is upon us and the increased refining cost in the summer driving season will probably push it to the $3.25+ mark. 

Assetman's picture

Good points.  And I do think oil/gasoline prices are a primary trigger to a change in economic/political activity.

If the Fed brings in QE 2.0 sooner rather than later, we will most certainly be faced with dangerously high oil/gasoline prices.  Bennie Mae may find it more opportune to reflate after driving season ends in September-- but he may not care, either.

HumbleServant's picture

I hadn't thought about the change in political activity also but you're probably right.

The summer of '08 changed a lot of driving habits and vehicle types for the average American.  Many people who had a fairly long commute got rid of the SUV and downgraded to something more fuel efficient.

One of the effects of the government subsidised mortgage programs (Fannie, Freddie & FHA) is that it allowed many people to buy homes farther and farther from work.  This is a major demographic situation where higher fuel prices may put the last little squeeze on many family budgets this summer.

Mako's picture

There is going to be no place to run by the time this is all over folks.   The market is searching for yield, game of musical chairs is all that's going on.  

"There is no out, there is only in"


DavidC's picture


The market WAS being manipulated on the way down, but also bear in mind that there was panic and a realization that what the banks had/have been doing could result in failure (which may yet happen).

The two BIGGEST daily moves on the way down at the end of 2008 were moves UP (one of which the 'jury is still out' on, i.e. whether the banks knew in advance, courtesy of Messrs Bernanke and Paulson, that interest rates were going to be cut).

Don't believe me? Just take a look at the charts for Dow and S&P.

Don't believe me? Re-read the various ZeroHedge missives on low volume ramp-up days on zombie companies over the last year.

Don't believe me? Read the recent articles from GATA about Gold price manipulation via the futures/ETF/paper market and the scarcity of physical Gold.

It's naive to assume the markets AREN'T manipulated, however being AWARE of it can help, and explain some of the weird moves (like today in the Dow - bad figures, but got to make the books look good for month end, quarter end and, here in the UK, financial year end)).


Deep's picture



The finanical system almost imploded, i think that had something to do with the sell off.

Fine i give up, the whole thing is manipulated, a little guy sitting in a room

"i thik the dow will end up today, no wait down. ok lets do it"





pooplagrande's picture

Isn't printing money manipulation? Tax-changes to make banks look solvent? Lending money to large institutions at next to nothing? Propping up any market that is ailing? This is a con game...and one of the biggest barometers that every individual sees is the DJIA. Market up = Things must be good...

Unfortunately Deep...I think the reality is that we are grown up here and we have been seeing some things that we would rather not see. I hate to break it to you, but there is no Santa Claus either.  

Attitude_Check's picture

Do you make it a habit to build idiotic straw-men, and then tear then down to feel superior all the time?


Your childish, infantile remarks are tiresome.  You are why they have kiddy tables, so the adults can have rational conversations, now why don't you patter of to CNBC and Yahoo Finance.

Double down's picture


Deep is correct.  We need to focus on how to operate in this market regardless of manipulation or variability.  It is disqualifying, regardless of accuracy to claim manipulation in a context that is inherently variable.  The sour grapes counter argument will always stick.

We all understand this, it is coming to terms with the realization that that is the problem.  It has become entirely too personal, we need to get out of our own way.

Though I am aware they are impossible to separate, an enormous invisible wall has been built between the real economy and the financial one.  The wall of worry is just that until it abruptly stops.  This will occur when those aristocrats who need to be rescued have been.  What I hate is that the genuinely naive are co conspirators with those who are evil.  When the time to short comes we will unfortunately be taking money from the naive, because that is the law of the market.   

To hasten the arrival of this realization, perhaps on should trade long, do the exact opposite of what is right?  Close  ones eyes and jump?   


Don Mattingly's picture
by Deep
on Fri, 12/18/2009 - 17:24


These guys are crooks just like the rest of Wall St. They are just connected crooks with Washington. These guys have really ruined the market, why would anyone put capital in the market after seeing how rigged this game is. Better of buying CD's for the average guy like me who doesn't have millions to gamble with. At least i work hard and know my money is safe. I am a young guy, 30, and let me tell you, all my friends who don't follow the markets like me, they say it's just a "rich man's casino, only difference is they are not villified because it's the market.


The market is rigged , how does a little guy like me have a chance. 



What happened Deep??? WHy the change of heart so soon?

DoctoRx's picture

Under the Japan scenario, actually the PTB have an incentive to scare people again into Treasuries to continue the statist surge.  The easiest way to accomplish that sea change is to terrify the public again and stampede them into Treasuries.  

pooplagrande's picture

Obama is a consummate politician. He didn't want to be the guy in office left holding the bag...nor did Bernake. Obama definitely colluded with high ranking officials and large banks to 'save' the financial system and his own ass. Changes in accounting rules to mask insolvency, propping up any market that is suffering, running the printer on OT, lending big dollars for nothing to banks that snap up treasuries and S&P futures, etc., etc. We all know the story. The question is...when does it end? If the confidence doesn't take hold, and the animal spirits lay in hibernation, rates start to rise, and now the market is showing overvaluation and even the strongest of bulls have to question the risk/reward...it looks like a rock and a hard place to me...especially with questionable fundamental underpinnings. People (read computers, Fed, Big Banks) have been chucking money at this market on any dip...bad news is good news and good news is spectacular news. This is looking like a bubble...and who knows when it will pop...tomorrow? Next month? A year or a few? Who knows...but I just don't think you ride into the sunset here under this massive debt overhang.

4shzl's picture

I just don't think you ride into the sunset here under this massive debt overhang.

Agreed.  But it's not that difficult to imagine a long, slow decline in unit labor costs (spun as an increase in productivity) that underwrites the wealth of the plutocrats even it as undermines the living standards of the average American.  The most alluring fallacy is to imagine that all of this has to be resolved in some kind of morally satisfying denouement in which greedy, mendacious malefactors are exposed and stripped of their ill-gotten gains.  In history's long march, this kind of outcome is the exception, not the rule.

pooplagrande's picture

...interesting point 4shzl. Debt + lower labor costs = cheaper indentured servants for the puppet-masters. Ouch.

Mark Beck's picture

Really, Obama should be known for saving the Autos (Unions), although the life raft is losing air, especially for Chrysler. From an investment standpoint the Auto outlay will never produce a gain overall to the tax payer.

The story with GM and Chrysler is really amazing from a complete lack of respect for tax payer money. Bush took TARP money for an initiative that Congress voted down, and gave it to companies, which at the time, were clearly bankrupt due to legacy costs alone.

Essentially, providing funding to Bankrupt companies which were on the brink of Bankruptcy. This is just pathetic, because this money could have been used as funding during the bankruptcy reorg process which is far more efficient. In addition, during this reorg process all of the contracts could have been renegotiated. This up front money, in the case of Chrysler, amounted to about $3.6B, which the tax payer will never see again. It is gone, POOF!

Just one more item about the Fiat Chrysler deal. Even the CRS thinks Fiat purchased Chrysler which is completely false. Fiat did not buy Chrysler, it was a gift. Albeit much like a gift of an anchor to a drowning man. But, a gift none the less.

TARP essentially saved the banks from insolvency. But really, it was a power of the purse (10x) transfer of power from Congress to the FED by way of Treasury (Administration). Which is still on-going. The way TARP was worded gave a maximum outlay at any one time up to a certain amount, at the discretion of the secretary.

TARP is supposed to balance down to zero for its temporary authority and not used to provide a max cap for appropriations. It is an emergency measure. But, the Politicians have abused its use and extended it into the realm of PORK. TARP is now the biggest slush fund in history. It should have ended in December 2009.

Obama, has not saved his ass, not yet anyway. His budget, given the age demographics and the actions by Treasury and FED, is so irresponsible that he really must be getting some bad advice, or is indeed a fool. Most people that have taken a close look at the US and its State's budgets know that Obama should have acted when he first took office to cut Government spending.

You will not have to wait years for a crisis of some sort in the US. The question is, what will congress do when they can no longer fund Government through the issuance of debt without destorying the currency? Because, the purchase of Government debt is an extention of trust, in both the currency and its oversight. You can not attract buyers, for something you yourself, have made worthless. 

Mark Beck

Seal's picture

Dow 36,000 – why not 36,000,000? Heh, we got the money to do it! It’s an election year. "In the meantime, an index of German share prices (1913 = 100) rose from 126 in January 1918 to 531,300,000 in September 1923, and to 23,680,000 million in November 1923 amidst extremely high volatility. (In dollar terms, because of the currency depreciation, the same index (1913 = 100) fell from 101.55 in January 1918 to 2.72 in October 1922, before recovering to 39.36 in November 1923.) The extremely high volatility of the stock market is a typical feature of hyperinflating economies." Constantino Bresciani-Turroni, ‘The Economics of Inflation’ From Marc Faber, ‘Reflation’ 2004

carbonmutant's picture

In a fundamental sense this report is right. But this market is not paying attention to fundamentals. And it's obvious from the charts that historically the S&P is capable of running much deeper in to the 1st. quintile.

As long as the MSM thinks its their job to prop up a fragile economy to make the current administrion look good J6PK is never going to get the message.

Ando's picture

Every damn day we read more bearish propaganda from ZH with absolutely zero bullish posts.  Tyler, please post a bullish argument for once.  Im getting really tired of reading the same thing everyday.  I have been reading ZH for a year now, and you are getting close to losing this loyal reader unless you start posting more balanced news.  I want to read about both sides of the argument!!!

Il Duce's picture

So.....judging from the first chart, the last time the chart turned up into this territory was circa 1992...the beginning of a HUUUGE move up.  What's the bad news?

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