The New Buffett Rule: Equities Are Overvalued

Tyler Durden's picture

Based on Heinz' new best friend from Omaha's "best single measure of where valuations stand at any given momen," US equities are now over-valued for the first time since 2007. Buffett's measure - the percentage of total market cap (TMC) relative to the US GNP - as Cullen Roche indicates on Bloomberg's Chart of the Day, crossed 100% this week into stretched territory. As Gurufocus notes, this implies a mere return of around 3.3% annualized (including dividends) ove rthe folowing years - though as is clear from the chart below - the ride is extremely bumpy...


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kaiserhoff's picture

Malcolm Gladwell is not a stock guru, but in his last book, he came up with this in his piece on Taleb.

"Buying common stock is a bet that the future will be better than the present."

Anyone want to take that bet?

Dr Benway's picture

Although Gladwell irritates me to no end, that's a pithy way of putting it. Buying a stock is buying the present value of all future dividends. Stock market rises are based on an increased expectation of future dividends. But do stock market ramps EVER actually lead to increased sustainable dividends, or are the purported rewards always around the next corner? Always just a promise away


LooseLee's picture

Just ask a retarded BULLTARD. They are all over the place!

TruthInSunshine's picture

The Old Buffett Rule:  I come across as a genteel grandpa-type while I, along with my partner-in-crime, Charlie Munger, steal billions in taxpayer bailouts via the bought-and-paid for CONgress.

Buffett's Betrayal
The Alarmist's picture

The HNZ-deal is nothing more than the modern-day technocratic implementation of what used to be handled in a simpler world with an envelope full of cash.

BTW, has anyone noticed that the more TPTB stress anti-corruption and ethics, the longer and deeper the global financial crisis drags on?

He_Who Carried The Sun's picture


Tyler is right and Buffet is "wrong"?

Of course, now I see it!


kaiserhoff's picture

Gladwell has no specialist expertise, unless you count social science, which no one does.

He can be spot on, as he was with his recent pieces on problem dogs, or job interviews, but he is clueless about economics or motivation, and very thin skinned.  I tend to agree with you.  A man who can't or won't defend his own positions isn't that much of a man.


Dr Benway's picture

Yeah I agree kaiserhoff, Gladwell is hit and miss, for sure has his moments though his books are gimmicky. Did you see the Malcolm Gladwell Cover Generator a couple of years back? Was hilarious.

kaiserhoff's picture

Missed it.  Do you have a site?

Met him once.  He could pass for white, but he makes a lot more money off his reddish Afro.

Some things are only that fucked in America.

Pairadimes's picture

We still have a GNP?

Say What Again's picture

Yes we do have a GDP -- Government Debt Problem

The Alarmist's picture

You obviously did not hear our Congress Critters... they don't have a debt problem; you aren't paying enough taxes.  Back to work, slave.

kengland's picture

Why do the TD's never discuss what the other is doing? Can you dovetail the global monetary picture into these ridiculous pieces and then ask the question about "valuations." Makes you all look like morons.

IndicaTive's picture

Well? I believe you have the floor. I'm listening.

kengland's picture

Huh? Focus on the word "nominal." Stare at it for a few minutes and get back to me. Jesus Christ, the blog has hit the fulking floor. Please bring back the cheeky bastard. At least during those days, most of the shit here was organized.

kaiserhoff's picture

I feel your pain, but stated government debt is universally cash basis, and ignores unfunded, but real contractual liabilities.  That makes those comparisons extremely difficult (almost impossible),  but the Tylers have tried to do relative risk analysis, and so, to his credit, has Reggie Middleton.

kengland's picture

" but stated government debt is universally cash basis" That's a fair point but the market comparison is unadjusted. You can't rail against 80B a month in injections and then ignore it a few posts later. Let's get consistant for christ sakes.

kaiserhoff's picture

Good point, and my small business buddies are way ahead of any wall street reporting on this.  They expect a major shit storm from Obummercare and lots of other stuff.  But I'm a bean counter, so I see the limitations of the tools.

Try to compare inflation in Spain with inflation in the States when neither has free markets.  I try to point out those problems now and then, but comparisons among rigged markets can only go so far.

It would be helpful to all of us to look more carefully at which industries and countries will weather inflation relatively well.

Good line of thought.  Only the high school kids worry about red arrows;)

kengland's picture

"comparisons among rigged markets can only go so far."


Once you make this connection, it makes most of the pieces posted by the TD's irrelavent. 75% of what they put out to read assumes a market. THe other 25% assumes a rigged market. Think about that. I think they run out of material and just throw shit out there for the sake of keeping the blog alive.

Also, there's very little original material here. It's all regurgitated from the system. Just a different point of view. You can never assess the thinking behind the TD's. When was the last time you read a piece from a TD.

john39's picture

there are only so many different ways to say that the world is a rigged fraud.

Kirk2NCC1701's picture

If the ROI in stocks is too risky, and there is no ROI for your bank savings or any investment paper assets (anything <1% isn't worth the risk), then you're better off to keep the bulk of the paper assets (money) in your vault than someone else's.  When there is no return ON investment, I worry about Return OF Investment.  Be it PM or paper-money in the bank.  To elaborate and to turn the table on the Buffe(t)-nator:

"Warren, if gold is such a barbarous relic that does not 'work' for you, then the same is true for fiat money which also is not 'working' for me.  Holding cash @ home_vault at least assures me of (a) full return of money, and (b) denies the banks the FRB Ponzi with my money.  What's worse, whereas PM's are in limited supply and have intrinsic value, paper money is at low-cost supply and in almost endless supply.  And it has no intrinsic value beyond its potential as a very expensive fire-starter, wall-paper or toilet paper.  Warren, like you, I'm better off buying up things of real & tangible value, i.e. swap most of my Tertiary/fiat assets for Primary and Secondary wealth assets."

Folks, although I cannot afford to drop billions and borrow money like Warren Buffe(t) by getting additional billions in fiat credit from Chase and WF for the leveraged purchase of real assets at Heinz Co... I was able to do the next best thing this morning.  I swapped some paper assets for real, hard and fungible assets.  I swapped FRN's for Pb assets, in 0.40 and 0.223 denominations.  "Limit of 3 boxes per customer", alas.  Just as you'd expect in the USSA:  Rations! 

While I do not (yet) own 'delivery systems' for these hard-asset denominations, I'm sure they will come in handy in a future, more free market.  In Stages 14 & 15.  As a tax-exempt "exchange in kind", in a more Quid pro Quo (this for that, or value for value) world.

writingsonthewall's picture

Off topic alert! - but I gotta get this out.


If you look back over my comments - I predicted this about a month ago - the REAL fallout of the EU meat crisis.


10% on the price of beef IN A WEEK - and they just found it in school dinners - and they're pulling it all.


Now what do they say about 'shocks' and 'hyperinflation' and 'triggers'?

LooseLee's picture

Buffet is the biggest welfare queen in the whole of America. He also has a loyal following of Fascist/Communist Retards that worship his every move...

Jim B's picture

And he is a tax dodging pig... Just saying!!!

_ConanTheLibertarian_'s picture

He's a goddamn hypocrit. That's what's wrong.

bugs_'s picture

YOUR equities are overvalued.  Mine are undervalued.  (corrected)

Wile-E-Coyote's picture

Buffet bought Heinz because at the end of the day no matter what happens to the economy people have to eat. I don't get this guy he is about to die of old age, and he is still fucking the world over.

There is a devil with a pitch fork dipped in Tabasco sauce waiting for him.