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"There Will Be No Place To Hide" - Markets Are Over 50% More "Exuberant" Than In 1996

Tyler Durden's picture


"It is really going to end badly," is the ominous warning that Damien Cleusix has issued to his clients as he believes we are now reaching the top of the secular bull market. Crucially, he sees US stock markets as "grossly over-valued" but that it is hidden from most people's perceptions because (just as in 2000 and 2007) there are marginal sectors that make the 'aggregate' seem reasonable (not to mention the dreams of forward earnings.) His novel approach of a point-in-time Price-to-Sales comp shows the median valuation its highest in 23 years.. and Alan Greenspan's infamous "exuberance" valuations in 1996 were 40% below current levels of elation. Today, the big difference with 2000 and 2007 is that government and central banks have already spend a lot of firing power to "make believe" that everything is fine again. He concludes, "there will be no place to hide when the tide turns."


Via Damien Cleusix,

It is really going to end badly...

What if we are indeed only now reaching the top of the secular bull market... What if

It is no secret that we view the US stock markets as grossly over-valued. In recent meetings, as in the Spring of 2007, we have insisted that not only are markets more overvalued than what they seem, the overvaluation is also general. Ed Easterling wrote a provocative article not long ago on the subject. Those who have read his two books, "Unexpected Returns" and "Probable Outcome" know the quality of his research.

  • In 2000 while TMT companies were reaching absurd valuation, small caps and quality value stocks where cheap. Remember that Berkshire Hathaway made its low the same day as the Nasdaq made its top or the same month as Julian Robertson, one of the best value stock picker of history, liquidated his fund.
  • In 2007, the overvaluation was general but here again you had a sector distorting the various valuation ratios - financial companies. In the bear market that ensued, nobody who was long, even the best conservative value stock pickers, made money if they were long-only. There was carnage.

Today our contention is that markets are more overvalued than in 2007.

There will be no place to hide when the tide turns. No place. The best value managers will lose a lot of money, factors which have historically worked well will suffer a lot too (small caps will be crushed and could lose more than 60% from current levels, high dividend paying and shareholder yield stocks too as they are expensive relative to an expensive markets, quality stocks will outperform but not by much and given the concentration of hedge fund investors in some of them, they will be liquidated without mercy when blood will run in the street).

Margin factors are also the highest against the markets they have been since we have data in the early 90's (and we doubt they were more expensive on a relative basis before).

In the graph below you can see 3 different valuation ratios where we try to remove the margin and sector overvaluation effect.


Data is based on Point in Time S&P 500 constituents since 1990. The red line is the median Price-to-Sale (P/S) ratio. The light blue line is the average of each components PS (an equal weighted P/S if you want) where the overvaluation of 2000 still stands out because of the SUN Micro of the time. The dark blue line is the average of the and and third quartile PS (we used Bloomberg for the components and the P/S data).

Remember Alan Greenspan's irrational exuberance? It was in December 1996 and at the time it was indicating that the market were extremely expensive compared to history. Well in December 1996 the 3 ratios where 40% below current levels.

Today, the big difference with 2000 and 2007 is that government and central banks have already spent a lot of firing power to "make believe" that everything is fine again.

The current environment is structurally deflationary and real trend growth is much lower than what the Fed and most analysts are believing. For many, many years we have talked about this (demography, overindebtness, oversupply,...).  It means that inflation rate will be lower and unemployment higher than what the Fed is predicting. It also means that this is structural and not cyclical. It also means that the Fed, as long as it does not realize this, is going to continue what it has been doing for a very very long-term.

We have long said that investors bias causes them to sometimes struggle to see the world as it is and instead prefer to see it as it should be. Investors are too naive. Current policies are not what they should be (productive investment, deleveraging to move away from this culture of speculation and easy money) and we need a trigger to make this change. Could it be a more hawkish Fed with new governors nominated next year and/or realizing that they have created a fantastic bubble in the equity and corporate bond markets (both linked as most of the borrowing is done to buyback shares or other companies and hence the productive capital base is not increased further lowering long-term growth potential ceteris paribus).

With regard to the short-term markets movement we can only repeat what we said recently:

"Market short-term volatility (intra-day) has increased markedly in the past few weeks. Important tops (cyclical) are made when valuations are extended (check), important divergences are forming (check), market uniformity decreasing substantially (check), exuberant optimism (check and congrat to R. Shiller...), markets overbought (check but could be more extreme on the daily time frame) and, finally, increased short-term volatility (check). You can use some pattern (serie of small range days) if you really want to be cute.


The only ingredient missing here is a sell signal from our cyclical models which have stayed stubbornly positive since 2009 with the exception of a  short-lived sell signal during the  2011 route. By definition, those cyclical signals will miss the first part of the decline which make a 10-12% drawdown at the beginning of an cyclical bear market a rule rather than the exception. The above checks are all warnings that cyclical signals could turn down during the next correction (or at least in the near-term)."


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Mon, 10/21/2013 - 19:10 | 4077603 Cult_of_Reason
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What is there to stop S&P 500 from having P/E above 100?

Mon, 10/21/2013 - 19:19 | 4077616 King_of_simpletons
King_of_simpletons's picture

But no one is seeing it come or "But no one saw it coming". It will end badly after Obama's 2nd term ends. The next el presidente is screwed.

Mon, 10/21/2013 - 19:24 | 4077636 Cult_of_Reason
Cult_of_Reason's picture

Even Netflix CEO suggested today that NFLX is a bubble (momentum-investor-fueled euphoric bubble); yet the stock continues moving higher, up almost 20% just today.

Mon, 10/21/2013 - 19:30 | 4077650 fonzannoon
fonzannoon's picture

Zirp has created a tsunami of  digital money looking for a home.

Mon, 10/21/2013 - 19:52 | 4077703 lotsoffun
lotsoffun's picture

and as faber pointed out in other article, and i've pointed out to friends for 2 years - there's you massive inflation.  in stocks.  because the money didn't trickle down to consumers, and it won't unless people sell their stocks and spend the money, and they won't do that (except for a few like lloyd and jamie) until it is too late.


Tue, 10/22/2013 - 00:20 | 4078440 Bunga Bunga
Bunga Bunga's picture

For every seller there is a buyer, money just changes hands, some get richer, some poorer, that's it.

Mon, 10/21/2013 - 19:37 | 4077655 Fredo Corleone
Fredo Corleone's picture

"The market is grossly overvalued, and it is really going to end badly - it's true. My surprises, they are rarely unexpected."

- Damien Clouseau, CFA

Mon, 10/21/2013 - 19:59 | 4077720 Nothing but the...
Nothing but the truth.'s picture

The Zombies march on relentlessly , upward to outer space and beyond.

Mon, 10/21/2013 - 19:18 | 4077621 Dr. Engali
Dr. Engali's picture

Sellers will be punished without mercy.

The Bernank

Mon, 10/21/2013 - 19:29 | 4077645 fonzannoon
fonzannoon's picture

Alpo for Granny will be leasing a Tesla before the bubble pops.

Mon, 10/21/2013 - 19:18 | 4077622 Hughing
Hughing's picture

the tide will never be turned. It really is a choice to these lunatics.

Mon, 10/21/2013 - 19:32 | 4077652 King_of_simpletons
King_of_simpletons's picture

In 2024 we will look back and see that we are Japan and that nothing ever changed. Our debt will be 54 Trillion. Congress will still be fighting over the debt ceiling. Republicans cave at the end. Life goes on. The top 1% is  top .001% then.

Mon, 10/21/2013 - 19:21 | 4077627 Truther
Truther's picture

Yellen.... " I didn't see it coming till it happened!!!!".

I am a bitch, so what?

Mon, 10/21/2013 - 19:22 | 4077629 threeputting
threeputting's picture


Mon, 10/21/2013 - 19:29 | 4077648 Haus-Targaryen
Haus-Targaryen's picture

Does anyone think this can go on another 5 years or so? 

Mon, 10/21/2013 - 19:36 | 4077657 Dr. Engali
Dr. Engali's picture

This can go on as long as TPTB want it to go on. Until then I just grab up as much free digital market currency as I can, and take the proceeds to keep stacking and prepping.

Mon, 10/21/2013 - 19:41 | 4077670 wisehiney
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Hide out with Hi Yo SILVER and Johnny CASH!

TLT  for fund raising.

Mon, 10/21/2013 - 20:11 | 4077755 hairball48
hairball48's picture

"This can go on as long as TPTB want it to go on."

I respectfully disagree. If real GDP(however you want to measure it--real incomes?) continues to decline, as I believe it has for years...there will come a point where there will be revolt of some sort. TPTB will lose control. Fascism will be a real danger.

I haven't a clue what form the revolt will take, but I'm certain it will be ugly--and violent.

Meanwhile I continue  to keep on stacking and prepping--just as you are :)

Mon, 10/21/2013 - 20:40 | 4077839 Dr. Engali
Dr. Engali's picture

We are talking two separate things here. I'm referring for the markets. As far as a revolt, there will never be one. The masters of division and distraction have a plan for that. They are pitting us against us, and it's playing out right now.

Mon, 10/21/2013 - 22:23 | 4078188 hairball48
hairball48's picture

I fear you may be right about revolting. That's what my reference to fascism was about. Fascism is TPTB's "plan" for anyone thinking about revolt. 

Mon, 10/21/2013 - 22:24 | 4078193 Col_Sanders
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In some ways, that could be worse than a plain old run-of the-mill revolution...

Mon, 10/21/2013 - 20:10 | 4077757 andrewp111
andrewp111's picture

It can go on as long as no surprises upset the apple cart. Surprises like $300 oil for instance. I would watch oil as the most likely skunk at the QE party.

Mon, 10/21/2013 - 19:35 | 4077665 Popo
Popo's picture

Economists knew the USSR was fucked in the late 50's / early 60's.

But many of those who were waiting for a collapse got old and grey before they got what they wanted.

Mon, 10/21/2013 - 19:36 | 4077668 fonzannoon
fonzannoon's picture

I can easily see the dow at 30k and the 10yr at .65% in 5 years. Instead of twerking video's we will watch people light themselves on fire or jump off a bridge. Most of the people on here will be in a room with rubber walls by then.

Mon, 10/21/2013 - 19:42 | 4077679 Dr. Engali
Dr. Engali's picture

Only the people who can't cast aside logic and accept the fact that TPTB have things firmly under control for now will be driven mad. Others will enjoy life and use the time wisely to prepare for something that may never happen in their lifetime.

Tue, 10/22/2013 - 05:19 | 4078655 lewy14
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I lived through the slow grind into abject (but non-apocalyptic) crappiness from 1969 through to the early 80s. Feeling similar. No end of the world, but by 2020 things will be pretty crappy.

Mon, 10/21/2013 - 19:46 | 4077694 Hedgetard55
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Gas at $100/gallon, steak at $500/lb, coffee at $100/lb, Teslas at $750K, gold at $900/oz.   :~)

Mon, 10/21/2013 - 19:56 | 4077710 ParkAveFlasher
ParkAveFlasher's picture

I'll be wandering onto Yahoo threads like Dennis Hopper wandered onto the basketball court in Hoosiers, screaming "gold bitchez!"

Mon, 10/21/2013 - 20:50 | 4077867 insanelysane
insanelysane's picture

I think it can go on for a loong time as well.  There are actually very few players in the market and all of the players need this bitch to stay afloat.

Mon, 10/21/2013 - 20:59 | 4077892 Landrew
Landrew's picture

I am not a gold investor, but, what you just wrote is beyond idiotic! If any one to the commodities you mentioned achieved anywhere near the prices you quote, gold would be 10k an ounce sold by the gram if you could find it for sale at all. How very  bizarre, unless of course you are just trying to get a rise out of gold investors. 

Mon, 10/21/2013 - 22:17 | 4078175 PhilB
PhilB's picture

Seems like he did....gosh you buggers are sensitive!

Mon, 10/21/2013 - 20:54 | 4077878 Hulk
Hulk's picture

LOL !!! This shit has 3 days left...

Mon, 10/21/2013 - 19:33 | 4077659 Running On Bing...
Running On Bingo Fuel's picture

Were back at the baseline. Now is the time for real growth.

Tue, 10/22/2013 - 01:42 | 4078531 zhandax
zhandax's picture

Forgot to shave today?

Mon, 10/21/2013 - 19:36 | 4077660 random shots
random shots's picture

Being right and making money seems to mutually exclusive these days.  Sit out and be left behind or stay in and wait for the decline.?

Mon, 10/21/2013 - 21:06 | 4077920 Landrew
Landrew's picture

What you state is the trap that is set. Trading for many years, I learned that when I started feeling I was being forced to trade rather than  discouraged  from trading was the trap set by Sachs, etc. They are distributing their profits as I write. Anyone feeling like they have to buy or be left behind will be the sucker at the end of that trade when Sachs buys it back for a dime. That's how it's worked since my first trade in 1976. Relax, there will be an opportunity of a lifetime shortly. It's not the return on investment, it's the return of investment.

Tue, 10/22/2013 - 09:50 | 4079213 MilwaukeeMark
MilwaukeeMark's picture

@random shots.
Or take your beyond reasonable faux profits, prep and forget about losing anything to a continuing faux upside. Those extra few faux dollars wil not feed nor shelter you if you call it wrong. And I think calling the next one is life or death this time, not a simple "self ass kicking" around the card table with golfing buddies.

Mon, 10/21/2013 - 19:45 | 4077692 ArmyofOne
ArmyofOne's picture

The Fed and government will never let the market crash again period.  It will close it first.  Confidence must be maintained at all cost. The are to many cards in the pyramid stacked to high. 

Mon, 10/21/2013 - 20:03 | 4077726 SunRise
SunRise's picture

We already know the Fed is not omniscient - an essential component of omnipotence; therefore, the Fed is doomed to fail.  Nothing less than omnipotence could stop this ebb tide from going out.

Mon, 10/21/2013 - 21:12 | 4077940 Landrew
Landrew's picture

Wow, that sounds so clueless of how markets work. You do know there is profit in the downside of any market right? The smart money is already in the downside of this bubble. Go long, and sell it back for a dime on the dollar. Read Jesse Livermore's little book on investing before stating something so counterproductive to many here. Jesse made money in 29, why because everyone was already a holder and buyer. He was the seller. Betting with the heard gets you slaughtered. Buying the opposite trade may not make you rich in one trade, but a very nice living is not so bad? Be patient walk down and FUCK them ALL!

Mon, 10/21/2013 - 19:56 | 4077707 Kirk2NCC1701
Kirk2NCC1701's picture

99% of Sheeple will have no place to hide.  But the Top 1% in Damien's 666 Club will hide well.  Why?  Because...

The 1% get their investment portfolios filled by their company, as part of their "Compensation Package".  Its' "free money"* for the execs and some middle-management types.  When the markets tank, they won't feel the pain like the rest will, because they will still own sizable shares of top companies - companies that will pay them a nice revenue stream, called "Dividends".  Which are taxed at "Mitt Romney rates" (Investment Income), not "Joe Sixpack rates" (Earned Income).

* If it isn't a "Store of Value" and not depreciate over a long period of time (like Gold & Silver), it's not "Money".  It's "Currency", dammit! 

"Only gold is Money.  All else is Debt" - JP Morgan

Mon, 10/21/2013 - 19:56 | 4077713 BullyBearish
BullyBearish's picture

When stocks get crazy...the crazy get stocks!

Mon, 10/21/2013 - 19:57 | 4077716 CharliePrince
CharliePrince's picture

itll go farther  and higher  than anyone expects

Mon, 10/21/2013 - 20:07 | 4077746 Julian
Julian's picture

21600 by this time next year after QE increases to $100B + from Dec

Mon, 10/21/2013 - 21:22 | 4077983 Landrew
Landrew's picture

What the fuck is wrong with you? So your claim is a market that is 10x what the bond market is and a bond market 10x what the stock markets are has nothing to say about printing money? I have a clue for you, print a 100billion a month and oil will be 300 a barrel and equities will be 100 on the S.P. The dollar would die in a TRILLION dollar a day FX market, be flushed by the bond market. 

Tue, 10/22/2013 - 04:34 | 4078553 zhandax
zhandax's picture

Landrew, they don't 'print' $85B a month.  They credit the PD accounts who take their bonds $85B a month.  And the PDs (or ESF, or BIS, it's all one big circle-jerk) can do the exact same thing with oil futures as they do with gold futures with those kind of electrons.  China can afford to buy all Iran's oil for gold, cause they know they get it all back in trade, and everyone else will take 'petrobuck' electrons.  Real assets are what brings the truly profligate to account, and as long as there is sufficient debt-based 'liquidity' to paper it over, there will be an abundance of paper 'equivalents' to hide the crime.  You are waiting for the 10-sigma credit event which will trigger a cascade of margin calls, and, having been chastened, I can tell you that trying to guess that the day before it happens is a fools errand.

Tue, 10/22/2013 - 06:34 | 4078677 Landrew
Landrew's picture

Buying creates price increase! Buying bonds from second tier U.S. Treasury is printing money. You can flavor it any way you like the world will not allow excess printed money for less value. You dream of a world that loves dollars. I am in Chile now where they just cemented a deal for DIRECT currency swap not millions TENS of BILLION with CHINA! Argentina, Brazil, Peru are all on the direct swap. You are a fucking idiot if you think I am waiting for 10 sigma when a 3 sigma event fucks the Treasury along with bonds, equities! Proof, a 2 sigma event inverted the yield curve 1 month to 1yr.! Go ahead print see what happens as U.S.T. is sold to the toilet!

Mon, 10/21/2013 - 20:18 | 4077782 SunRise
SunRise's picture

until everyone expects it, then the fuel gauge will read Empty and she'll come tumbling down faster than a man jumping off a space balloon.

Mon, 10/21/2013 - 21:14 | 4077947 Wahooo
Wahooo's picture

Yep, another f'n short. BTFD.

Mon, 10/21/2013 - 20:05 | 4077739 CheapBastard
CheapBastard's picture

"Stock prices never go down."


Another Mantra for the Hoodwinked investor.

Mon, 10/21/2013 - 21:29 | 4078005 Landrew
Landrew's picture

Finally some common sense, thanks people need to hear that. "The permanently high plateau." Let's see, would that be an Irving Fisher circa Oct. 28th 1929? Yale's finest ha! 

Mon, 10/21/2013 - 21:58 | 4078106 forwardho
forwardho's picture

"Stock prices never go down."

Indeed, My heritage was based on the factual principle that you never, ever, sell your property holdings.

An adage I heard from my Grandfather many times.

Glad that he passed before his guiding principal was proved to be false.

He would have shot me for doing what I did in '07.

The next generation is mighty glad I did.

Tue, 10/22/2013 - 02:23 | 4078564 zhandax
zhandax's picture

Did you either buy it back or change it to gold by 09?  That 2007 purchasing power is looking at least 12% lighter by now.

Mon, 10/21/2013 - 20:12 | 4077764 andrewp111
andrewp111's picture

QE pushes the S&P market cap up about $3 for each $1 of QE. What can stop this? Something like $300 oil would certainly make it hard to continue.

Mon, 10/21/2013 - 20:13 | 4077769 hangemhigh77
hangemhigh77's picture

Don't worry Mr. Yellen will make sure stocks NEVER go red.......EVER.  It's illegal for stocks to go down.  I think that was one of the chapters that was edited out in Orwell's book.

Mon, 10/21/2013 - 20:20 | 4077789 hairball48
hairball48's picture

Being a redneck and all, I don't know as much as y'all about these markets. But I've been around a bit, and I think I know something about the psychology of the bottom, say, quartile, of people. There will come a time when some seemingly trivial incident takes place and it'll be a "SHTF" moment. It won't be reasonable or rational, but it will be violent. Both markets and people will go nuts.

Stackin' and preppin'


Mon, 10/21/2013 - 20:39 | 4077831 ShrNfr
ShrNfr's picture

Greenie made that statement in 1996, the market did not catch on till 2000. Dumb fuck that market.

Mon, 10/21/2013 - 20:54 | 4077880 insanelysane
insanelysane's picture

It will even survive when the gold and silver contracts can't receive physical but it ends when EBT and Debit cards no longer work at the corner market and gas station.

Mon, 10/21/2013 - 21:17 | 4077954 nakki
nakki's picture

I think stocks will tank sooner than most think. You have to remember the masters of the universe are pyschopaths. They all want to be the biggest swinging dick. Just a matter of time before the pack picks out the next Dick Fuld. The end game is one or two banks owning everything. Currency creation, government, and industry. They're pretty close already, but I'm pretty sure there are anywhere between 5-10 to go.

Mon, 10/21/2013 - 21:21 | 4077967 adr
adr's picture

Real conversation:

Did you hear Netflix shot up 20% after the earnings beat?

Yeah, but didn't the stock shoot up like 100% in the last quarter in anticipation of the numbers being good, I mean realistically the beat wasn't that big and revenue barely met estimates. The stock is up 400% on a 52 week chart. That's pricing in a lot of growth that wasn't there in the latest report.

Who gives a shit about last year, the stock went up 20% in a day. Time to price in next year's growth. The stock could go up 400% again. Think about how much money that is.

The stock was already at a 400:1 P/E. Skyrocketing 20% in a day doesn't lower that P/E it makes it bigger. Which means an even bigger growth target that won't be met.

Netflix has more subscribers than HBO.

But the current stock price is pricing in growth that can only be met with almost 200 million subscribers. You think that is going to happen?

Who cares. 200 million, one million. The stock went up 20% in one day, 400% in a year. 2014 is going to be the biggest year yet. Maybe 500-600% to the upside. Priceline hit $1000 and kept going. Its going to go above $1100 tomorrow. That's like $200 in two weeks. Netflix has more potential than Priceline.

So you're saying Netflix should be at least $1500?

At least. Of course they could do like a 5:1 split to get the share price down so more investors jump in.

That doesn't change the valuation.

Yeah, but it makes shares cheaper so more people can buy them, and then the gains come quicker.

Quicker than 20% in one day? That's insane.

Making money isn't insane.

You haven't made any money until you sell.

Why would I sell and lose out on making more money.

I give up.

Tue, 10/22/2013 - 07:27 | 4078757 Fíréan
Fíréan's picture

"You haven't made any money until you sell.

Why would I sell and lose out on making more money."

You answer your own question. You haven't made any money until you sell, and you may wait until everyone else sells or wishes to sell, and the market has collapsed. Then where is your profit ? Good luck calling the top.

Mon, 10/21/2013 - 21:18 | 4077970 zebrasquid
zebrasquid's picture

Only good thing about getting older in this age is that there is a chance that
you'll get out at the top, like Julian Robertson did in the stock market, but in a more significant way.

Mon, 10/21/2013 - 21:44 | 4078053 logicalman
logicalman's picture

Discuss this as much as you like.

What boggles my mind is how this bullshit madness has not collapsed into a pile of financial rubble yet.

What the fuck is holding it all together???!!!

Full faith and confidence in the fucking tooth fairy?


Tue, 10/22/2013 - 08:30 | 4078889 d edwards
d edwards's picture

Also the dismal ignorance of the general population (sheeple) with no understanding of basic economics  That and bread and circuses.

Mon, 10/21/2013 - 21:45 | 4078055 Bryan
Bryan's picture

But wait... wait... I see GREEN SHOOTS!


hahahaa... .omg what a ultramaroon!  lol

Mon, 10/21/2013 - 23:21 | 4078346 yogibear
yogibear's picture

Old Yellen, we know you'll do it  Krugman style, $1 trillion/month QE.

Tue, 10/22/2013 - 08:47 | 4078967 Widowmaker
Widowmaker's picture

With no mark to market, the levels can be whatever Fascism Inc wants.

The bottom fell out in 2000.  The only game in town is changing the rules.

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