Nope, 'Still' No Bubble Here...

Tyler Durden's picture

Even the most ardent of bulls would 'admit' that the period of the last 90s was a bubble in US equities. What started at the margin quickly morphed into a euphoric valuation for any and everything that could be pitched. Even The Fed's Jim Bullard 'knew' there was a bubble back then... Today's recovery of the NASDAQ to 4,000 - levels not seen since this period - is quickly dismissed by those that need things to go higher on the basis of earnings, multiples, or some such forward-looking hope-based methodology that reinforces their bias. However, Tobin's Q - among the longest-lived and most well-respected of longer-term valuation methodologies has just reached levels only ever seen during the 1999/2000 bubble. BTFATH valuation?


Doug Short provides more color here...

The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It's a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Financial Accounts of the United States of the United States, which is released quarterly.



Source: Doug Short's Advisor Perspectives

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lickspitler's picture

Fuck you Bernanke


VD's picture

if the Q ratio is 1.1s and right before last correction was 1.8s, then you know we have a long way to go up up & away on QE4EVA!

czardas's picture

It is suspicious that Tyler never includes inflation in his tirades against a high market.  EVERYTHING has gone up as inflation continues and the dollar loses purchasing power.  The only exception is technology  as we continually get more bang for the buck for lower prices. Talking of 1998, consider the price of a movie ticket, gallon of gas, gold or steak?   Why would the market be any different?  It may be high but it doesn't compare to the rise of any of these items?

Nothing but the truth.'s picture

If the government is involved in compiling this data , who is to say it's not fudged like all their other data ?

NoDebt's picture

Pffff.... what was I worried about?  We've got WAY further to go, obviously.

ShorTed's picture

So you're saying we have at LEAST 76 moar points to go?  Party on, Dudes.  BTFATH

disabledvet's picture

mere bubble? really? with a "burn rate"? that thing was a TULIP MANIA... what "this" is has yet to be written.

Cognitive Dissonance's picture

Looks like plenty of room to grow before the blow.

fonzannoon's picture

It's only fair. The dow and S&P busted through nominal highs. You gotta figure just based on those two indexes the Nasdaq should be close to 6,000 before we can start talking 10% correction.

SAT 800's picture

I wouldn't touch this market with my brother-in-law's money. Every conceivable indicator of a blow off bubble top is already dinging, whistling, banging, and knocking. This thing is got to be in the momentum stage of the roller coaster, slowing down near the top of the hill and getting ready to meet mr. Gravity.

fonzannoon's picture

SAT all I see is dow 17k S&P 2,100 and gold 1,050 by June 2014. Most likely sooner. 

I don't think we have seen anything yet.

SAT 800's picture

Well, we'll just have to wait and see, I suppose. but I wouldn't put the probabilities in that order. I suppose that's what makes markets; different opinions.

fonzannoon's picture

Unfortunately I think that is what used to make markets. Now we are just left with a steaming pile of shit. 

dudeman's picture

Using CAPE, the S&P is lower than its value in 1929. We've definitely got way more room to run, especially considering that the Fed has pushed discount factors to basically nil.

SAT 800's picture

"definitely got way more room to run,---" There's nothing definite about the near term future. It's probabilistic, not deterministic. The higher the price the more difficult to find the new fools to raise it again; the heros of stock market success in history, such as J.P. Morgan, were selling in 1929; not buying.

Spankrupt's picture

A wildly incomprehensible string thoery analysis on market component replacement costs is completely unmarketable to my mind. But, Barry did win the Nobel peace prize, so sure, a snap shot of market replacement costs has analytical merit. This "Q" analysis cannot be done with IBM, let alone the entire market. Intellectual property, pension valuation, even subsidizing all labor costs with local Davis Bacon labor rates. The caveat +/- 1000% error should be included as a footnote.

SAT 800's picture

Nice indicator; never heard of it; but then there's a lot I never heard of. Makes sense to me.

sixsigma cygnusatratus's picture

Bubbles?  Yes Sir, I can boogie.

A good way to get reacquainted with 70s stagflation.

RSDallas's picture

I have been reading the writings and blog of Martin Armstrong. His call is that the market will double throughout 2014 due to the flow of capital that will continue to come into the US equity market both from the troubles in Europe and from the exodus from bonds. He does not state that the equities are fundamentally deserving of this, but merely because the money (capital) has to go some where and that the US is the best looking of the 4 large Countries (China, Russia, Japan and Europe).

As simplistic as it is, I think he may be right. He claims that the US will eventually implode (2015.75), just not until after all the other major countries implode. I know we have some intelligent traders here at ZH and I would like to hear your thoughts on this. Does this simple concept explain the slow melt up we are experiencing?

SAT 800's picture

Understood. Well, the major equity markets are certainly international capital flow indicators nowadays. There's nothing weak about this as a theory. My comment would be if Europe has THAT much trouble; we might get the standard fear reaction, rather than just a quiet, on going, re-allocation of flight capital. The standard fear reaction is SELL EVERYTHING. We're continually waiting for the "great revolution", from the Bonds into Stocks, but my take on that is that a different class of speculator is involved in the major bond markets; (there are no investors). Their psychology is different; they're already wealthy and more concerned with keeping a large fraction of their wealth than hustling the stock market. but once again, we'll have to wait and see.

Burnbright's picture

I believe the series of events is correct timing on the other hand is unknown. Many gloomers think the dollar will be the first to implode before other major currencies but I believe it will be the last.

SAT 800's picture

I agree with Kyle Bass that it'll be impossible for the Dollar to go before the Yen; and therefore the Yen will be the "Canary in the Coal Mine".

Spankrupt's picture

There are known knowns; there are things we know that we know.
There are known unknowns; that is to say, there are things that we now know we don't know.
But there are also unknown unknowns – there are things we do not know we don't know.

Channeling my inner Rumsfeld might help the situation. Our perihelion political environment is careening out of control, our monetary policy is a circular referenece, and who the heck wants to pay U.S. capital gains rates in our high beta market. A tinderbox indeed, the match may have been struck but just hasn't ignited the heap.

SAT 800's picture

I'd like to take this opportunity to flog a pet pony of mine. You mention ---"equities fundamentally deservering of this"--- I would like you to consider the thesis that there are no fundamentals. Ever. Consider, for example if Silver can sell for an entire year, 2000-20001 around $4.50/oz.; which we know it did; where are the fundamentals? Absent. Not functioning. My thesis as a speculator is there are no fundamentals; this is an oversimplification; it's open to rational critique; but I find it's a very useful basis for interpreting everything. Markets are expressions of mass opinion; period. And they usually represent a significant distortion of economic reality. Warren Buffet can be interpreted as a "value investor"; the author of "The Black Swan", regards him as someone whose timing was lucky; and so do I. There's a famous example of a very careful rational value investor who died in 1895 and left his stock market position to his Son. By time his Son had cleared probate and paid the legal fees on the now worthless vlaue stocks, due to a periodic "crash"; he was deeply in debt. His father looked like a genius as long as inflationary psychology was in charge of the mass mind; where were the fundamentals? I really don't think there are any.

sosoome's picture

I think it would take a break-up of the eurozone or a crash of the euro for that to happen. It happened once before in the '30s when europe had problems, so it's historically sound, but many more choices are at everyone's fingertips today; it could be different this time.

I'm short the euro, figuring there's a good chance for it, but no one knows how this sea of fiat will unravel.

FieldingMellish's picture

You're thinking too much. The system will collapse since that is a mathematical certainty. No one knows when it will happen or what the sequence of events will be. Someone will be correct through sheer luck. It might or might not be Armstrong. It might or might not be Sinclair. Hold assets that endure and will be in demand after the collapse.

Fiat Burner's picture

I wouldn't trust any man who claims he's created a computer model that can predict the future.  Make up your own mind and forget these so called "experts".

AngelEyes00's picture

When taking into consideration the anemic growth of the economy, who would even expect a bubble, except of course we all know it's due to QE.  And the bubble will inflate or deflate based on what Yellin decides; taper, stay at 85b or raise the stakes.

SAT 800's picture

Bubbles have nothing to do with the real economy; they're a function of mass psychology and the availability of cheap funds to speculate with.

WTFUD's picture

Am tired of these stupid graphs based on the shit you think you know and not the shit you don't which is mucho uglier.

Haager's picture

No problem ---> Make own one!

ShrNfr's picture

Smithers, smithers, on the wall do you every buy stocks at all?

Trimmed Hedge's picture

Inflation-adjusted, Nasdaq 4000 today is like Nasdaq 2000 from 13 years ago...

Evil Bugeyes's picture

Doug Short warns that Q values signal overvaluation. I wonder what Mr. Short wants us to do?

The problem is that the 2000 bubble was exceptional compared to previous bubbles. The Q value went much higher than in previous bubbles and never dropped down to the 0.4 range as after previous bubbles. We seem to have entered a period of higher Q values for some reason. Will Q values revert to their historical means? If so, we can expect a crash any time now. But if not, the crash might still be a year or two away.

I'm tempted to buy long dated puts and calls. Volatility seems to be the only thing that is cheap now.

cassotto's picture

Don't expect this market to suddenly reverse direction during this melt up, we'll probably see a proper short squeeze first. My conjecture, S&P500 at 1840 this year.

ChaosEquilibrium's picture

I'm VERY VERY thankful the FED supplies this "data"...afterall such a 'reliable tried and true' market indicator ABSOLUTELY cannot be left to the vested whims of MANIPULATION!!!!



SAT 800's picture

It's very interesting to study the commodity price boards for the equity indexes; like the Nasdaq and the S&P; The December contract refuses to acknowledge the runup today; although for all practical purposes; it is December. Likewise, no professional commodities traders can be found who want to pay up for the back months. Jan. is cheaper than Dec. Mar. is cheaper than Jan. and so on. The people who trade these things tend to have a lot better data base and lot better win/loss ratio than the stock market muppets. The futures are very bearish and simply refuse to acknowledge the prices in the underlying.

Duude's picture

What QE has brought us is a misallocation of capital, which is at the very heart of our stagnation.

mkhs's picture

That and killing demand by striping away income from savers, which also forces Gramps to compete for a job increasing unemployment.  Well done, Mr. Chairman.

Police Commissioner Jacobs's picture

You keep writing about bubbles and how bad they are, but what makes you think our system has any alternative? Hasn't it always been about bubbles to shift wealth to our benevolent overlords?

JailBank's picture

No way on CNBS yesteday an economist who has been bullish said to buy until 18,000 and that is my plan. Well that and my new Herbalife business. Come on ZHers who is signing up with me?