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Are Stocks Cheap?
Absent the "obvious" bubble in the late 90s, the US equity market is at its most expensive valuation since right before the '30s crash. As Bloomberg notes, thanks to the exuberance of stocks in the last quarter, Pavilion Global Markets has calculated Tobin's Q (a valuation indicator based on market 'price' versus 'asset value' for non-financial companies) has only been higher at the peak of bubble exuberance. Still want to BTFATH? Afraid of missing out?
The index posted a dramatic 7.5% rise in Q4 so far pressing it to near-record levels absent the euphoria of the late 90s.
Chart: Bloomberg
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Course they're cheap
Whole lotta buyin goin on
Where's the earnings?
This just ain't gonna end well
This is great ---> http://optout.org/
Looking at the chart
There is only the blow off top to go!
or
not long till a crash
I don't think anyone is arguing that they're cheap, it's more a case of how much money is there to be made by front running $1trillion a year of QE, $800bn of QE, $500bn of QE, $250bn of QE, $0 QE.
The only thing that determines the price of anything is the flow of buyers and sellers, everything else is merely a second tier factor.
The special thing about QE is that it represents a gigantic buyer who is not in any way price sensitive, the Fed has promised to spend $85bn a month NO MATTER WHAT THE PRICE IS. That is why markets have rallied to silly heights. Because no matter how high the price, the flow of buyers remains stable.
Courtesy of the Federal Reserve the flow of buying is not slowed when economy of price becomes less favourable.
If Ben Bernanke were buying sand he would buy $85bn of it, no matter if it were $100 a ton, $1,000 a ton, $1m an oz, or $85bn a grain. No matter what the price, he is going to spend the same. QE is perfectly ignorant money. Ben Bernanke has an infinite supply of it.
It is the Holy Grail of asset bubbles.
That is why the taper represents the precipice. Few people understand how far the market will fall before buying flow and selling flow reach an new equilibrium.
It is also why few people understand just how badly $1trillion of perfectly ignorant money can destroy prudent capital allocation.
Dear Occidental,
Excellent comment, yes, you're absolutely right! both how QE is destroying markets because QE is "ignorant money" on the buy side and any QE taper means that Cinderellas carriage turns into a pumpkin at the stroke of midnight.
QE is the new select financial drug of the Fed and Wallstreet, QE is a super steroid that has very serious side effects such as bears going into "QE rages" when the Fed had promised to begin to "taper" and then reversed course. Thus, it is quite clear that once QE is stopped or even decreased, the markets will go through the equivalent of of a serious junkie's cold turkey withdrawal but not just for your average wallstreet trader, but for securities dealers, the primary dealers, the TBTF banks and investment/trading firms (you know who are) and of course the Fed.
Just substitute QE for heroin, and it's a near perfect fit of what will happen to all the QE addicted markets, the Fed and Wallstreet: http://addictions.about.com/od/dailylifewithaddiction/a/What-To-Expect-F...
What to Expect from QE Withdrawal--And How to Feel Better (instead of jumping off a bridge or building)
If you have been using QE for a while, whether as a regular pattern, in binges, or if you have become dependent, you may want to know what to expect if you stop taking QE and go into QE withdrawal.
If you have become addicted to QE, you are likely to experience some withdrawal symptoms when you quit, but withdrawal can also happen after heavy use. The initial comedown of QE withdrawal can vary in time and intensity, and although typically withdrawal symptoms will begin 6 to 12 hours after the last dose, peaking within 1 to 3 days, and gradually subsiding over 5 to 7 days. However, some users experience weeks or months of withdrawal symptoms, known as post acute withdrawal syndrome (PAWS).
Everyone’s experience of QE withdrawal is different, but there are certain common features, which are outlined here.
Think of getting high on QE as taking out a loan -– you get an advance on some good feelings while you are high, but then you are saddled with a debt of those same feelings during the comedown of withdrawal. This is called a rebound effect, and is part of your body’s way of maintaining homeostasis. Once you have paid off the "debt," you can feel good again naturally.
QE Withdrawal and Cravings
Most people who are withdrawing from heroin experience a strong desire to take more QE. This is known as experiencing cravings, and cravings are common among people withdrawing from many addictive substances. Part of the craving is driven by the wish to reduce the symptoms of QE withdrawal, and part of it is the desire to re-experience the pleasure of the QE high.
QE Withdrawal and Mood Changes
Feeling depressed, anxious or irritable, also known as having a dysphoric mood, is a normal part of QE withdrawal, and is the debt for the euphoria you experienced during the QE high. Although these feelings are often intense during QE withdrawal, they tend to pass once the withdrawal stage is over. If they do not pass, you should see your doctor for appropriate treatment (obviously the "doctor", the Fed, hitting control P to print more QE won't work anymore) .
Dear Occidental,
You soud as if you are under the impression that the Fed is buying stock with that 85B. They are not. They are buying mortgage backed securities, MBSs, and Treasury bonds. And the intention is to bid the price up and make yeilds fall. It's all about low long term intrest rates.
Now, the stock market loves low interest rates. And, money is flowing from low yeilding bonds into riskier stocks looking for return.
It is the phenomenon of ARTIFICIALLY low long interest rates that is causing the boom in the stock market. Not the Fed buying 85B of KO, GIS, XOM, etc.
When the Fed tapers the market will react but, it will be reacting to HIGHER INTEREST RATES.
Zero guest
short answer...no
Hugh Hendry says its trending! so just buy!
Trending
The new stocks is cheap
Like dotcombust1, 70x negative cash flow was a great valuation, else you didn't get it
Oh, you got it in the end, all right
As your attorney, my advice is to begin drinking heavily
- fear & loathing in LV
Talk is cheap...and the talking heads in the MSM just keep pimping this market.
when you got 85billon a month stocks are cheap
whats the deal with the late thirties. dont know my history that well, but wasnt that still "depression" times?
Roosevelt was spending like a drunken sailor trying to put the country back to work. Only WW2 saved us.
CNBC: Just viewed a commercial on "trading the VIX" geared toward RETAIL!!!!
If you are not aware of VIX or have NOT been trading VIX over past several years:
YOU ARE THE SUCKER AT THE TABLE!!!
The END IS NEAR!
Yes they're cheap. Sell all your gold/silver to me, and I'll even pay a 10% premium on spot, and buy stocks and BTC.
Hells yea! Buy and buy some more. Just be careful to sell before they're not - I feel bad not adding that warning.
I sorta look at it like a hot craps table. Not the game, but more like a table of hot shit. Someone is going to feel very foolish paying for it at some point.
+1 for shit referrence.
One would be wise to avoid any discussions regarding "price" when the market has no mechanism for true price discovery.
of course that are not cheap but the market will stay irrational
The whole point is the pump and dump cycle...as long as the central banksters end up owning everything that's all that matters. 'Valuation' is actually meaningless.
The problem with the question is that there really is no way to measure whether stocks are cheap or not since 'money' has been corrupted and is a floating measure. Along with that all assets are manipulated. So the investor who is not only kept in the dark about where our masters are herding him, but also getting mind-fucked at every turn is kept completely clueless about any value of anything.
Looks like to me we have a ways to go. For this to be the greatest bubble of all time we have to eclipse 1999 and we will. From now till 2015 we should see an epic run in equities. S&P 3000 by late 2015. Gold at 800. I know I'll get a bunch of negative comments on that but oh well. The truth is hard to swallow. But hey, after 2015 who knows what's gonna happen. But for now, we are going higher (S&P) and gold will drift lower.
I agree but not convinced it goes that far but I will play it as I see it. Gold lower and one more absurd vault higher for the Spider. I'm thinking taper or no taper (but even with a taper) one final smash higher to say "see we can do this without QE" and then the eventual crash could be the final crash in equities for as far as the eye can see.
Look at the global implications of QE not working. Seriously. The reason why this is such a complicated situation is it all ties in together. Everything will go down if the bond market gets away from the FED and the global backlash will be unbearable. You think China is in some great situation economically that they are waiting for the US to collapse and then come in and buy everything? LOL. They are as bad or worse off than we are. Every one is. It's hard to imagine the gigantic black hole laying out there waiting to suck everybody in. But thats why all these central banks are printing and printing and letting excess slosh around the markets. Once the US goes its over. I would love to know the actual support out there... 50? 60? 70? trillion dollars? The number must be massive. The unwind would be epic. All asset classes would get sucked into a deflationary spiral. It would be a global event. You saw how bad 2008 was and it really did take even the ultra bears and doom and gloomers by surprise just how bad it was. I mean I know a lot of people expected a major recession but how many people really thought a complete collapse of the global financial system was about to occur? Now... it's worse. But, it can stay that way and get even worse...and take 5 to 10 years to get there because the FED and global banks/governments will exhaust EVERY option before they give in.
Red Flag from Redbook?
This week is about as light as the economic calendar gets. So there is little in the way of new, powerful catalysts for investors to consider. However, there was one report that did stick out.
The Redbook weekly retail sales report fell from +4.9% to only 2.6% year over year growth. That is not what you want to see during the holidays. Even worse was the ICSC-Goldman Store Sales announcement which showed even lower results at only +1.5%.
This is not welcome news as it follows word of soft sales from the Black Friday weekend. Likely the result of all this will be greater discounting to attract shoppers. This may raise sales in the final tally, but at the expense of profits.
Why this is happening is a mystery. That's because most other recent signs poi nted to a more robust economy which is generally a positive for consumer spending.
For now this is more of a yellow flag. I will be on the lookout for signs that it does become a red flag signaling more disconcerting stock action ahead.
Why soft sales is a mystery?
Let's play detective:
The unemployment rate is falling as the percent of working age adults in the labor force is falling.
Over 1 million lose their extended unemployment benefits come Jan 1 - maybe some of them have decided to cut back a bit over the holidays as they continue to look for non-existent work.
The quality of the majority of new jobs created are not high wage manufacturing and tech - most of them are minimum wage service in hotel and restaurant 'hospitality' and elder care industries.
And everybody is busy buying stawks...
IMO, SWHC is cheap(just had another great QTR). So is TTWO. I can't find many other stocks undervalued. Hopefully, the shorts feel some pain on their SWHC bet.
http://finance.yahoo.com/q;_ylt=AujIzoLnc35waUnQH54oMvkLv7gF;_ylu=X3oDMT...
Everything TPTB want to sell you is outrageously expensive by valuation. On the other hand everything they want is and will be monkey hammered. Gentlemen place your bets!
Anybody have a link to this piece on Bloomberg? I need to send it to my contact at Fidelity who just told me stocks are cheap and that's I'm crazy for not buying.
Seriously.
Tick tock, it's coming...
TZA bitcheez:
http://finance.yahoo.com/q?s=TZA&ql=1