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Are Stocks Cheap?

Tyler Durden's picture




 

As if the question actually needs to be asked, we thought the following 3 charts would provide at least some defense against the constant barrage of "healthy rotation" bullshit currently being used to maintain assets-under-management as professionals unwind their levered longs into a newly-willing retail public. As Gavekal notes, the following chart show that the median stock is trading at valuation levels only seen at the previous stock market highs of 2007 and 2000.

Measuring the valuation level of the median stock in an index can help mitigate the market-cap-weighted bias associated with many index level valuation statistics. This is important because index level valuations that are heavily influenced by a handful of large companies can give a misleading representation of prevailing valuations for most stocks.

In the below charts we show the median valuation for stocks in the MSCI World Index (red line, right axis) and compare it to the Index price (blue line, left axis).

Are Stocks Cheap?

Price-to-Sales - Nope!

 

Price-to-Earnings - Nope!

 

Price-to-Cash-Flow - Nope!

Source: Gavekal

 

The median stock is trading at valuation levels only seen at the previous stock market highs of 2007 and 2000.

So are stocks cheap? It seems the professionals believe NOT...

As the smart money flees...

 

and the institutions dump...

 

 

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Sun, 05/11/2014 - 11:49 | 4748122 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Repost?

Sun, 05/11/2014 - 12:52 | 4748218 AccreditedEYE
AccreditedEYE's picture

Seriously.. This is getting tedious. All the Behavior folks love the fact ZH keeps pushing this point all the time. The almighty "they" will keep pissing off Bulls & Bears by churning the market sideways, working off the high so "they" can point to the 1930's-40's as the example of why the market never has to come down again. This is all total bullshit... Don't fall for thinking stocks will ever go down again.

Maybe we should all look at the long term VIX chart again.. LOL

Sun, 05/11/2014 - 13:19 | 4748277 holdbuysell
holdbuysell's picture

Stocks may never go down in nominal terms, but to paraphrase Kyle Bass: The Dow may go to 50,000, but you won't be able to buy three eggs with it.

Sun, 05/11/2014 - 14:18 | 4748306 AccreditedEYE
AccreditedEYE's picture

True dat.. And my down votes prove that the Behavioral folks will be correct.

Sun, 05/11/2014 - 11:55 | 4748137 DOGGONE
DOGGONE's picture

Hellish histories here
http://showrealhist.com/yTRIAL.html

Sun, 05/11/2014 - 11:55 | 4748142 I am Jobe
I am Jobe's picture

Hookers are getting cheaper and so are IPADS/IPHONES/Venue Pro 11 . Tough choices. 

Sun, 05/11/2014 - 12:16 | 4748173 CHX
CHX's picture

If you're into hookers, you'll soon be able to buy a harem for life with a silver coin or two... 

Sun, 05/11/2014 - 12:34 | 4748195 atomp
atomp's picture

Promise?

Sun, 05/11/2014 - 14:34 | 4748373 CHX
CHX's picture

Maybe it'll take a silver coin with Putin's face on, so what... The question is how cheap will hookers get, how desperate will things become? No promises, but death (and some STDs on your part should my "call" come true)... in the long run.

Sun, 05/11/2014 - 12:35 | 4748196 Cattender
Cattender's picture

selling dope is the best thing to do.. Wall St KNOWS all bout it i hear.

Sun, 05/11/2014 - 11:58 | 4748144 I am Jobe
I am Jobe's picture

Forgot Single Moms wanting things are getting cheaper. National past time, hookers and pimps, Ain't Amerika Great. 

Sun, 05/11/2014 - 12:11 | 4748161 Smegley Wanxalot
Smegley Wanxalot's picture

That last chart kinda looks like Russia.

GO PUTIN!

Sun, 05/11/2014 - 12:11 | 4748162 q99x2
q99x2's picture

The politicians are going to be pissed when this one fails.

Sun, 05/11/2014 - 12:14 | 4748169 CHX
CHX's picture

Pissed? They are responsible for this coming debacle. They should be proud, things worked as planned, to the ruin of all but very few...

Sun, 05/11/2014 - 12:33 | 4748190 free_lunch
free_lunch's picture
Argentina's Economic Collapse documentary: https://www.youtube.com/watch?v=VK494Judxvg

Inflation, the hidden tax: http://www.drlwilson.com/Articles/INFLATON.htm
© June 2012, The Center For Development
Sun, 05/11/2014 - 12:12 | 4748163 CHX
CHX's picture

In relation to the size of the Fed balance sheet (or the unfunded liabilities of the US government) they probably are cheap. Devalue the USD by another 90% from here and have Dow-100k-Zimbabwe-style easily. But you won't buy any toilet paper with a single Apple share either. That's what I call CHANGE, Barry. 

Sun, 05/11/2014 - 12:39 | 4748204 Winston Churchill
Winston Churchill's picture

Insert the money from banks re hypo of RMBS
assets, and the situation is identical.Also again, there
is a shortage of 'good' collateral.Politics is the only thing
holding back a stawk dump like 2008, and its probably not enough.

Sun, 05/11/2014 - 12:29 | 4748184 Cognitive Dissonance
Cognitive Dissonance's picture

It seems not everyone continues to dance as long as the music plays. The greater fool theory plays out once again.

Sun, 05/11/2014 - 12:34 | 4748194 disabledvet
disabledvet's picture

Again "the question is Is War Expensive"...and of course the answer is yes.

And again "how will this Very Expensive War be paid for?"

And again....OF COURSE...."via massive amounts of liquidity and the stock market."

The pop out remains where I am still long...namely treasuries. Where is the inflation? Why is the dollar surging? Why have commodity prices collapsed? Has a debt bubble been burst? Are various State and Municipal bonding authorities in GRAVE DANGER?

These are the questions SERIOUS INVESTORS are asking...not a bunch of quack cocktards at the Wall Street Journal, the Jew York Times, the Washington Dope...and dare I say "at even The Hedge"?

I mean this place has become a case study for "why we should be long everything."

Forget Critical Thinking...where have our critical JUDGEMENTS gone?

Or is the goal for all us just to follow Hitler and his Third Reich (Extended Play) here?

We cannot begin by starting with outcomes but starting with the EVIDENCE. That is all we have folks! No one cares what we think!

We're ALL morons! (Yes, including me.)

(That's Part One of being Human.)

Sun, 05/11/2014 - 12:40 | 4748205 ms8172
ms8172's picture

When are they going down then??

Sun, 05/11/2014 - 12:58 | 4748224 AccreditedEYE
AccreditedEYE's picture

Don't hold your breath.

Sun, 05/11/2014 - 13:29 | 4748301 moneybots
moneybots's picture

"When are they going down then??"

 

When the bag holders are positioned and the all clear is given.

Sun, 05/11/2014 - 12:40 | 4748207 yogibear
yogibear's picture

"Devalue the USD by another 90%"

The Federal Reserve's wet dream. In the mean time their telling the public there is no inflation, even if it's double or triple  digits.


Sun, 05/11/2014 - 12:55 | 4748222 Atomizer
Atomizer's picture

Just ask Jim Crammer [sic]. Holiday donations look good for the muppets.

booyah!

 

Sun, 05/11/2014 - 13:38 | 4748322 orangegeek
orangegeek's picture

We are 63 months into this bull run.  That's the longest since 1929.

 

http://bullandbearmash.com/chart/dow-jones-weekly-closes-global-economy-...

 

So if you prefer probabilities over news headlines, it's time to sell and sit on the sidelines.  The BOA chart above shows retailers getting in - I think they are full of shit - I think it's the institutions/hedge funds that are stuck with inventory - and why we have not rolled over yet - the institutions can't allow it.

Sun, 05/11/2014 - 14:03 | 4748385 Quinvarius
Quinvarius's picture

The economy is not going to grow into valuations as long as we have collectivists and central planners taxing and interfering.  How do you tell when they are absolutely gone?  Well, gold will be around 8k an ounce.  After gold reprices, there will be base capital and collateral in the system and people won't excessively funnel money into gold savings.  They will spend it.  80% of the world saves in gold.  It is just the way it is.  Devaluing savings creates a depression.  The central planners have to accept this cycle, as well as all the rest of them, and stop worrying about it.  The economy is two individuals making a transaction.  Not two individuals, the governmnet, and banks propped up by the Fed making a transaction.  Just set it free.

Sun, 05/11/2014 - 14:16 | 4748421 slightlyskeptical
slightlyskeptical's picture

Chart shows P/CF for the median company at about 11.5 times. That equates to a 8.5% cash flow yield. Compare that to the 10 year Treasury at 2.6% and you don't have to be a genius to see why markets will likely go higher. In a time where interest rates have never before been so low for a prolonged period, there is no reason why stocks during the same period shouldn't trade at record high valuations for an extended time as well.

We had a one quarter recession which I thought would be predicated by a rapidly falling market. Since that did not occur, and it appears that growth may indeed be picking back up, I think being long is the right direction. Yeah maybe this is my Gartman moment. I believe market won't top until we see PE averages above 23-24 or until we see a few rate hikes. Markets could easily be up 50% from here over the next 2 years. that would also put us at about a 3.5 sigma top. NEVER FIGHT THE FUCKING FED! I'm an idiot for doing it even halfheartedly.

 

Sun, 05/11/2014 - 14:43 | 4748480 I Write Code
I Write Code's picture

ZIRP
ZIRP
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Sun, 05/11/2014 - 15:34 | 4748596 Atomizer
Atomizer's picture

You are behind in the times. We now call it CIRP, Charitable Interest Rate Policy. We rebranded the name during Climate disruption phase. This transition didn’t gain much MSM momentum.

/sarc

Sun, 05/11/2014 - 16:12 | 4748696 Cattender
Cattender's picture

Zero is the ONLY way......

Sun, 05/11/2014 - 14:48 | 4748495 BullyBearish
BullyBearish's picture

One word coming, RESET

Sun, 05/11/2014 - 16:44 | 4748764 axel_hose
axel_hose's picture

Somebody's wrong.

Sun, 05/11/2014 - 19:09 | 4749136 TheRideNeverEnds
TheRideNeverEnds's picture

They are super cheap, every tick in the DOW is new lifetime highs.  People can't get enough of em.  Face it, we are going to 36,000.

Sun, 05/11/2014 - 19:11 | 4749143 swanpoint
swanpoint's picture

Being -30% and -50% on PHYS and PSLV hardly hurts anymore. I wonder what it'll be like at -50% and -75% and whether I'll still be married if Sprott liquidates and it all goes to 0.

Mon, 05/12/2014 - 09:27 | 4750471 esum
esum's picture

are stocks cheap...... would you buy a hotdog stand if you had to pay the current owner 14 times one year's earnings? especially if the prospects for earnigs growth are NIL... and top line is shrinking, and government regulations are INCREASING and SOCIALISM is seriously considered a SOLUTION to the problem and the government is owned by crony kickback "capitalists" aka oligarchs..

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