Stocks Are In an Epic Bubble Second Only to the 1999 Tech Bubble

Phoenix Capital Research's picture

The market is in a bubble.

 

By almost any measure, stocks are sharply overvalued. Warren Buffet’s favorite value metric for stocks is Total Market Cap of the market/ GDP.

 

Today we find this metric showing stocks as sharply overpriced. As Doug Short recently noted, only the Tech Bubble is more expensive.

 

 

This is true going back even to 1870.

 

Of course this doesn’t mean stocks cannot rally further. But it doesn’t bode well for long-term returns for the market in general.

 

This is also true from a CAPE perspective.

 

As I’ve noted before, the single best predictor of stock market performance is the cyclically adjusted price-to-earnings ratio or CAPE ratio.

 

Corporate earnings are heavily influenced by the business cycle. Typically the US experiences a boom and bust once every ten years or so. As such, companies will naturally have higher P/E’s at some points and lower P/E’s at other. This is based solely on the business cycle and nothing else.

 

CAPE adjusts for this by measuring the price of stocks against the average of ten years’ worth of earnings, adjusted for inflation. By doing this, it presents you with a clearer, more objective picture of a company’s ability to produce cash in any economic environment.

 

Based on a study completed Vanguard, CAPE was the single best metric for measuring future stock returns. Indeed, CAPE outperformed:

 

1.     P/E ratios

2.     Government Debt/ GDP

3.     Dividend yield

4.     The Fed Model,

 

…and many other metrics used by investors to predict market value.

 

So what is CAPE telling us today?

 

 

The CAPE is at its 3rd highest reading going back to 1890. Only the 1929 bubble and the Tech Bubble were more expensive relative to earnings.

 

Bear in mind… earnings are overstated. Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

 

These practices have only worsened since the “crisis ended.” Corporations have been reducing loan loss reserves, buyback shares via debt, and axing jobs en masse in efforts to juice earnings as high as possible.

 

Put another way, even with RECORD HIGH profit margins, the market is overvalued on a scale rarely seen in the last 140 years. One can only imagine what the REAL CAPE would be if we removed all the accounting gimmicks from earnings.

 

Stocks are in a bubble. And it is one of the largest bubbles in the last century, larger even than the 2007 bubble, which preceded the 2008 Crash.

 

Another Crisis is coming. And based on the size of the bubble today, it will be worse than the 2008 one.

 

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

 

You can pick up a FREE copy at:

http://www.phoenixcapitalmarketing.com/roundtwo.html

 

Best Regards

Phoenix Capital Research

 

 

 

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Toobigtofoil's picture

I recently discovered Phoenix Capital Research so called $0.99 trial subscription to Private Stealth Wealth Advisory newsletter is actually a 13 month subscription costing US $199.98 with a 30 day opt-out option!!
This company writes catchy reports about "dishonest central bankers" but unfortunately they have less than honest ways of scamming readers for subscriptions, such as;

"CLICK HERE TO TAKE OUT A $0.99 TRIAL SUBSCRIPTION"
and; "The offer is that you will pay $0.98 now to explore this newsletter for 30 days."

The clever marketing guys at Phoenix have figured anyone will sign up for a 30 day tial for $0.99, but they dont tell you, in doing so your actually agreeing to a 13 month subscription. When I found out I had been billed US $199.98, for what I thought was a $0.99 one month trial, I contacted the marketing guys and pointed out their deceptive advertizing. The message I got back?...sorry we cant help its your fault!

Please read Phoenix Capital Research newsletters with an open mind understanding when they quote such things as the size of bond markets and the size of the "epic stock bubble" their figures could be easily  misunderstood by a factor of 200%.

 

CarpetShag's picture

do a credit card chargeback

Toobigtofoil's picture

Thanks, I have asked my bank to contest the debit.

new game's picture

i have a boat to sell you all - to get your gold to a safe place...

Comte d'herblay's picture

The crash will come---- will ONLY come--- when Phoenix Capital decides to finally throw in the towel, goes all in long with baby's Christmas club, the college tuition, the second mortgage on the house, and the cash value of his Albertson's coupons for toilet paper.

mtl4's picture

The whole idea of a bubble misses the point of capital flows, you can't have a stock market top when 90% of retail investors are sitting on the sidelines......sorry but market will go alot higher before topping off and then you'll get your crash.  It's not until everyone is on one side of the boat that it starts to roll over and we are definitely not there yet.

FieldingMellish's picture

Prepare for a new record.

we built this city's picture

All this is known! 

 

The only market that is a huge bubble is the bio tech

valuations are high as 2000's tech bubble

If you wanna short an index it is the bio.

markets to achieve valuations of tech bubble could melt up 20 percent more...

So it looks like our friend from P Capital will suffer much more pain....

 

prudent_investor's picture

Here you can find a good collection of well researched sell shorts - preparing to the market crush:

http://prudentvalueinvestor.blogspot.com

Creepy A. Cracker's picture

And we have an epic pumping machine.  Now what?

stranglesnstraddles's picture

Dow and S&P futures are down, get ready for a 1% rally as per usual whenever Phoenix writes an article..

TruthInSunshine's picture

Another (the 867th in the last 5 years) Doom Porn TEOTWAWKI article by Phoenix Capital!

Rally caps on! This Phoenix Capital Doom Porn is bull market rocket fuel.

John Law Lives's picture

I somewhat doubt TPTB that pump markets actually read these Phoenix Capital Research articles.

JRobby's picture

Yawn, call me when it eclipses the tech bubble by 20%. Because: "it's different this time!"

mastersnark's picture

If you aren't first, you are last. Wake me when its at least equal to the tech bubble...

RockyRacoon's picture

Agreed.   All the charts told me was there is still a possible L-O-N-G way to go yet.  Who's to say this time won't exceed both/all previous bubble situations?  It really could be different this time:  Worse than all before.

KnuckleDragger-X's picture

It's always different, until it's not.......