Sizing Up The Bubble - A Major Inflection Point Is Coming

Tyler Durden's picture

Submitted by John Rubino via DollarCollapse.com,

Fund manager John Hussman is always good for dramatic charts. Here’s a recent one:

This ratio is even scarier than it looks, says Hussman:

Historically-reliable valuation measures now approach those observed at the 2000 bubble peak. Yet even this comparison overlooks the fact that in 2000, the overvaluation featured a subset of very large-capitalization stocks that were breathtakingly overvalued, while most stocks were more reasonably valued (see Sizing Up the Bubble for details). In many ways, the current speculative episode is worse, because it has extended to virtually all risk-assets.

 

To offer some idea of the precipice the market has reached, this chart shows the median price/revenue ratio of individual S&P 500 component stocks. This median now stands just over 2.45, easily the highest level in history. The longer-term norm for the S&P 500 price/revenue ratio is less than 1.0. Even a retreat to 1.3, which we’ve observed at many points even in recent cycles, would take the stock market to nearly half of present levels.

One of the reasons share prices have risen so dramatically relative to revenues is that corporations are earning a lot more on each dollar of sales these days. How are they doing that? By squeezing their workers.

The following chart, from the Economic Policy Institute shows labor’s share of corporate income plunging recently.

The next chart illustrates the same point from a different angle. Workers, it seems, have been producing more per hour but their pay hasn’t kept up as their bosses held onto more of the resulting profit.

A big part of this has been due to offshoring. If you close a factory where the workers make $30 an hour and set up in a place where your new workers make $5, then the $25 difference flows to the bottom line. Other contributors are automation, which is both inexorable and hugely favorable for the guys who own the robots, and the fact that the minimum wage in many states has kept up with neither the true inflation rate nor the increase in free-trade driven corporate earnings.

As EPI’s Josh Bivens puts it:

This 6.8 percentage-point decline in labor’s share of corporate income might not seem like a lot, but if labor’s share had not fallen, employees in the corporate sector would have $535 billion more in their paychecks today. If this amount was spread over the entire labor force (not just corporate sector employees) this would translate into a $3,770 raise for each worker.

For stock market investors, the scary thing about this imbalance between capital and labor is that it’s only temporary. As the details and magnitude of the scam have been exposed, the political tide has shifted. At the national level, fed-up US workers have installed an anti-free trade administration that is already tilting the playing field towards domestic workers. At the state and local level, calls for a higher minimum wage are being heard and acted upon. A major French party has even nominated a presidential candidate who wants to tax robots.

So it’s safe to assume that the above charts will develop serious inflection points going forward, as a rising share of profits flow to the nether regions of the org chart and investors respond by lowering the value they place on a given dollar of corporate revenues.

As Hussman notes, just a return to 1990s valuation levels would cut the average US stock in half.

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Bill of Rights's picture

So many distractions That this could take a turn for the worse and hardly no one will notice.

Croesus's picture

Crash is coming...they need to pin it on somebody other than themselves, and Trump's the man they're going to use.

It'll cue the "Snowflake Revolt".

Bill of Rights's picture

Sweet should be good for Bonds I'm looking for a lower rate

BigCumulusClouds's picture

When the 500 goes the flight to safe will not be to bonds that pay minus relative to inflation. It will be towards precious metals and the mining shares. Third party risk will be too high with all the lost revenue from a collapsing stock market.

Bad Lieutenant's picture

How many years will this "truth" just keep remaining fiction?  4? 5? 6? 7?  We're at 8 right now, by the way. When will the dam break?  Or will the usual merry men just get payday after payday while finantial levitation continues for another ten years.

Lizardking's picture

Yes, that is exactly what will happen. 8-10 more years. Maybe less but I doubt it.

Lets Buy The Dip's picture

cool what your thoughts, So if we zoom back 100 years, this chart below shows that statistically speaking after a major election and a NEW PRESIDENT is sworn in, [USA] when we look back, the stock market usually sees ALOT OF BEARISHNESS or SELLING activity in the MONTH OF FEBRUARY!  PROOF! check out the chart ==>  http://www.bit.ly/1fMcakI

So although 2017 might be a bullish year, we could be about to see SERIOUS TROUBLE coming to stocks / stock market. 

Lynx Dogood's picture

As Europe crashes the damned thing will go higher. They have nothing else to put there money into.

Troy Ounce's picture

 

 

1990?

August 15th, 1971!

AliSONY's picture
AliSONY (not verified) Croesus Jan 31, 2017 9:34 PM

Best comment  I have seen from you.

chosen's picture

I am buying aggressively when the Dow hits 3,000.

devo's picture

8k is about fair market value. 3k would be a nice price.

Jack Napier's picture

Allowing other companies to use your money how they see fit is asking to be fleeced. Being your own central bank is the only way to be in control. Why let a bunch of snake oil salesmen hold the keys to your prosperity? Pull the plug and remove their power. Stop using the money used to oppress us. Stop buying garbage assets that enable the money printing machine, at any price, or you give them power over you.

ebworthen's picture

I want to see S&P close at 666 again, because it was so symbolic of Wall Street and the Ponzi.

BigCumulusClouds's picture

With what will you use to buy?

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) BigCumulusClouds Jan 31, 2017 9:45 PM

Sex.

brown_hornet's picture

Had to log in to up vote you. Funny but true.

devo's picture

What's funny is nobody will want to buy it when it's at 3k.

root superuser's picture

Does author even knows what is inflection point? Inflection point is where curve changes from concave to convex (or vice versa) and the author is using the term as if he means local maximum. Inflection point happens when trend is still in motion but the slope starts to decrease.

ebworthen's picture

Decades of retirement and pension money with its head on the Wall Street chopping block.

Turkey for dinner for the banksters and the elites!

highwaytoserfdom's picture

 

Gee ABE has Mrs Watanabe  buying ETF's   what could go wrong..

 

Apple Japan sales were as fishy as Sushi

max2205's picture

Print print print.... it hasn't stopped 

Osmium's picture

No need to sell, Janet's got everyone's back.

Osmium's picture

No need to sell, Janet's got everyone's back.

StevieTexie's picture

She has no interestin helping or rather pumping the markets artifically anymore. I believe she will be made the patsy.

JiggaPlz's picture

Keep printin' scrilla. It's all good.

StevieTexie's picture

Keep up the good work ZH.  Love your stuff.

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Their calls continue to be amazing.

 

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or go to their blog  www.shepwave.com/blogs

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) StevieTexie Jan 31, 2017 10:42 PM

It is SO sad that this failed trader  - ScamWave - has to resort to spamming the  ZH comments section, trying to earn enough money to move out of his Mom's basement.  Time stamped PROOF!...

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StevieTexie's picture

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ShepWave 

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Posted: 1/31/2017 17:27 EST

 

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Was that an Island Reversal we saw on Monday? So far it sure appears to be, huh? But remember, we are always watching for confirmation action and signals. 

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Some of our calls from December in the QQQ /NDX and Gold

 

 

 

AliSONY's picture
AliSONY (not verified) StevieTexie Jan 31, 2017 9:33 PM

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Dr.Carl's picture

The ShepWave analysts are the last of the analysts who still make real predictions that come true.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Dr.Carl Jan 31, 2017 10:39 PM

It is SO sad that this failed trader  - ScamWave - has to resort to spamming the  ZH comments section, trying to earn enough money to move out of his Mom's basement.  Time stamped PROOF!...

Please don't give him the satisfaction of seeing his site hit counter go up from ZH clicks. He's not very bright, but eventually he’ll go away if his spam scam doesn't bring income from ZH.

The spammer has registered the following spam accounts on ZH to promote their scam.  Watch how he uses his multiple spam accounts to give himself thumbs ups and "talk" to himself, pretending to be multiple people praising ScamWave. - 4Xleverage, AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, FRLEPU, Irvingm, jasony, John Beau, KanSass, KC Spike, lostinhedge, MadhyaBharatx, Marilee, MexInvest, MikeM54, Miss Lou, Mon T, P Christmas Carole, Penny Trader, Pinky and the Brain, PUNE,  RoBERTAZ, RonnieM, RudolPHDs, Sonya B59, Stan Your Man, StevieTexie, Timming, Van G, Virginia Wooolf, wisetrader224, and xantippa

allamerican's picture

DT commented-tweet today on china and japan using US "Market Planning" and currency valuations.. dollar gassed all day taday.

labor compression boosting revs leaves a cold sweat if expansion of available labor force becomes once again competitive.

user2011's picture

After all these years, why people keep analyzing charts and numbers ?    The market is rigged.  They love to spread fake news and fake trends all the time.  Those crooks are just herding the retail investors for slaughters.     This is worse than casino.    Worse than slot machines.  Slot machines is guarantee return percentage.  Stock market today just take all.

Dr.Carl's picture

You are right for the most part.

 

One analyst left who actually proves accuracy by showing past time stamped charts.

 

https://www.facebook.com/166578775325/photos/a.10153488951800326.1073741...

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Dr.Carl Jan 31, 2017 10:44 PM

It is SO sad that this failed trader  - ScamWave - has to resort to spamming the  ZH comments section, trying to earn enough money to move out of his Mom's basement.  Time stamped PROOF!...

Please don't give him the satisfaction of seeing his site hit counter go up from ZH clicks. He's not very bright, but eventually he’ll go away if his spam scam doesn't bring income from ZH.

The spammer has registered the following spam accounts on ZH to promote their scam.  Watch how he uses his multiple spam accounts to give himself thumbs ups and "talk" to himself, pretending to be multiple people praising ScamWave. - 4Xleverage, AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, FRLEPU, Irvingm, jasony, John Beau, KanSass, KC Spike, lostinhedge, MadhyaBharatx, Marilee, MexInvest, MikeM54, Miss Lou, Mon T, P Christmas Carole, Penny Trader, Pinky and the Brain, PUNE,  RoBERTAZ, RonnieM, RudolPHDs, Sonya B59, Stan Your Man, StevieTexie, Timming, Van G, Virginia Wooolf, wisetrader224, and xantippa

Dr.Carl's picture

You are right for the most part.

 

One analyst left who actually proves accuracy by showing past time stamped charts.

 

https://www.facebook.com/166578775325/photos/a.10153488951800326.1073741...

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Dr.Carl Jan 31, 2017 10:45 PM

It is SO sad that this failed trader  - ScamWave - has to resort to spamming the  ZH comments section, trying to earn enough money to move out of his Mom's basement.  Time stamped PROOF!...

Please don't give him the satisfaction of seeing his site hit counter go up from ZH clicks. He's not very bright, but eventually he’ll go away if his spam scam doesn't bring income from ZH.

The spammer has registered the following spam accounts on ZH to promote their scam.  Watch how he uses his multiple spam accounts to give himself thumbs ups and "talk" to himself, pretending to be multiple people praising ScamWave. - 4Xleverage, AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, FRLEPU, Irvingm, jasony, John Beau, KanSass, KC Spike, lostinhedge, MadhyaBharatx, Marilee, MexInvest, MikeM54, Miss Lou, Mon T, P Christmas Carole, Penny Trader, Pinky and the Brain, PUNE,  RoBERTAZ, RonnieM, RudolPHDs, Sonya B59, Stan Your Man, StevieTexie, Timming, Van G, Virginia Wooolf, wisetrader224, and xantippa

armageddon addahere's picture

Because the news may be fake but the numbers are true. When you can not depend on any other information you can depend on price and volume.

quasi_verbatim's picture

Theres a FEMA camp specially for offshorers.

Last of the Middle Class's picture

Gloom and doom while the Fed still has trillions to spend. It will only happen if and when it's orchestrated. And you can damn well be sure your pink little ass outside of the circle of friends will NOT get the memo.