11 Charts Exposing The Madness Of The Stock Market Crowd

Tyler Durden's picture

Authored by Liabridge Economic Research's Atle Willems,


  • There’s more to stock market valuations than the current level of interest rates.
  • In this article, 11 charts are presented which expose the extraordinary level to which stock prices have dislocated from a range of economic aggregates.
  • The height of these charts should send shivers down the spine of anyone concerned with minimizing losses.

One of the very few good reasons left to buy equities now is historic low interest rates. Broadly speaking, this is not a recent phenomena as it has been the case, from a valuation standpoint applying a more “normal” level of interest rates, for at least the last three years. Many are not making decisions based on hopes and dreams are aware of this fact, but nonetheless maintain a relatively high allocation toward equities out of necessity.

The necessity of a decent return in this historic low interest rate environment has resulted in a desperate chase for yield, often motivated by the current spread between earnings and bond yields.

The chase for yield also demonstrates a lack of investment opportunities since newly printed money has acted more to drive up prices in the secondary market rather than fueling additions to capital goods. This has doubtlessly helped prolong the bull market in stocks as it has had a dampening effect on the business cycle.

But there is more to stock market valuations than the current level of interest rates. Further declines in nominal interest rates are limited, while the upside potential is tremendous in percentage terms. The best one can hope for is perhaps that rates remain near historical lows for a long period of time. Placing your bets solely on interest rates remaining low however requires a portion of delusion.

The nominator in any prudent appraisal of stock prices also matters, though it appears to play a minimal role these days as exposed in the charts below. Most of these charts have one thing in common – they compare stocks to a range of economic aggregates related to corporate sales and with it earnings. After all, earnings per share, no matter how “earnings” are calculated, cannot forever increase or even be maintained due to cost cutting and share repurchases alone.

Some of the charts published below were included in an unexpectedly popular article I published back in February this year – Ten Charts Demonstrating The 2017 Stock Market Euphoria, And One That Doesn’t. Bulls should therefore be pleased as the only thing those charts have demonstrated is that the market has valued low interest rates and positive sentiment more than other fundamentals combined ever since. In other words, those charts look even worse today.

But for those of you concerned with probabilities and minimizing losses, and for those not posing in the glorious light of hindsight, the charts below should send shivers down your spine even more so today than nine months ago, especially given the savings disaster this year which have helped drive U.S. economic activity and stock prices.

My message however is unchanged from last time: “view and decide for yourself.”

Chart 1. Wilshire 4500 & Disposable Personal Income

Chart 2. Wilshire 4500 & Commercial Banks’ Equity

Chart 3. Russell 3000 & Productivity (Real Output per Hour)

Chart 4. Wilshire & Retailers Sales

Chart 5. Wilshire 4500 & Manufacturers’ New Orders

Chart 6. Households Net Worth & Disposable Personal Income

Chart 7. Wilshire US Mid-Caps & M2 Money Supply

Chart 8. Wilshire 5000 & GDP

Chart 9. Russell 3000 & Personal Saving

Chart 10. Market Cap of U.S. Companies & Gross Private Saving

Chart 11. Wilshire 4500 compared to a combination of the Money Supply and a Leading Economic Indicator

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Bonus Chart: The U.S. Stock Market Risk Indicator


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nope-1004's picture

When the currency is debauched and destroyed (as in the Fed member banks are all broke and insolvent so need constant bailouts), is the stock market hyperinflating a sign of that dollar destruction?

It may very well be that we won't see bread at $10/loaf.  But FB and AAPL may go too the moon, in which case could that be called hyperinflation?


Consuelo's picture



And that's all assuming that our difficulties with geo-political rivals remains in its cage...

californiagirl's picture

Nope-1004:  "It may very well be that we won't see bread at $10/loaf."  Perhaps, but you might see the size of the loaf shrink, which is where much of the hidden inflation is these days.  Include the same quantity in your package, but shink the size of each individual item, or fill the container less, and then sell it for the same price, or a minor increase.  Then when the business files it's monthly pricing survey, it looks like inflation is very low or nonexistent.

Late onset ADHD's picture

'surf' the fucking dip...

turkey george palmer's picture

Hard times ahead, pensions health care, insurance and employment will crash as defaults roll outward accross the world. If it comes down to minting trillion dollar coins every 5 seconds they will do it. Nothing will stop them from devaluing the currency. To maintain power.  Your home your job your money will all be gone and you will starve. Or freeze :-)

That's the plan you fucks

Anarchyteez's picture

I just went long.

It’s all clear to short it now!

bottom_line's picture

I'm pretty sure the only way out of this building is via elevator.

SunRise's picture

There is a window over here.

Consuelo's picture



When the Old Man Upstairs decides to take your knees out ---- well, let's just say he does with style...   

All the while making you think everything is just fine...  

adr's picture

None of the charts are accurate because they all include seasonally adjusted goal seeked bullshit that has been padding the numbers for years. 

The real economy has been clouded by a layer of fog so thick you need a chainsaw to go through it. 

Nothing is what it seems to be in Wall St land. 

scaleindependent's picture

Chart Number 10 is very insightful, going back close to 70 years.

Pvt Joker's picture

Hottest stock now is some POS clled "Riotblockchain"  ticker : RIOT.   Used to be a biotech company until a few weeks ago when it changed its name and focus to ride the wave of blockchain technology  (I am not making this up)  Up 42% today.  13 million shares traded after hours.  up about 300-400% in the last 6 weeks.   Maybe this is what GE and Verison should do .  Forget stockbuy backs and dividend.  Change the company name to reflect  tha tlatest thing and BAM , stock goes to th moon

Muppet's picture

At each open, algos compute the increase in their AUM from the prior day and their margin reach.  They then begin buying.  All algos do this.  Buying whenever cash/margin exists; selling whenever profit targets exist. On pullbacks, the algos withdraw, volume evaporates, minmizing the drop.  The algos collectively increase equity prices without consideration of the value of the money involved.  No valuations.  No fundamentals.  Just ones and zeroes.  Just a program.

Bryan's picture

Bah, doomsayers.  This bull market has plenty of legs left -- years and years.  Keep calm and go long.



ArtOfLife's picture

Cry market correction and let slip the charts of bear!