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Most Overvalued Stock Market In U.S. History – Here’s Why

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Posted by Dave Kranzler

on Wednesday, 11 January 2017 08:14

I find it to be mind-blowing when financial advisors and stock market gurus get in bubblevision or write Seeking Alpha articles and assert that the stock market is good “relative” value right now.   They are either dishonest, unethical or just stupid.  Likely a combination of all three in varying degrees.

Here’s a chart with which everyone is familiar:

Untitled

Based on that graphic, it looks like the current stock market is only the third most overvalued in history, right? WRONG.

The problem comparing the current p/e ratio of the S&P 500 with that of previous stock bubble tops is that the accounting used to produce the “e” is not comparable. Over time, FASB and the SEC have colluded to make it easier for companies to hide losses and report non-cash income as GAAP cash flow and earnings..

As an example, in 2010 FASB issued a bulletin which changed the way big Wall Street banks were allowed to account for bonds and other forms of debt issued by others that are held as assets. Originally, banks had to market their bond/debt/loan holdings to market and accrue any market to market gains or losses at quarter-end as either income or expense. FASB decided to let banks classify any and all debt as “hold-to-maturity,” and allowed banks to hold this debt at face (maturity) value without ever marking to market. Any debt that was marked below maturity value (par value) could be marked up to par and moved into a “held to maturity” account. By doing this, the banks created non-cash gains in these holdings that was counted as income. Banks hold $100’s of billions in bonds/loans and, starting in 2011, this rule change allowed banks to create billions in phantom, non-cash income. This of course translates into lower p/e ratios.

There’s several areas of accounting over the years that have accomplished a similar feat for all publicly traded companies. The problem is that it has rendered p/e ratios over timeincomparable. Of course, NO ONE points out this fact and certainly any Wall Street analyst would be fired if they went on a truth tirade. The bottom line is that, looking at the p/e ratio graph above, we don’t know how the current p/e ratio for the SPX compares with the p/e ratios at the market peaks in 2007 and 2000 and 1929. What we do know is that the current p/e ratio is significantly understated relative to the p/e ratios in 2007 in 2000 because earnings are overstated relative to those years because of the accounting gimmicks that enable companies to boost GAAP non-cash earnings.  It could be that the current p/e ratio is the highest on record if we could make an “apples to apple” comparison of p/e ratios across time.  In fact, I would assert that applying standardized GAAP across time would prove that the current market is more overvalued than at any time in U.S. history.

The above analysis is an excerpt from my latest issue of the Short Seller’s Journal.  In this issue I presented two retail stock ideas for shorting.   One of them was down 3.7% today and the other was down just under 1%.   In the past couple of issues I have explained in detail why the retail sector is short opportunity right now.  But that window will close quickly as more companies do what happened to Macy’s and Kohl’s last week.    You can get more details on the SSJ and subscribe clicking on this link:   Short Seller’s Journal.


....related: Marc Faber: Investors are on the Titanic but there's still a few days to travel



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Asset protection

Radical Self-Honesty

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Posted by Andrew Ruhland

on Monday, 09 January 2017 17:32

honesty

January is a time for reflection and planning. While it’s easy to admit we need to lose a few pounds or watch less TV, matters related to our skills and competence strike closer to home, i.e. closer to our ego. This is where it gets delicate, and also where real learning can lead to genuine progress. Courage always precedes radical honesty, especially when WE are the subject.

In the last ten weeks since I started writing again for the Money Talks blog, this is the kind of beautiful and painful honesty I’ve heard from readers who have contacted us.

“I/we started self-managing in 20XX because our advisor/broker didn’t prevent big losses when X or Y happened, and we felt like our trust was betrayed. Since then, I’ve done pretty well investing in some things, especially if it’s related to my work, but then I get busy with work or family life, and I don’t follow my own rules. Sometimes I struggle with patience and sell too soon. Other times I freeze when a position goes south and I excuse it because I like the company or the sector. That happened in gold/oil/technology stocks, and I sat there and watched $ X just evaporate. I know how this works intellectually, but my emotions take over when it’s real money in real time. And sometimes – like now - I feel like a deer in the headlights, too scared to get invested again because the world looks like it could come unravelled any second. I’ve made some very costly mistakes over the years and we cannot afford to keep making mistakes with our retirement funds. I don’t enjoy doing it anymore, I’m not that good at it, and we’re looking for someone we can trust with our life savings. What makes your firm different?”

All these people have real courage. Some folks are much harder on themselves. It’s both a privilege and a responsibility to hear their stories. Helping real people solve real pain and avoid repeating costly mistakes is what we specialize in…and it’s why we’re passionate about what we do.

Below are some questions for you to ask yourself…and maybe even share with your spouse. This is my Gift of Radical Honesty to those with the courage to unwrap the package. What you choose to do with the gift is completely up to you.

  • Do I genuinely enjoy managing our portfolio? Is it deeply satisfying, given the time I’ve invested?
  • Have I really made additional gains (or prevented additional losses) that more than make up for the investment fees we’re saving by self-managing? Does this extra return (or loss avoidance) fairly compensate me for my time and energy?
  • Is keeping up with market information still fun and stimulating, or has it started becoming more of a burden? Is it bordering on being an unhealthy obsession?
  • Have I been “beating the markets” consistently? Is this a realistic or necessary expectation?
  • Does the sense of being independent and “in control” outweigh the work required, or is “the thrill” gone?
  • Have I been generating the rate of return our family requires? Do I know the return we actually need to achieve our goals?
  • Am I able to consistently shut off my “investment mind” and be fully present at work, engaged with family and friends, with enough time left over for personal pursuits? Or do the markets come flooding back into my consciousness whenever I start to slow down?
  • Is managing our own portfolio feeding the healthiest parts of me, or has it shifted to highlighting my weaknesses (I’ve lost enthusiasm for this, I’m not very good at this, I keep making the same mistakes, etc.)…and it’s getting painful?
  • Do I find myself resenting the time it takes to properly manage our money? Or have I gradually stopped watching things closely and then had things go sour because I wasn’t paying close attention?
  • Is the idea of admitting to someone that I need or want help too painful to bear, so I’m just going to try harder, buy another research subscription, and put more time into it…or is it time to ask for help?
  • Is managing our own portfolio making me – and those around me - healthier, wealthier and happier?

Please watch Mike’s emails and the Money Talk blog over the next few weeks. I’ll be following this article up with questions to ask yourself about how you might select a new advisor, and questions to ask any advisors you might interview for the job.

Cheers,

Andrew H. Ruhland, CFP, CIM

http://integratedwealthmanagement.ca/



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Asset protection

Marc Faber: Investors are on the Titanic but there's still a few days to travel

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Posted by Marc Faber - Gloom Boom & Doom Report

on Tuesday, 03 January 2017 17:37

Screen Shot 2017-01-03 at 4.21.50 PM"We're all on the Titanic, but the Titanic still has maybe a few days to travel before it collapses so we might as well enjoy the journey," Faber, also known as Dr. Doom, told CNBC's "Squawk Box." 

....watch more HERE

....related:

Bursting Bond Bubble Greatest Risk To Secular Bull Market



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Asset protection

What Could Go Wrong?

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Posted by John Mauldin - Mauldin Economics

on Monday, 02 January 2017 06:36

Trumping DC
Canadian Bubble
Crowded Exits in Europe
Asian Angst
DC, Florida, the Caymans, and a Few Final 2016 Thoughts

“Experience is simply the name we give our mistakes.”
– Oscar Wilde

“Mistakes are the usual bridge between inexperience and wisdom.”
– Phyllis Theroux

“Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do – and nothing is more unpredictable.”
– Thomas Sowell

161231-01

We’ve reached that wonderful time of year when financial pundits pull out their forecaster hats and take a crack at the future. This time the exercise is particularly interesting because we’re at several turning points. Any one of them could remake the entire year overnight. I should probably say up front that I am actually somewhat optimistic about 2017 – optimistic, meaning I think we Muddle Through – but that’s a lot better outcome than I was expecting five months ago. And since my annual forecast has been “Muddle Through” for about six years now (which has been turned out to be the correct forecast), then, given all the speed bumps in front of us, this could be the year where I’m spectacularly wrong. Midcourse corrections may be warranted.



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Asset protection

Three Mini-Bubbles Are Bursting

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Posted by John Rubino - DollarCollapse.com

on Thursday, 29 December 2016 07:47

4716964809 d5b0b6aa63The world has gotten so used to ultra-low interest rates that even economists and money managers seem to be shocked by what happens when rates start creeping back towards normal levels.

Some of the mini-bubbles that formed in an essentially free-money environment are now starting to leak. Notably:

US Housing

While the action in this sector is nothing like the raging mania of the 2000s, prices in many hot US markets are at all-time highs, while affordability is at or near an all-time low. And now rising mortgage rates are beginning to bite.

Pending Home Sales Reflect "Dispirited" Buyers



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