Stocks are now more overvalued than ever per this measure

Stocks are now more overvalued than ever per this measure

“Therefore, looking at the ratio of market valuations to overall profits suggests ‘P/E ratios are some 80% above the long-term norm,’ [Ned]Davis wrote.”

USAGOLD note: Ned Davis is a highly-respected Wall Street analyst. The 80% figure takes into account overvaluation resulting from corporate stock buybacks. The investing public will largely ignore the astute Mr. Davis like all others who issue warnings about the stock market overvaluation. (Please see the post immediately below.) That said, for those who tend to be more open-minded, the article linked above is worth the time spent.

“I know this because anytime I go on Twitter, the financial pundits are tweeting about stocks. They usually don’t tweet about bonds or commodities or FX. I follow one or two oddballs that tweet about volatility. But it’s usually wall-to-wall stocks. Mostly Farmers’ Almanac stuff about how ‘9 of the last 11 Decembers have been positive,’ and ‘60% of the time it works every time.’”

USAGOLD note: In the internet age, stocks have become an obsession bordering on mania. Dillian makes reference to “popular delusions.” The pros are getting out – hedging their bets with the full understanding that ‘trees do not grow to the sky’, as Dow Theory Letter’s Richard Russell used to put it. The investing public is still gung-ho on stocks. Dillian suggests diversification.

“Have you ever seen in some wood, on a sunny quiet day, a cloud of flying midges — thousands of them — hovering, apparently motionless, in a sunbeam? …Yes? …Well, did you ever see the whole flight — each mite apparently preserving its distance from all others — suddenly move, say three feet, to one side or the other? Well, what made them do that? A breeze? I said a quiet day. But try to recall — did you ever see them move directly back again in the same unison? Well, what made them do that? Great human mass movements are slower of inception but much more effective.” – Bernard Baruch, Wall Street financier (1870-1965)


MarketWatch/Chris Matthews/1-8-2020

Posted on January 9, 2020 |