Value Indicators, GDP to Stocks and Price to Sales Ratio….

We like  to study the charts of “value” indicators that show under valuation and over valuation. As you know,  the “value of US stocks to US Gross Domestic Product” is currently between 140% to 150%. In the past this level has led to market declines of 30% to 50% twice in the last 100 years.

 
 
 
The other value type indicator of ”price to sales ratio” is now in dangerous territory……and in the past these levels have led to large stock market declines. The value of the stocks is now at over two times the gross sales of the companies. Oddly similar, this is now at about 30% over the normal level. For example, let’s say that a company “XYZ Company” has one million dollars in sales and carries a market cap of two million dollars.  That is quite high particularly for the overall stock market. 
 
 
 
Too many stocks have been bought over the last six months at high price levels…it may again lead to a painful decline-it has in the past. However, as always there are numerous stocks that are still very undervalued. 
 
 
 
But note that with 1-low interest rates such as we have today,  2-money supply not contracting and  3-the economy not in recession… we do not have the necessity of a major decline despite what these two indicators suggest. 
 
 
 
Of note…….Gold stocks and the hard assets stocks would benefit from a bear market in the Industrial stocks such as the S&P 500 and Dow Jones Industrials.