Stock Market Valuation still far too high..
If we use every major gauge of historic valuation for this stock market, it faces what would be a normal decline of 35% to 40% from the recent top. As the old time New York Yankees manager Casey Stengel would often say…”you can look it up.” Those gauges are the total value of the stock market to Gross Domestic Product; Stock Sales by officers and directors; price to sales ratio for the overall stock market (at its’ highest ever!) among other indicators suggesting that investors take some profits and wait for cheaper buying opportunities or look for stocks that are undervalued.
Sure, for several years we have suggested that 20% plus market declines should have occurred to be followed by rallies back up. Those interim corrections would have prevented the stock market from carrying such dangerous overvaluation today and offered investors opportunties to invest when stocks are undervalued and “on sale.”
Moreover, it does not help the situation that much of the business media act like bench jockeys constantly rooting the stock market up to overvalued levels yet rarely ever suggesting taking some profits.
But why do stock market periods of severe overvaluation occur? Often because the brokerage and investment industry need activity, commissions and business volume. Those industries cannot survive on prudence, low volume and patient value investing. The activity meter must be kept running. Manipulation has fed the upmoves along with the central banks buying stocks. But that overvaluation now faces a stark reality. That reality is that stocks often sell at undervalued price levels and at times sell at undervalued price levels…..but eventually they return to proper valuation levels.
Odd as it may seem, for ourselves we are always near fully invested. However we do take money out of the market and look for undervalued stocks…..and when stocks we own suffer brutal moves in price, we dollar cost average. There are always hundreds if not thousands of stocks in Canada and the U.S. that are exceptionally undervalued.
By the way and note well that our analysis has suggested that we have been in the early stages of a bull market in commodities and commodity related stocks. That is not a positive development for the industrial stocks such as those in the S&P 500 and Dow Jones Industrial stocks. It should be positive for gold and other commodities’ stocks.
And?….the cycles! Oh boy! I would be remiss if I did not mention that several cycles clearly forecast that we are about to commence a brutal long term bear market in stocks with a weak economy.
Below is what we put up here last month, please take five minutes to read it.
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