Views from high valuations…..

                                     

1…We remain nearly fully invested in stocks that have declined to price levels that we find  undervalued. We have said too many times that the overall stock market based on several significant gauges is wildly overvalued in too many (but not all) publicly traded stocks. We invest when specific stocks have suffered severe declines and by our analysis are severely undervalued. Undeniably, they often decline even more, but that has always been our method.

2… Using major value gauges: stock market dollar value to Gross Domestic Product, Insiders heavy selling of their own shares, Price earnings ratio using GAAP is 25 times earnings (GAAP reflects the true earnings), market’s price to sales ratio, the market is approximately 30% overvalued. Payback cold be brutal.

3…Some Business television stations, which can be very useful and informative should suggest prudence and patiently waiting for stocks to correct down in price to good buying levels. One station never did and now they compete with “Leave it to Beaver” and “Lone Ranger” reruns for viewership. Bad advice on market direction and horribly overvalued on air stock picks ruined the credibility that they thought they had and investors have not forgotten.  Average investors are far better than many of the so called experts. For years, floor traders, investors and analysts would ask us by phone or email as to “how can they put that person on.”  Clueless!….still……   

4… Interest rates are artificially and manipulatedly low. Near zero rates and Quantitative Easing have been enablers supporting the market as well Central Banks buying stocks. If the  T-Note were at a 4%, the stock market could not sustain current levels. Investors have been taken advantage of by Fed policies and bankers by less than one percent rates in CD’s. Trillions in interest payments profits have been made by the banks while the public receives near nothing.    

5…Opportunities for exceptional capital gains are always present but many stocks have been bought at overvalued prices. Many of the best performing stocks now sell at very high valuation levels which often end sadly. History shows that “paying up” generally leads to disasters.

6… Large brokerage houses must continue to aggressively recommend investing despite overvalued price levels; brokerages cannot afford bear markets which bring less volume and low to no profitability. At the same time, many funds must be nearly fully invested in the market despite the high valuations; they cannot remain in cash as they are competing. Despite high prices they must pay whatever the prices are as holding cash is not permitted….not good!

7…We had expected the market to suffer 20% to 30% corrections over the past three years, each time to move up again. Those normal corrections would have prevented the stock market from its current very overvalued level which makes it very vulnerable to harsh corrections.(that is history)

8…In general, a bear market in industrial stocks would be very positive for many gold and silver mining stocks, keep that in mind. And no major brokerage house or bank will acknowledge a bull market in gold or silver as that would suggest a bear market for industrial stocks as with it would come low profits and possible losses.

Keep this in mind…Bull markets do not end due to overvaluation. They end with interest rates rising sharply, often with a decline in the money supply or a recession. Note that dangerous market tops are usually accompanied by overvaluation and euphoria. Are we seeing that now? The artificially low central bank engineered rates have prevented the stock market from normal harsh corrections or bear markets.

In the meantime, insist on value and invest in what is undervalued not what is popular.  And of course, take money off the table from time to time.

***KEEP IN MIND THAT ONE THING THAT NORTH AMERICA CANNOT AFFORD IS A BEAR MARKET IN STOCKS. THE CONSEQUENCES WOULD BE DISASTROUS.