I’ve been writing that the market is overvalued and due for a correction for a few months now. So far I’ve been wrong. There is a hoary old Wall Street quote that says the market can stay irrational longer than you can stay liquid. And it is true.
The market continues to hit new highs despite the evidence. I have a bunch of charts showing how overvalued the market it. Market cap to GDP (Warren Buffets favorite indicator) is the highest it has ever been at 209%.
The percentage of household net worth in stocks is the highest it has ever been.
The price to sales ratio on the S&P 500 is just under what it was in 1999 before the dotcom crash.
Berkshire-Hathaway’s cash position is the highest it has ever been.
After tax income in the U.S. is below what it was in 2019.
Credit card debt is soaring. Defaults are up. Savings are about to go negative. Layoffs are mounting, the quit rate is dropping, and new hires are plummeting. High paying white collar jobs have been stagnant for over two years now.
But I’ve posted that stuff before.
Instead I decided to go back and read some of the stuff I had written after the last market selloff during a time when no one was buying. This is from 2012, written for a quality newsletter called WealthDaily:
“Unemployment is up stuck above 8%… Consumer confidence is at a 10-month low… The average net worth per family is down some 40% from five years ago… The Eurozone is falling apart… The housing markets in Canada and Australia are crashing… And China has massive inventory it can’t sell.
Must Be Time to Buy
I keep my investing plain, and the number one metric to determine if an asset is cheap is simple: Everyone else hates it.
Right now, there is nothing more hated than equities.
Seriously, take a fast poll of your friends. Ask them if they are putting money in stocks…
Nine out of ten of them will say no, it’s a scam, they took all my money, bunch of thieving bankers, etc. — which means we are within two to four years of a buying opportunity like 1981.
Here is the Dow Jones Industrial Average chart going back to the start of time:
As you can see, bull markets and bear markets last one generation (or about 16 years).
The flappers took the Dow up in the 1920s. The Okies brought it down. The silent generation boosted it again… The hippies killed it. The yuppies drove it higher in the 80s and 90s… The hipsters rode it under.
One generation makes money, the next gets killed and will put their money under the mattress.”
In May of 2013 I wrote this:
“Profits Hit Record
In Q4, 2012, corporate pre-tax profits hit a record high of $2 trillion, including $681.4 billion in profits earned abroad.
For 2013 S&P 500 earnings are expected to be $125.45 per share, up 11.7% from $112.30 last year. A P/E of 15 on that earnings would put the S&P 500 at 1,875 by the end of the year. That’s a 17% jump over current levels.
Don’t forget, the past five years have made most surviving companies lean and mean. There’s not a lot of fat that hasn’t been cut. They have plenty of cash to put to work at the first whiff of opportunity, or they can buy up other companies, as well as their own stock.”
Imagine talking about a P/E of 15 on the Dow and it needing a 17% gain to reach it. Today the P/E on the Dow is 27.30. As a reminder the last true market bottom was in 2009. Next year is 2025. If you do the math on that it equals 16 years.
Back then I was convincing readers that they should be buyers and no one would listen. Today, I’m telling readers to sell. Most won’t listen now either.
All the best,
Christian DeHaemer
Outsider Club
You filthy animals:
https://www.outsiderclub.com/animal-spirits-and-the-election/
Warren is out:
https://www.outsiderclub.com/buffett-sells-high/
A good job is hard to find:
https://www.outsiderclub.com/but-baby-i-cant-find-no-job/
