Are You Being Bamboozled?

Some experts pretend that the 2020 stock bubble has its roots in what companies are earning right now or what they will earn going forward. Is that even possible when half of those corporations have no ability to forecast their business profitability going forward? In...

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Greed’s Epic Comeback

Consumer confidence has bounced back from the lows seen during the depths of coronavirus despair. Conversely, business confidence continues to descend. Do businesses know something that consumers have yet to figure out? Possibly. For example, the jobs picture may be...

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The Nasdaq is a Crazy Train

Some analysts have resorted to rationalizing the stock bubble with never-before-seen valuation measures. To wit, if one ignores the past 12 months (Trailing P/E), and disregards projections for the next 12 months (Forward P/E), the 24-month forward “guestimate” for...

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The Long and Winding Stock Recovery

Occasionally, there are volatile sell-offs on renewed coronvirus fears and/or tensions with China. That happened here on Friday, June 26. Yet the Nasdaq still logged an all-time high time this week. Meanwhile, the S&P 500 is only 9%-11% off its February record....

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The Nasdaq Crazy Train

Here in 2020, market participants are willingly paying an enormous premium for profits. In particular, corporate profitability is roughly the same as it was nine years ago. In Q2 of 2011, however, the S&P 500 traded around 1300, not 3000+. The speculative risk...

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No Stock Price is Too High

Some analysts have resorted to rationalizing the stock bubble with never-before-seen valuation measures. To wit, if one ignores the past 12 months (Trailing P/E), and disregards projections for the next 12 months (Forward P/E), the 24-month forward "guestimate" for...

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Ree-coh-la… Nee-coh-la (NKLA)!

Today, Bloomberg News suggested that the CEO of wannabe electric truck maker, Nikola (NKLA), lied at a 2016 event about having a big-rig prototype that was "fully functional." The stock bubble barely blinked. In fact, NKLA actually rose 1.8%. The company has yet to...

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No Reckoning for Wall Street’s Worst

Wall Street is unabashedly loony at the moment. Stocks remind me of Clark Griswold's famous line in National Lampoon's Vacation, “This is crazy, this is crazy, this is crazy.” In every previous recession, corporations reduced their leverage to shore up their balance...

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“This is Crazy, This Is Crazy, This is Crazy”

In every recession, corporations reduce their leverage to shore up their balance sheets. Until now. US corporate debt is heading for 50% of GDP. That's not merely a new record... it's other-worldly. In 2000 as well as 2008, bubbly asset price excesses reversed course...

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No Jobs, No Profit Margins, No Problem

Roughly half of all U.S. employees work for small businesses. What's more, small businesses account for roughly half of net job creation. So the fact that small businesses anticipate starting 2021 with three-quarters of the head count that existed at the start of 2020...

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Way Beyond Overvalued And Extremely Overbought

Not only is the 2020 stock bubble trading at the most overvalued levels in U.S. history, but stocks are also extremely overbought on relative strength (RSI) indications. Investors would be hard-pressed to ignore the number of S&P 500 constituents that are trading...

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Irrational Stock Prices Meet Exuberant Investors

Reasonable estimates suggest that our consumer-based economy will not recover its 2019 GDP glory until 2023. Why stocks trade at 2023 levels in 2020 is bizarre. In truth, households continue to struggle to pay regular bills, with more than one third looking to delay...

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Reopening the Economy is Not Enough

Americans will surely spend some money when the economy "opens back up." Yet, how much will they consume? As it stands, households are dramatically increasing their savings. And according to a number of surveys, approximately 40% of savers are doing so because they do...

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The Higher They Climb…

Households continue to struggle to pay regular bills, with more than one third looking to delay rent, cell phone charges and other utility payments. That will put a strain on discretionary spending. They certainly don't seem to be in the market for new cars. And...

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Small Stock Fever

Suddenly, small caps are all the rage. Never mind the job losses or the unfathomable overvaluation. Investors are choosing to pay the highest price in history for small company exposure. Granted, small stocks are still down roughly 15% from all-time highs. And they...

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Stock Bubble Sidesteps the Tough Questions

The S&P 500 crossed back above the 3000 marker, despite extraordinary stock overvaluation and economic malaise. It is almost as if investors have decided that the hope for a vaccine can override the credit cycle's downturn. For example, when ratings agencies...

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The W-Shaped Recovery For U.S. Stocks

The notion that the bear market for U.S. stocks has ended is fanciful. For example, is it really the case that financial firms are on the mend? They're restricting access to credit, increasing reserves for loan losses and showing few signs of resilience beyond a...

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The Most Expensive Stock Market Ever

Many describe the U.S. as a consumer-oriented economy. That is because consumer spending, not manufacturing, accounts for two-thirds to three-fourths of economic growth. It follows that consumers need to spend for the economy to do well. Yet, at the moment, one-third...

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Stock Bubble Ignores Consumer Discomfort

Correlation may not be causation. Nevertheless, there has often been a high correlation between the movement of the Consumer Comfort Index and the stock market (S&P 500). Until now. Despite Consumer Comfort plummeting more than 50%, the S&P 500 has rallied...

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Buffett and the Optionality of Cash

Can trillions of Fed liquidity overcome the probability of a deluge in corporate insolvencies? Fed Chairman Jerome Powell just acknowledged that additional government fiscal stimulus, not Fed stimulus, may be the only way to lessen this pain. “The passage of time is...

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The Stock Bubble’s Price-to-Book

In 2016, oil prices fell dramatically, sending shivers down and up the spines of energy bondholders. Investors worried that a slew of energy companies would go belly up. In 2020, weak demand for oil is only part of the economic concern. Fragile demand across a wide...

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Maximum ‘FOMO,’ Minimum Scrutiny

The most recent data on revolving consumer credit showed a record decline by $28 billion in March. That will continue to get worse as April and May data come in. Essentially, consumers will spend much less and lending standards will keep tightening. Of course, the...

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The Great Disconnect: Stocks Vs. Real Life

Leading into 2020, the economy was growing at a modest pace (1.9%). By the end of the 2nd quarter, the economy will have recoiled at its quickest clip (-25%+) since the 1930s. Similarly, at the start of the year, unemployment for working-aged individuals was 3.5%. By...

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Money Oversupply

During the Great Financial Crisis of 2008, the Federal Reserve began adding like crazy to the supply of money (M1) via quantitative easing (QE). The Fed effectively added trillions of dollars to M1 Money Supply over the 2008-2019 period, indirectly supporting stock...

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The Consumer Will Not Recover Quickly

Consumers who do not express confidence about economic prospects are likely to decrease their spending. Here in 2020, you'd have to go back to 1973's ugly recession to find more discouraging data. In the 2020 U.S. economy, where consumers account for three-fourths of...

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The Sickly Financial System

In 2008, we learned about the toxic debts on the books of financial firms. And for the most part, those toxic debts were synonymous with mortgage-backed securities. The financial sector via the SPDR Financial Sector ETF (XLF) weakened relative to the S&P 500...

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When Lenders Tighten The Reins

Lenders continue tightening their belts. For example, it's getting harder and harder to procure a jumbo mortgage loan, as its availability has cratered by 37%. Even if one qualifies for a jumbo, he/she will see higher rates than conventional loans for the first time...

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Is the Nasdaq Being Nasty?

The Nasdaq's unique status grows curiouser and curiouser. Here in 2020, the market capitalization value for Nasdaq-listed stocks surpassed the collective value of ALL foreign shares in existence. It's as if tech mania can do no wrong. During the raging stock bull, you...

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‘The World is More Than 15% Screwed Up’

Howard Marks is a billionaire investor as well as the top dog at Oaktree Capital Management. He views April's stock market rally as "inappropriately positive." Mr. Marks specifically pointed to the worst pandemic in 100 years, extraordinary recessionary pressures...

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Oil Prices and the Stock Market’s Reaction

Events that we have never witnessed before are coming to fruition in the current economic downturn. For instance, for the first time ever,  WTI crude oil futures traded at a negative price. Perma-bulls are already pointing out that the technical anomaly does not mean...

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Revisionist Market History

In the last three weeks alone, nearly 17 million made it to the jobless claims tally. There are likely another eight million coming over the next two weeks. Net result? Unemployment is likely to hit 20%. Think about the adverse impact on consumption. People will need...

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Retracement

Retracements represent short-term rallies against the primary trend. Yet once the retracement rally exhausts itself, it returns to the primary trend. (In this instance, we should see a return to the bear market downtrend.) The retracement rally to watch? 2811 on the...

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How Long Before the Fed Buys Stock ETFs?

Corporate debt downgrades are accelerating. The three-week tally for unemployment claims hit 17 million (4/9/20). And annual rate estimates for 2nd quarter GDP are circling around -30%. Yet the data points have not stopped the Federal Reserve's resolve to reflate the...

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Stock Market Bears Reward Patience

They call ’em, “Fallen Angels.” They’re bonds that the credit agencies demote from investment grade (IG) to high yield (HY). Unfortunately, there’s nothing angelic about a wave of downgrades happening all at once. And that’s what transpires in recessions. For example,...

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Things That May Be Cheap Frequently Get Cheaper

It has been 20 years since the tech bubble burst. And it has been 12 year since the Bear Stearns bailout ushered in the Great Financial Crisis of 2008. Lost in the shuffle? Long-term investing results. Over 20 years, “risk-free” Treasury bonds have handily...

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Long Before COVID-19 Struck

The financial media would like you to believe that COVID-19 is the sole reason for economic hardship and financial market losses. Unfortunately, few outlets have been willing to dig deeper beneath the surface. For instance, before corona was a "thing," consumer...

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Stocks, Bonds or Gold?

It has been 20 years since the tech bubble burst. And it has been 12 year since the Bear Stearns bailout ushered in the Great Financial Crisis of 2008. Lost in the shuffle? Long-term investing results. Over 20 years, "risk-free" Treasury bonds have handily...

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Three Flies in the Stock Bubble Ointment

Quant funds, those that rely on algorithmic or systematically programmed investment approaches, account for roughly 25% of all all U.S. stock trades. Some estimates place that percentage closer to 50%. Either way, the quant fund impact is substantial. It follows that...

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“Bottom Timers… Start Your Engines!”

I have never understood the purpose of year-end price targets for the stock market. Every bank issues them. And each year, they offer eternally optimistic views on how the 365-day period will play out. (There’s never a bear in the picnic basket!) The banks are not...

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Bull and Bear Price Targeting

I have never quite understood the purpose of year-end price targets for the stock market. Every bank issues them. And each year, all of the banks offer eternally optimistic views on how the 365-day period will play out. (There's never a bear in the picnic basket!)...

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The 20-Year Stock Bear

U.S. investors tend to think in terms of what is happening stateside. Yet many of them have a fair amount of overseas exposure. Take the popular Vanguard Target Retirement Fund 2030 (VTHRX) with $40,000,000,000 under management. That's $40 billion with a "B." VTHRX...

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Trying To Call The Bottom

Popular media personalities wanted you to believe that this bear market would be "stick-saved" by the Q4-2018 bottom. Yet hope is not a bear market survival strategy. Even the idea that we'd see a miracle turnaround in 2020 the way that we did during Christmas in 2018...

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Well, That Escalated Quickly

Yes, I knew that the Federal Reserve had blown a massive stock bubble. And yes, I started this blog to bring more attention to the dangers of central bank efforts to create a wealth effect. Bubble specifics notwithstanding, I can't say that I anticipated the wealth...

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Classic Signs: Pot Stocks and Bitcoin

What did the markets require for a Friday bounce? A trifecta in stimulus. The Fed announced its formal intention to print electronic credits to buy Treasuries all across the Treasury bond curve (a.k.a. "QE"). Congressional reps as well as White House spokespeople...

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Stocks Give Back Several Years of Tax Cut Stimulus

Remember the Tax Cuts and Jobs Act of 2017? Small- and mid-sized corporations should have used the extra money on capital expenditures and debt repayment. Instead, most chose to spend on stock share buybacks. Profitability hopes soared in 2017. And through the magic...

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The Myth of a Strong Consumer

Theoretically, a strong consumer would be well-positioned to acquire a host of durable goods. They should be able to purchase everything from appliances to furniture, electronics to sporting goods, jewelry to medical equipment. Would it surprise you, then, that...

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Is The Stock Bubble in Danger of Exploding?

The 2020 stock bubble is in trouble. Here are several telltale signs: (1) The CBOE's VIX Volatility Index recently rocketed in ways that few could have imagined. (2) A zero-percent yielding precious metal has broken out to multi-year highs. (3) Due in large part to...

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Widening Spreads

The 2020 stock bubble has yet another hole to patch... widening credit spreads. In particular, the spread between investment grade bonds via LQD and junk bonds via HYG are expanding. High yield credit (HYG) outperformed investment grade (LQD) up until the 3rd quarter...

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Who Believes in Coincidences

During the "Great Financial Crisis" (GFC) of 2008, the S&P 500's dividend yield surpassed the 10-year Treasury yield. This relatively rare event has happened a few times since. In March of 2020, however, the S&P 500's dividend yield has started to...

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Dow Theory Sell Signal

Dow Theory has been a popular tool on Wall Street for 100-plus years. It considers two significant market indexes -- the Dow Jones Industrials Average (DJI) and the Dow Jones Transportation Average (DJT). Some theorists say that when "lower highs" are immediately...

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Margin Debt Madness

A mesmerizing jolt of leverage in late 1999 topped out in March 2000. That same month, the S&P 500 hit its all-time bubble peak. A similar surge in leverage began in 2006. Margin debt peaked a mere three months (July 2007) before the stock market's high water...

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Nothing Ventured, Nothing Gained

Venture capital is in free fall, down 51% in just eight months.  Otavio Costa notes that two of the barometer's components have nosedived in the last three months alone -- deal counts (-40%) and early financing (-54%).      

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Don’t Start My Business Up

The Bloomberg U.S. Startups Barometer is a weekly indicator that tracks the well-being of the environment for private tech companies. The index peaked at 1545.32 on June 24, 2019. On February 10, 2020 it fell to 833.74. The Bloomberg Startups Barometer may only be...

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Why Main Street Can’t Afford Wall Street

Proof positive that the Fed manipulation of rate policy has done little for the typical American. Workers must put in nearly 130 hours to afford a single share of the S&P 500. Why is that significant? It’s approximately 3x more than it was just 10 years ago. In a...

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Feverish Stock Speculation

A near-record stretch of calm has ignited options traders’ desire to buy speculative call options. Over the past 6 weeks, they’ve bought (to open) 70 million more contracts than they’ve sold (to close). According to Sentiment Trader’s data, there has never been...

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You’re Gonna Buy That Junk?

This week, the yield on an index of double-B U.S. corporate bonds (junk) hit a record low of 3.47%. The vexatious combination of historically low yields and disturbingly weak credit protection on junk debt is a humongous warning sign.      

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It’s a Mad, Mad ‘MAGA’ World

It looks like MAGA ate the stock market. No, not the Trump acronym, the other MAGA. Microsoft, Apple, Google and Amazon have soared beyond $5 Trillion in market capitalization. That's 17% of the S&P 500 in four stocks. Before the 2000 bubble burst, Cisco, Dell,...

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Apocalyptic Retail

If the consumer is as strong as many would like you to believe, should the SPDR S&P 500 (SPY) be outpacing the SPDR S&P Retail ETF (XRT) by 3000 basis point (30%) in two short years? E-commerce explains some of the discrepancy. And the erosion of...

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Lies, Damn Lies, and Accounting Tricks

Corporations should use generally accepted principles (GAAP) when reporting their earnings. Instead, they prefer to discuss "non-GAAP" earnings to make profits look better than they are. So what happens when you strip away the chicanery of non-GAAP to look at GAAP?...

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The Iron Rule: Regression to the Trend

The stock bubble peak in 2000 marked an unprecedented 128% overshooting of the trend. That was leaps and bounds worse than the price move above the trend in the bubbles of 1901 and 1929. For most of the 21st century, though, the Federal Reserve has done everything in...

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Mall Space

As a result of several factors such as the rise of e-commerce, changing consumer behaviors and rising rents, shopping malls have been hit particularly hard over the last decade. The mall vacancy rate in the U.S. is now at an all-time high of 9.7%, according to Reis...

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In the Long Run: Valuations Drive Stock Returns

The S&P 500 clearly sits in the top 5% of historical valuations on at least eight different measures. Price-to-sales, price-to-book, 10-year P/E, EV-to-EBITDA, EV-to-Sales – it almost does not matter which metric you choose. They’re all flashing a cayenne pepper...

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Turning Japanese? I Really Think So

A heavily indebted country with debt-to-GDP north of 100%. That’s like making $100,000 per year while carrying a credit card balance of $100,000. Tack on an aging demographic that has been drawing down at an ever-increasing rate on social benefits. Cap it off with an...

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Why Worry? Lower Interest Rates Solve Everything!

The world's massive debt-to-GDP ratio is, in many ways, unimaginable. 322%! Countries with limited borrowing capabilities could face extraordinary hardships in meeting financial needs. And the refinancing risk? A total of more than $19 trillion of syndicated loans and...

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Debt Cycles Matter

Corporate debt as a percentage of GDP correlates with recessions and market tops. In every credit cycle, excessive leveraging leads to rapid deleveraging to restore balance sheets. Indeed, the last three recessions (as well as their corresponding stock declines)...

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Proof of Death: Corporate Profits Flatlined

“Bubblicious” evidence is blindingly glaring when one examines the disconnect between S&P 500 stock prices and corporate profits. In the late 1990s, stocks rocketed (green line), even as profits had flatlined (red line). In the late 2010s? Same exact thing. The...

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Eeeeeeee Bit What?

The total value of companies (Enterprise Value) in relation to profits (EBITDA) has surpassed the bubble peak from 2000. No stock bubble here?      

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The Uneasy Consumer

Consumers may drive 70% of U.S. economic growth (GDP). And consumers may be quite confident about the present-day economy. On the flip side, the difference between consumer expectations for the future and current consumer conditions is at levels seen just before...

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It’s Only a Manufacturing Recession

Wall Street tells you to forget the manufacturing segment of the U.S. because we are primarily a consumer-oriented society. However, manufacturing downturns preceded both the 2001 recession as well as the 2008 recession. Equally important? Goods-producing corporations...

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Money-Losing IPOs

Money-losers. Those were the types of companies that came to the stock market during the late 1990s dot-com boom (and eventual bust). Same thing happened in 2019 as three-quarters of IPOs represented businesses with negative earnings.      

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Stocks Went Parabolic… Dontcha Think?

A little too parabolic. (Yeah, I really do think.) Parabolic moves for the tech sector have never ended well for the stock market. In the first chart, the yellow line show what transpired for the Nasdaq 100 as 2000 approached, as well as the aftermath. The red line...

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Dude, Where’s My DPI?

The Federal Reserve has engineered a variety of asset bubbles by suppressing and manipulating borrowing costs. Leading up to the bursting of 2000’s stock bubble, household assets as a percentage of disposable personal income nearly reached 500%. In 2007’s real estate...

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Just 5 Stocks Control the Market

Back in 1999, General Electric (GE), Exxon Mobil (XOM), Microsoft (MSFT), Cisco (CSCO) and Wal-Mart (WMT) comprised the largest companies in the S&P 500. In 2019, the S&P 500’s “Top Five List” boasted a cornucopia of tech giants, including Facebook (FB),...

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Nothing is ‘Standard’ About These Valuations

There have only been three times in U.S. history when stock valuations bounced three standard deviations off the lows. The 1920s, the 1990s and the 2010s. The 1920s ended with the 1929 stock crash and a four-year bear that eviscerated 90% of wealth. 90% losses....

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Sitting on Stacks of Cash

Warren Buffett is mindful of the stock market’s extreme overvaluation. His holding company, Berkshire Hathaway (BRK.B) has a cash position that is 55% of the value of his portfolio holdings. That’s roughly $128 billion of $233 billion at last count. He hasn’t held...

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Warren Buffett Indicator

Warren Buffett once described market-cap-to-GDP as “…probably the best single measure of where valuations stand at any given moment.” The Wilshire 5000 total stock market capitalization relative to gross domestic product (GDP) is HIGHER in January of 2020 than it was...

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