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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