Scratching the Bubble’s Surface
There is a belief on Wall Street that future corporate earnings can only grow in an environment where borrowing is so cheap. Indeed, inflation-adjusted interest rates (a.k.a. "real rates") are negative, and that means companies are effectively being paid to borrow....
So Few Protective Puts, So Many Aggressive Calls
There have been a number of stock bubbles in history. Yet few rival the infamy associated with 1929's epic crash or 2000's tech wreck. Perhaps ironically, today's post-pandemic bubble may be more egregious. For example, an average of four measures peg current...
How a Market Pullback Can Become a Panic
Healthy corporations have manageable debt levels, rising revenue and increasing profits. Less healthy companies? Sales stagnate, earnings diminish and debt loads explode higher. Even before the pandemic, there were signs of corporate stress. Debts relative to gross...
A Penny for Your Thoughts
There has never been a larger wave of equity inflows. In other words, everybody wants in the stock pool. And not just the largest companies with the strongest balance sheets. Volume for the least viable, most aggressive stock assets -- penny stocks -- has rocketed to...
Unnerving Excess in 3 Charts
Extremely easy access to cheap money. That's what inflated the dotcom blimp in the late 1990s. That's what pumped up the housing balloon in the 2000s. And that's what is responsible for the "Everything Bubble" today. How frothy? Here are three charts that delineate...
The Unrestrained Reflation of Today’s Stock Bubble
The stock market appears unstoppable. It is setting all-time records on a daily basis. On the other hand, the number of keyword searches for the term 'stock market bubble' has never been higher. The number of term searches is two times greater than in any other month...
Searching for a Stock Bubble Pin
When money creating powers flood the financial system with cash and cash equivalents, market participants have a choice to make. They can hold the cash, securing a loss in purchasing power if they hold too long. Or they can acquire assets like high-yielding bonds,...
When Will the Game Stop?
The more that global central banks create money (a.k.a. "liquidity"), the more that it overwhelms the supply of stock shares. Too much money is chasing a limited amount of shares. Indeed, the dynamics currently favor skyrocketing stock movement. At least as long as...
Vast Majority Of Insiders Are Selling
Are corporate executives (a.k.a. "insiders") worried that the stock bubble is about to explode? Perhaps. There are more sellers than buyers today than at any previous point in the history of insider transaction data. Executives might be concerned about having too much...
Money For Nothing?
More often that not, commentators describe the U.S. in terms of opposing forces. Democrats. Republicans. The reality? Central planners on both sides of the aisle readily support the reckless printing of money. Granted, people in power may have good intentions with...
Hedge Stock Exposure with Commodities
Household exposure to stock has rarely been higher. At the same time, investors are leveraging that exposure with call options. How much leverage? It is greater than at any prior point in history. On top of the highest household allocation to stock, on top of...
The Ever-Changing Narrative
Despite hyper-valuation reminiscent of the 2000 stock bubble, prices continue to set record after puffed-up record. And they show little sign of slowing down or reverting to a longer-term average. What would happen if stock prices did regress to a mean? The S&P...
Easy Money Consequences
U.S. financial conditions are the easiest that they've ever been. At least according to an index created by Goldman Sachs. In essence, the index assesses things like credit spreads, borrowing costs, exchange rates and interest rates. The verdict? Financial conditions...
Three Christmas Eve Charts
The late 1990s represented a period in history when investors began paying ridiculous premiums to own growth stocks. After the stock bubble burst in 2000, growth stocks in the Nasdaq 100 collectively crashed 80%. In 2020? The investment community is at it again. This...
Bubble Dynamics
You do not have to be a geneticist to understand why the stock market has flourished. The economy may have suffered millions upon millions of permanent job losses. However, when there are 50 additional cents in M1 money sloshing around the financial system since March...
Dow 30,000 and the Permanently High Plateau
One of the most famous social and economic influencers in the 1920s? Irving Fisher. Unfortunately for the celebrated economist, Fisher is best known for his biggest mistake. What many might say was the worst stock tip in history. In particular, Fisher excitedly...
Going Forward? Negative Real Yields Should Boost Gold More Than Stocks
The consistent media refrain is that lower interest rates justify higher stock valuations. Is it true? Or is it an excuse for encouraging bubble-like speculation in riskier assets? Historically, there have only been two periods to examine ultra-low rate phenomena. The...
The New Abnormal
This is a world where more and more people will need to rent rooms in their homes to make ends meet. Indeed, corporations like AirBnB stand to benefit. However, a number of 2020 IPOs have catapulted more than 100% on the first day of trading. This has occurred despite...
The Option to Gamble on Higher Stock Prices
How ludicrous are current stock prices? Consider the following charts: (1) Traditional Indicators. Four prominent measures -- PE10, Crestmont PE, Q Ratio, Regression -- have collectively catapulted more than 3 standard deviations above a mean. The average of the four...
A Monstrous Money Supply
The disconnect between Wall Street and Main Street continues to widen. Bubble-priced stocks have been rocketing anew, yet fewer individuals are participating in the labor force. How bad is it? You'd have to return to the turbulent 1970s to uncover a participation rate...
The Sellers Inside
Corporate insiders are selling shares in monstrous amounts. The unusual level of activity suggests that executives are wary of overvalued stock pricing. In contrast, retail investors and fund managers alike are exceptionally bullish on stocks. For instance, fund...
‘The Most Speculative Market I’ve Ever Seen’
Jim Cramer, the boisterous TV host of CNBC's circus-like investment show, "Mad Money," rarely bad-mouths the stock market. You can count the number of times he has expressed concern about irrational investor exuberance on one hand. Today, however, Mr. Cramer described...
Mind the Exuberance Gap
The investment community is not only willing to look beyond virus vaccination to economic nirvana, it is also willing to ignore extraordinary stock overvaluation. Consider the price-to-revenue metric. At 2.7x corporate sales, stocks have never been frothier. Another...
Do Profits Matter During Stock Bubbles?
What does it mean when a company has beaten earnings expectations? In theory, it implies that a public corporation is performing extremely well, justifying a higher price for its stock shares. The reality? Market analysts intentionally set the expectations bar near...
Inflation, All You Ever Wanted
What if your family owed more than it owned? You could get by for a while. You could "rob Peter to pay Paul." Eventually, though, persistent negative net worth would likely result in a declaration of bankruptcy. The same holds true for corporations. The Federal...
Could a Game-Changing Vaccine Pop the Stock Bubble?
Federal Reserve intervention is the reason that stocks defied a protracted bear market in 2020. The central bank of the United States immediately intervened in March, slashing overnight borrowing rates to 0%. The Fed also printed trillions of dollars to buy bonds,...
What the Election Failed to Fix
Election outcomes tend to provide clarity. Even contested ones. For example, would one party in the U.S. control the executive branch as well as the legislative branch? At the moment, it would appear that this will not come to pass. One party is going to control the...
Election Euphoria
One might have anticipated that risk assets would trade sideways on the day of the election. After all, unusual levels of uncertainty tend to keep investors in a wait-n-see mode. However, stocks immediately rocketed more that 2% out of the morning gate. And that...
Stocks are Desperate for ‘More Cowbell’
What might the 2020 stock bubble be telling us? When mega-cap tech stars handily surpass earnings expectations, but still plummet? Perhaps there is some recognition of effervescent valuations. Warren Buffett's indicator, market-cap-to-GDP, shows the disconnect between...
Did the Tech Stock Bubble Burst on 9/2/20?
In March of 2000, nobody rang the bell at the top of the infamous dot-com disaster. And very few people believed that the 21st century's original tech bubble had actually burst. Dip-buyers were plentiful in 2000. In fact, six months later in September of that year,...
Six Stocks Rule the World
The AEI’s Weekly Index tracks how many people go to places of commerce (e.g., restaurants, hotels, stores, movie theaters, airports, offices, etc.). In layperson's terms, we're talking about foot traffic. The start of 2020 serves as the “Old Normal." That is the 100%...
How Valuable Will Gold Become?
Talking heads are always imploring you to be a "long-term investor." Okay, let's play the long game. S&P 500 valuations have never been more obscene, even eclipsing the stock bubble highs from February of 2020. What's more, those valuations are uglier than those...
Fools in the Reign of Free Money
How do you know that we're living in a monstrous stock bubble? Bullishness on ever-higher asset prices exists for every imaginable circumstance. For example, no matter who wins the election, stocks will surge. If it's Biden, gobs of fiscal stimulus will be sent to the...
The 75% Economy
Small businesses employ roughly half of U.S. workers. What's more, small companies create nearly half of the new jobs that come into existence. Sadly, the small business community has lost 23% in revenue since the year began. In a similar vein, the number of small...
Commodities Are Cheap
Small businesses are barely hanging on. Nearly 50% of them are on their way to visiting the small town of Schitt’s Creek. For example, a Lending Tree survey shows 43% of small companies have seen revenue drop by half or more. Half! Meanwhile, 6% have exited the stage...
High Yield Minefield
The mainstream financial media narrative? Trump or Biden would be great for the stock market. Biden would be great for stocks because direct government stimulus should power consumers until the economy heals on its own. On the flip side, Trump would be great for...
Here Comes the Sun
The current price-to-sales (P/S) ratio for the S&P 500 is 2.4. That is higher than it was at the peak of the 2000 stock bubble. I decided to screen large-cap U.S. companies for outrageous P/S valuations -- those that jumped the 15x revenue barrier. According to...
Silver Bells
Household equity exposure has rarely been as high as it is today. Is that a good thing or a bad thing? Historically, the higher household stock exposure is, the lower the 10-year forward returns tend to be. In fact, the 25% demarcation heading into the 2000 stock...
The Stock Bubble’s Precious Opportunity?
For the last four months, the Federal Reserve has maintained its balance sheet rather than electronically print additional money. It would seem, then, that $3 trillion of monetary "stimulus" earlier in the year was enough to stop COVID's Q1 bear crash in its tracks....
Debt-stricken Small Stocks
Is taking on more and more debt at lower and lower interest rates a good thing? Well, it does not seem to be helping the bulk of public companies on the U.S. stock exchanges. Consider the premier benchmark for small stocks, the Russell 2000. Their very existence may...
No Country For Old Bank Stocks
Bank stocks around the globe dramatically underperformed respective stock markets in 2007. And by 2008, a global financial collapse punished every economic sector. Here in 2020, bank stock troubles are resurfacing. Year-over-year differences between 'Big Finance' and...
Zombie Nation
Zombie companies are those that cannot generate enough profits to cover their debt payments. And according to the researchers at Deutsche Bank, the 'walking dead' comprise nearly one out of five publicly listed corporations in the United States. The Leuthold Group...
Tech Tail Risk
An investor can look at return on equity (ROE) to determine how well a company is using its assets to generate profits. Additionally, one can calculate ROE by dividing net income by shareholder equity. Is there a good ROE percentage? Acceptable ROE percentages tend to...
Three-Sigma Valuation Warning
When it comes to understanding the wackiness of the 2020 stock bubble, it may be instructive to look at valuation indicators that correlate highly with future investment returns. For instance, one might combine the data from the Q Ratio, Crestmont P/E, PE10 and...
‘Risk-On’ Reversal
Even in 2000, investors did not fall in love with far out-of-the-money calls on tech shares to juice gains. In 2020? The indefatigable upsurge in call options relative to put protection has been unrivaled. Naturally, this is the sort of nonsensical bullishness that...
Ketchup or Blood on the Street?
Extended periods of overbought conditions in relative strength (RSI) typically lead to market pullbacks. Equally telling? The RSI for the S&P 500 has hit 81 -- a relatively rare feat in and of itself. In a similar vein, at 3567, the S&P 500 is trading 15%...
Panic Buying
Daily gains of 5%-10% on mega-caps as if they are penny stocks? The price action for August of 2020 has been positively bonkers. For instance, Tesla (TSLA) witnessed 60% month-over-month gains. 60% in August alone! Even the 17th century's 'Tulip Mania' may have made...
20 Years in the Making
In late August of 2000, the median stock in the S&P 500 hit its highest Forward P/E level ever. A 12-month Forward P/E of 26. For the better part of the last two decades, investment gurus routinely rebuked the foolishness of paying 26 times estimates of corporate...
Should’ve Seen It Coming
Late in 2005, my wife and I cashed in our two properties and decided to rent. We were a year early when we walked away from the real estate bubble that eventually destroyed tens of millions of families nationwide. Fifteen years ago, the math on ownership failed to add...
The Nasdaq Bubble Speaks ‘Volumes’
In what type of stock universe is there exponential intrigue in the "New Economy" Nasdaq with very little interest in the "Old Economy" of the New York Stock Exchange (NYSE)? Welcome to the 2020 Pleasure Dome. Perhaps ironically, corporate executive insiders have...