Going Up?

Many people assume that "stocks" have been a great investment over the last year. Few realize that the gains have primarily been confined to the U.S. large-cap space. Smaller company stocks represented by the Russell 2000 have gone absolutely nowhere over the last 12...

Chart Storm

In the first few weeks of January, the Nasdaq fell 10% below its 52-week high. Meanwhile, the S&P 500 slipped about 4% from its record peak. The reason for the volatile start to the New Year? Fear of the Federal Reserve raising overnight lending rates rapidly to...

Defining Insanity

“Insanity is doing the same thing over and over again but expecting different results” -- Narcotics Anonymous The Federal Reserve digitally printed roughly $3.5 trillion dollars between 2008 and 2014. In that brief period, the Fed created three centuries' worth of...

History Rhymes

“History Doesn't Repeat Itself, But It Often Rhymes” – Mark Twain Cathie Wood, active stock picking manager for the ultra-hip ARK Innovation Fund (ARKK), is still a bona fide superstar. At least according to CNBC. Unfortunately, the shine may be coming off the...

Place Your Bets

The Federal Reserve has been the investor's best friend for a very long time. For 13 years, if stocks fell a mere 10%-15%, the Fed immediately intervened with promises of ultra-low, interest rate stimulus. And when the pandemic crash of 2020 threatened to burst the...

Dicier By The Day

Digital money printing and interest rate manipulation seemed like a no-brainer in March of 2020. The world’s economic activity had been coming to a screeching halt. Here at the end of 2021, however, there are too many dollars chasing a scarcity of available goods and...

The Signs of Excess

Those with significant money at stake in 2000 remember what happened to them in 2000. They lost the bulk of their money. Investors certainly heard the warnings in the late 1990s, but they did not listen. Words of caution fell like silent raindrops. It was a "New...

Think Global, Act Local?

Since the 2008 financial crisis, U.S. investors have counted on Federal Reserve bailouts, bond buying, and digital money printing. Significantly lower interest rates combined with a huge leap in the money supply sent asset prices (e.g., stocks, bonds, real estate,...

Discrepancies Everywhere

I recently deposited $1,000 on a Rivian R1T. The deposit is fully refundable. That’s a good thing, since delivery of my electric truck is unlikely before the end of 2022. The Irvine-based company has been all over the news lately. Why? For one thing, this past...

Can’t-Lose Propositions

Stocks recently hit record highs here in November. Similarly, the volume associated with protecting one's stock portfolio with "put options" has fallen to a new low. What do these trends suggest? They imply that investors believe that things are different than when...

For What It’s Not Worth

The stock bubble stopped making sense several years ago. Yet, even speculators know, markets can remain irrationally enthusiastic for extended periods of time. For example, Tesla (TSLA) is being valued as though every driver on the planet will own one of their...

Stocks Disengage from the Real Economy

Ironic? Humorous? The stock bubble continues to hit high after record high, despite the economy showing definitive signs of weakness. Two months earlier, the projection for the 3rd quarter period was 6.1%. Today? The Atlanta Fed is estimating growth of just 0.2%. If...

Cryptic Caveats

Across 120 years of data, the most overvalued markets occurred in 1905, 1929, 1965, and 2000. This excludes today's stock bubble. (See the purple triangles below.) Interesting enough, when one adjusts for inflation, each of the occurrences led to periods of negative...

Slip Sliding Away

The federal government is reining in its direct payments to households. Similarly, the Federal Reserve intends to reduce its money printing (QE) policies – the same policies that have created the speculative belief that our central bank can permanently levitate stock...

When More and More Investors Want Out

Remember the trade war a few years back? The whole goal had been to shrink our trade deficit with China in an effort to enhance the U.S. economy's prospects. Perhaps unfortunately, the U.S. government responded to the coronavirus crisis with far too much stimulus. On...

Five Huge Headwinds for the Stock Bubble

Is the stock bubble about to pop? Maybe not. Then again, patching all of the pinhole pricks simultaneously could prove difficult. Here are five significant headwinds for stocks: 1. Inflation. Few investors pay attention to things like the Baltic Dry Index. That's a...

Going Stag

Consumers are already grappling with the highest inflation in 13 years. The Fed believes it is transitory, but when was the last time companies lowered employee wages after raising them? When is the last time service providers – restaurants, bike shops, accounting...

Shut Up and Dance

Do you ever wonder why bad economic news seems to send stocks higher? For example, industrial production is growing at a slower pace than anticipated. Ditto for manufacturing. Yet stocks seemed to rally on the news. Simply put, poor economic data helps share prices...

An ‘Unforeseen’ Comeuppance

There are smart people on social media. Brilliant people. Yet, many of them have swallowed the bait whole. They believe that the stock market can only move one direction. Up, up, and away. Everyday folks too. Young, old, educated, uneducated... it does not matter. Buy...

Baked in the Cake

Since the early 1970s, the S&P 500 has witnessed average year-to-date gains of 6.0% through August 31. Here in 2021? 20.5%. It is not unusual to see big run-ups in the  10 Minute Bitcoin market. Yet the parabolic rise off the pandemic lows of March 2020 has no...

Borrowed Time

Is the "stock market" really going up? Well, large company share prices are. If you drill down into the mid-sized and small-sized vehicles, however, cracks are beginning to show. Smaller companies are negative on a month-over-month basis. Micro-caps are down even...

Every Stock Season (Turn, Turn, Turn)

The economy has largely recovered from the 2020 recession. And the Federal Reserve is finally thinking about slowing down its money printing stimulus. Perhaps ironically, the stock market is not too happy about it. The S&P 500 has dropped about 2% from recent...

Betting the Farm on the Fed

According to an index by Goldman Sachs -- an index that takes into account the value of the dollar as well as interest rates -- U.S. financial conditions are easier than they have ever been. Companies and consumers can "borrow-n-spend" like never before. Ultra-loose...

Bubbles Are Unbelievably Easy To Spot

Jeremy Grantham is chairman of the board for the well-known asset management firm,  Grantham, Mayo, & van Otterloo (GMO). Yet he is much more than that. He is also an accomplished "bubble-ologist." In a recent interview, Grantham said: "Bubbles are unbelievably...

For Real

The Federal Reserve explains away rising costs across commodities, shipping, food, retail and rent as "transitory." They might be right. On the flip side, the stock bubble is ignoring inflation-adjusted data as it relates to valuation. Specifically, in the three...

Stock Storm

The U.S. Federal Reserve has purchased oodles of assets with electronic currency credits. Funny money. Ditto for the Bank of Japan, People’s Bank of China, and the European Central Bank. Not surprisingly, the more that central bankers add assets to their collective...

Warning: Household Wealth May Be Transitory

Is the stock bubble making investors wealthy? Temporarily. Consider household equity exposure relative to disposable personal income. Investors have more skin in the equity game than they ever have before. What that means is that, with the S&P 500 sitting atop a...

Up, Up and Away

Theoretically, the extent of corporate success (e.g., sales, profits, cash flow, financial health, etc.) propels stock prices. That is no longer the case. For example, one can examine the price-to-sales metric (P/S) by S&P 500 decile. Low valuation deciles might...

Prelude to a Bigger Short

Christian Bale played hedge fund manager Michael Burry in The Big Short. The actor's portrayal of an eccentric loner with genius-like qualities was downright riveting. Of course, it was Burry, not Bale, who anticipated the implosion of the housing balloon. It was...

The Pin That Pricks the Stock Bubble

You hear the stories in everyday life. A neighbor receives $75,000 up and above an astronomical listing price for a home. A friend boasts about making a killing in a crypto like Dogecoin or a meme stock like AMC Entertainment Holdings (AMC). The primary reason for the...

Minding the Bubble’s Skew

Is the stock market overvalued, undervalued, or fairly valued? One of the most popular metrics for making that call is the cyclically-adjusted price-to-earnings (CAPE) ratio. The CAPE ratio, also known as P/E10, has averaged 17.0 since the 1880s. It reached an epic...

Excessive Speculation Rarely Ends Well

Speculation drives market activity more today than it did at any previous moment in history. To wit, short-dated single stock option volume is now 5x greater than it used to be. Think about this for a moment. Rather than invest for a long-term stream of cash flows,...

Bearish on Bonds? Higher Rates Could Crush Stocks

The central bank of the United States, the Federal Reserve, creates digital dollar credits to buy bonds. If you buy bonds to depress interest rates and to inject money into the financial system, you get higher asset prices. Stocks. Bonds. Real Estate. Of course, the...

The Big Shift to “Value Investing”

The federal government continues to hand out borrowed money to stimulate the economy. It is running monstrous deficits to do so. One consequence of spending too much borrowed money? Inflation. Copper, lumber, oil, gas, livestock, agriculture -- you name it. Stuff...

Can You Spare An Inflation-Adjusted Dime?

Inflation is ubiquitous. You are seeing it at the gas pump. You are seeing at the grocery store. You are seeing it when you dine out. Interested in building a patio? An addition to your home? You might be shocked by the cost of lumber. And it is not just wood. Get a...

The Roaring Twenties Redux?

The U.S. economy surged throughout the 1920s. With World War I in the rear-view mirror, consumers spent feverishly on autos, electrical appliances and movies. With the threat of coronavirus fading in 2021, might we be witnessing yet another Roaring Twenties? After...

The Prices Are Not Alright

When you pump $12.3 trillion (and counting) into an economy, things are going to inflate. For example, commodities are going to be more expensive. Take a look at the vertical leap in prices for copper. And lumber. Home prices themselves become bubbly. Home prices have...

Will Cap Gain Tax Hikes Burst The Stock Bubble?

The United States government raised taxes to finance the debt that accrued in World War I and World War II. Today, we are not engaged in a military intervention of monumental magnitude. However, the public debt-to-GDP is greater now than at any other point in American...

Never Has Anyone Ever

Private money management firms often sell at a multiple of revenue. A frequently talked about metric? Price-to-revenue. For example, a wealth management company that generated $1,000,000 over the last year might be valued at 2.25x, or $2,250,000. At least in the...

Lucky 13

On April 13, 2021, the S&P 500 SPDR Trust (SPY) closed above its opening price for the 13th consecutive session. That has never happened in the 28-year history of the exchange-traded fund. Without question, enthusiasm for stocks is feverish. But is it rational?...

In Excess

When does extraordinary excess become visible? In hindsight. Consider the stock market at the start of 2000. Despite ridiculous valuations, scores of profitless IPOs, and an absence of common sense, few seemed to recognize the risks ahead of time. The S&P 500...

Which is Better for Inflation… Stocks or Commodities?

Homes, stocks, junk bonds, you name it. Assets are ridiculously frothy everywhere you turn. The craziness is hardly confined to traditional Wall Street assets, however. Day-trading teenagers with social media cache are getting "rich" on digital NFT Nike art and...

The Less Profitable, The Better?

Somewhat surprisingly, 200 of the 1500 largest companies have proffered negative earnings over three consecutive years. Their stock prices must have suffered, right? Hardly. According to the Leuthold Group, investors have piled into unprofitable corporations more than...

The Harder They Fall

Over the last 40 years, the U.S. government has chosen to spend significantly more money than it takes in. It is the reason that the country must issue trillions of dollars of debt. Spending became particularly obscene during the financial crisis of 2008. And since...

Stimulus Checks and Stocks: Pumping Up a Hot Air Balloon

Investors may or may not be aware of their euphoric attitude toward risk taking. Yet Goldman Sachs data suggest that risk appetite is every bit as extreme today as it was before the dot-com bubble burst in 2000 and before the global financial collapse in 2008....

Rebalancing Act

Institutions -- mutual funds, pensions, insurance companies, corporations, sovereign wealth funds -- often represent smarter money. Indeed, stock prices tend to rise when institutional buying is robust. However, history has been less kind to mom-n-pop investors...

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...

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...

Exponential Price Insanity

One of the features of a stock bubble? Staggering price gains over relatively short periods of time. Apple (AAPL), for example, is a phenomenal company. Its smartphone, music and television platforms are addictive to hundreds of millions of people. Should it really be...

Five Stock Steps Beyond?

During stock bubbles, market participants abandon bargains to chase the hottest trends. And this bubble is no different. For example, during periods of relative equanimity, there may not be much of a difference between the pursuit of high-flying momentum and the...