US Stocks are highly OVERVALUED and due for AT LEAST A REST, IF NOT A SIGNIFICANT CORRECTION

[bsteadman]

Dow pulls off a stunt it hasn't done in 30 years

CNBC
by Patti Domm
2/23/2017

Excerpts:

With 10 Dow records in a row, it wouldn't be a surprise if Wall Street's bull caught its breath in the near future.

Stocks closed mixed Thursday, but the Dow was the leader, in its longest streak of record closes since the first 13 trading days of 1987, when it had 12 records. Traders often wince when 1987 is mentioned since it is remembered well as the year of the famous October stock market crash.
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"We're due for at least a rest, if not a correction. We're way overbought," said Steve Massocca, managing director with Wedbush Securities." - (bold and color emphasis added)

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View the complete article at:

http://www.cnbc.com/2017/02/23/dow-p...-30-years.html

[bsteadman]

SHILLER PE RATIO CHART - Link: http://www.multpl.com/shiller-pe/

[bsteadman1]

The US Stock Market Is Highly Overvalued. Here's Why...

ZeroHedge
by Tyler Durden
2/24/2017

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Submitted by Simon Black via SovereignMan.com,

This is really starting to get out of control.

No doubt you’re familiar with the S&P 500, the stock index that measures the performance of the largest US companies.

And as we’ve discussed before, one of the most important benchmarks in measuring whether stocks are overvalued or undervalued is the Price/Earnings, or P/E ratio.

Looking back through more than a century of financial data, the long-term average P/E ratio for the S&P 500 has been about 15.

As of yesterday afternoon, the P/E ratio for the S&P 500 stock index reached 26.5.

That’s high– more than 75% higher than the long-term average.

More importantly, since the 1870s, there have been a total of THREE periods in which the average stock P/E ratio was above 26.5.

1. The first time was around the Panic of 1893.
2. The second was around the 2000 dot-com crash.
3. And the third was around the 2008 financial collapse.

See the pattern? Whenever financial markets get overheated, bad things tend to happen.

It’s also important to consider that economic growth worldwide has been slowing.

Global trade growth, for example, is at its lowest level since the financial crisis.

And in the United States in particular, GDP growth was just 1.6% in 2016.

In fact the US economy has gone 11 straight years without seeing 3% GDP growth.

Slow economic growth is generally negative for corporate profits, so it’s difficult to imagine phenomenal earnings with such tepid economic growth.

As an example, HSBC is one of the largest banks in the world with operations in dozens of countries.

Two days ago the bank announced that profits had plunged 62% due to slow growth and uncertainty around the world.

That brings me to another major indicator of the stock market– something known as the “Buffett Valuation”.

The Buffett Valuation looks at the total value of the stock market relative to the country’s GDP.

Warren Buffet has called this ratio “probably the best single measure of where valuations stand at any given moment.”

Right now, for example, the total size of the US stock market according to Federal Reserve data is $22.6 trillion.

Meanwhile the total size of the US economy is $18.8 trillion.

This puts the Buffett valuation at around 1.2, meaning the stock market is about 20% larger than the entire US economy.

Historically speaking, this is expensive. Stock markets start getting into trouble when the ratio surpasses 1.0.

(The Buffett ratio was 1.11 before the 2008 crash…)

On top of everything else, as we discussed yesterday, many of the largest companies in the US have been artificially inflating their stock prices.

They’re taking on billions of dollars in debt to pay out phony dividends and buy back their own shares.

As an example, I just read an article in a major financial publication that General Motors is the “best” stock to buy.

Really?

General Motors made $16.5 billion from its ongoing business operations in 2016.

But they had to spend an incredible $29 billion in capital expenditures just to sustain the business.

So GM’s Free Cash Flow was negative.

It was similar in 2015.

In order to make ends meet, GM increased total debt by an incredible $40 BILLION over the last two years.

This is seriously the best deal in the market?

None of this adds up.

Look, I don’t have a crystal ball. And if there’s one thing that’s consistent about financial bubbles, it’s that they can last longer than anyone expects.

So, yes, it’s possible prices go much higher.

But is it worth the risk in light of such obvious data?

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View the complete article including images and links at:

http://www.zerohedge.com/news/2017-0...lued-heres-why

[bsteadman]

BUFFETTS RATIO CHART - Link: https://fred.stlouisfed.org/graph/?g=qLC

Wilshire 5000 Total Market Full Cap Index©/Gross Domestic Product

[bsteadman1]

BofA Merrill Lynch US High Yield Option-Adjusted Spread©

Link:https://research.stlouisfed.org/fred...s/BAMLH0A0HYM2

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Note: The graph span can be changed to show a period of up to 10 years or more, if desired.

[bsteadman]

Former Reagan Economic Advisor Warns: Debt Ceiling “Hard Stop” for Economy

The New American
by Bob Adelmann
2/27/2017

Excerpt:

David Stockman (...), former President Ronald Reagan’s director of his Office of Management and Budget from 1981 to 1985, told Greg Hunter of USAWatchdog that March 15, two days after President Trump presents his budget to Congress, will be a “hard stop” for the economy:

I think what most people are missing is this date: March 15, 2017. That’s the day that this debt ceiling holiday that Obama and Boehner put together … in October 2015 … expires. The debt ceiling will freeze in at $20 trillion. It will then be the law. It will be a hard stop.

The Treasury will have roughly $200 billion in cash. We are burning cash at a $75 billion a month rate. By summer, they will be out of cash. Then we will be in the mother of all debt ceiling crises.

Stockman told Hunter that he thinks the stock market is grossly overvalued, calling it “the greatest suckers’ rally of all time. It is based on pure hopium," adding:

Donald Trump is in a trap. Today the debt is $20 trillion. It’s 106% of GDP.… Trump is inheriting a built-in deficit of $10 trillion over the next decade under current policies that are built in.

Yet, he wants more defense spending, not less. He wants drastic sweeping tax cuts for corporations and individuals. He wants to spend more money on border security and law enforcement. He’s going to do more for the veterans. He wants this big trillion dollar infrastructure program.

You put it all together and it’s madness.

Sober reality confirms that Stockman is correct, and likely understated if one listens to Boston University professor Laurence Kotlikoff, who calculates the nation’s indebtedness not at $20 trillion but at $200 trillion. Reality also confirms that at some time, as economist Herb Stein famously put it, “If something cannot go on forever, it will stop.”

The difficulty comes in trying to predict when. Since leaving the White House, Stockman has become a perma-bear, predicting all manner of economic disaster and making a living doing so at his website, David Stockman’s Contra Corner.

In a word, forecasting is difficult. As billionaire Howard Marks said, “There are no facts about the future, just opinions.” Albert Einstein commented, “I never think of the future — it comes soon enough,” while Warren Buffett opined: “Forecasts usually tell us more of the forecaster than of the future.”

Peter Bernstein, a highly regarded financial historian who died in 2009 at age 90, said that “forecasts create the mirage that the future is knowable,” while economist John Kenneth Galbraith wrote: “We have two classes of forecasters: those who don’t know, and those who don’t know that they don’t know.” Former General Electric executive Ian Wilson was skeptical as well: “No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future.”

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Dr. Stockman, the perma-bear, is both right, and wrong. Deficits do matter. But it’s highly likely that the Ides of March will come and go and no one will notice. - (bold and font size emphasis added)

View the complete article including image, comments and links at:

https://www.thenewamerican.com/econo...op-for-economy