One simple chart shows how stocks are overvalued pic.twitter.com/4uEvAQqQvq
— Alastair Williamson (@StockBoardAsset) October 25, 2017
Asset prices not driven by earnings growth pic.twitter.com/ykIUqz4qoO
— Alastair Williamson (@StockBoardAsset) October 24, 2017
— Alastair Williamson (@StockBoardAsset) October 24, 2017
Taking a look at the telecommunication index <XTC> on a monthly timeframe. The 50sma has been violated signaling stress. Last time this occurred, 2016, 2008, and 2001.
— Planet Ponzi (@PlanetPonzi) October 23, 2017
The bagel essentially top-ticked the market in 2007
Don’t say we didn’t warn you.
A decade ago, the Westin New York at Time Square made headlines by offering a $1,000 bagel, dubbed “the world’s most expensive piece of bread.” Smeared with white truffle cream cheese and adorned with “Riesling jelly” and gold flakes, the gilded breakfast item was a real PR hit for the hotel.
Apparently, with the rally hitting its stride in the summer of 2007, investors could justify splashing cash on such extravagances. The heady days were numbered, though. As you can see by this chart, the bagel essentially top-ticked the market.
7 troubling signs for the stock market
Growth may be peaking. The momentum behind the stock market has a ton of hard metrics behind it, including the ISM Manufacturing index that hit a nearly 14-year high for September. However, Goldman Sachs recently warned that some of these levels are simply unsustainable — particularly the inflated ISM reading above 60 (anything above 50 signals growth), which has typically marked the beginning of the end. “Since 1980, the ISM has exceeded 60 in eight separate episodes; four of those lasted only one month,” Goldman warns, before adding that “Investors buying the S&P 500 at ISM readings of 60 or higher have gone on to suffer negative three- and six-month returns on average as economic activity slowed.”
Record highs in economic data are good, but highs necessarily can’t last forever and some mean reversion is in order.
Earnings aren’t all grand. In a recent white paper, State Street Global Advisors made the case that “earnings may not be as strong as you think.” Chief Investment Strategist Michael Arone points to the roughly 110% earnings growth in energy from a year ago as a big driver of the overall growth for the S&P 500 — though year-over-year growth is a meager 3% total for the third quarter even accounting for energy’s big snap-back. Similarly, he points to the third quarter of 2016, which marked the end of the so-called “earnings recession” where profits were stuck in regular declines. That will fall out of year-over-year comparisons and mean a higher bar to hurdle in the fourth quarter and into 2018, even if earnings look reasonably rosy at present.
Things are too quiet. There’s a lot of talk about how the bull market is long in the tooth after running for roughly 8½ years without a 10% correction. But a recent analysis of the S&P 500 index from LPLResearch noted “33 consecutive sessions without a 0.5% daily decline, which is the longest streak since 1995” and that in 2017 the S&P has “closed lower 1% or more only four times — the fewest for a full year since 1964.”
You could say this is a new normal… or you might start wondering when the other shoe will drop.
The charts hint at trouble. BTIG chart-watcher Katie Stockton has pointed to a number of technical patterns that individually hint that caution is warranted, but collectively form a “perfect condition” for a pullback. From markets trading above long-term trend lines to sentiment indicators showing “prolonged overbought conditions,” there are some structural issues that could make it quite difficult for the stock market in general to build on this recent broad rally.
Investors are wide-eyed optimists. While there remain some vocal worrywarts out there, overall sentiment is something approaching glee. The latest survey from the American Association of Individual Investors once again points to bullishness above historic norms, and a recent University of Michigan sentiment survey showed more than 65% of respondents expect stock prices will be higher in one year — higher than even the pre-crisis euphoria in 2007 and 2008.
This is not to say stocks have to crash, but the phrase “irrational exuberance” exists for a reason. And taken in concert with the lack of volatility, it’s worth wondering if investors are being naive about the risks associated with this market.
Where’s the pro-business agenda? Most investors are biting their nails at the prospect of tax reform, knowing that a big reason this market has rallied in 2017 is because of the expectation of pro-business moves from Washington. Instead, we got a failed Obamacare repeal and heap of White House distractions. That makes the need for tax cuts — forget any pie-the-sky notion of reforms — crucial in the next two months. Policy makers know it too. Treasury Secretary Steven Mnuchin admitting recently: “To the extent we get the tax deal done, the stock market will go up higher. But there is no question in my mind if we don’t get it done you are going to see a reversal of a significant amount of these gains.”
The question for investors after this train wreck of a 115th Congress, is whether they think the former is more realistic than the latter.
“Have nots” are not fine. Beyond the hard data of the economy and real-world events that may move the stock market, it’s important to remember that the numbers don’t tell the whole story. There is a serious pessimism for many workers and consumers despite high-level metrics that are strong. That’s because, frankly, they haven’t participated in general growth we’ve seen over the last decade or so and instead are suffering from specific troubles that don’t show up in vanilla metrics about employment or spending.
People keep asking when the global economy will collapse… and the very simple and logical answer is: when the combined costs imposed on the economy by global warming and other aspects of our unsustainable civilization outpace the residual ability of the economy to generate “growth” (i.e. surplusses.) Now these costs are actually quite difficult to estimate accurately because a lot of them are hidden (externalized)… but now for the U.S., in 2017, we can say safely that this reality has arrived. Just the costs of Hurricanes Harvey and Irma and the California wildfires together (and not counting any of the “minor” disasters or other arguable hard costs) are anywhere from 350 to 450 Billion dollars… given an economy of 18.5 trilliion in 2016, that’s about 2 percent vs a 1.2 percent growth rate for 2016 and the IMF forecast of 2.1 percent for 2017.
Yes, you read that right, all (rather optimistically) predicted economic growth for the US this year was completely wiped out by these 3 “natural disasters” alone. And this is a hard fact, there really isn’t any way to argue around this by saying that rebuilding will stimulate the economy… to rebuild you first need the money, which has to come from a surplus or from increasing debt, and surplussed are unavailable and increasing debt… well, the amount of debt we already carry is a whole other hairball which figures into the coming economic collapse in /addition/ to the ecological accounting.
I think this is it, folks. It’s game over… the numbers are just too starkly obvious for the markets to ignore anymore even with helicopter money from the reserve banks. Markets are going to collapse, and even though nobody in the mainstream will say (or even understand) that this is why… you will know the simple truth.