Yes I know, stocks only go up – etc etc. However I believe some of you are genuinely in need of some information so let me lay some stuff down for you.
1.) We are at historically elevated valuations. Somewhere between the Dotcom bubble and Black Tuesday in terms of PE. Below is a chart of the current Schiller PE levels – this is a popular measure used by value investors such as Warren Buffet.
Just so you know the historical average is somewhere in the 15 to 20 range. I would expect that to creep up due to low interest rates, but we’re certainly well past ‘safe’ levels.
2.) Speaking of Pappa Buffet – he has been hoarding cash. Berkshire Hathaway continues to grow its cash pile as there is ‘nothing to buy’ in this environment. The chart is a bit old, but last I heard it was somewhere between 100 to 200 billion in cash sitting on the sidelines. This is on a company with about a 500bil market cap. They would rather just sit on cash than risk getting caught with their pants down.
3.) But… companies are crushing it and we live in the greatest economy the world has ever seen don’t we??? Actually earnings have been pretty stagnant since 2015. There are a few companies absolutely crushing it – namely big cap tech, but on average corporate earnings has been mediocre.
P.S – This chart would look a hell of a lot worse if not for stock buybacks.
4.) Degenerate investment institutions are levered long and doing dangerous shit like shorting the VIX / running an excessive allocation of derivatives (Looking at you DB). No one seems willing to admit that this is where the Repo Market money is going, and we can’t really get a chart of that capital per-se, but we can find more generic information about margin levels.
See some of those massive contractions in margin levels? Generally speaking those aren’t from deleveraging – when bubbles burst and portfolio values go down institutions and individuals begin facing margin calls… Forcing more selling, forcing more margin calls etc. When the market is highly levered it creates a potential for alarmingly rapid draw-downs.
I won’t even go into the details regarding how the global economy is also in shambles and fueled by debt too. GDP numbers don’t account for debt based growth and low interest rates everywhere has caused an explosion of cheap debt. This onion has far more layers than what’s described here.
TLDR – We are positioned for a black swan event. I can’t tell you when, but please YOLO responsibly.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.
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