Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

It’s an Ugly Picture If You Are Looking for Value in Stocks

Stock-Markets / Stock Market Valuations Mar 08, 2018 - 02:34 PM GMT

By: John_Mauldin

Stock-Markets

By Patrick Watson : The long-awaited Strategic Investment Conference 2018 kicked off with a keynote from David Rosenberg of Gluskin Sheff titled, “Year of the Dog: Will It Bark or Bite?” (Spoiler: The answer is “bite.”)

Rosenberg began by running through a list of his own metrics: forward P/E, price/sales, price/book value, enterprise value/EBITDA. All of them point to record-high valuations.


Source: Mauldin Economics

Looking at normalized charts over time, they’re now at the 83rd percentile or higher. Price/sales is at the 99th percentile. The bottom line: it’s an ugly picture if you are looking for value in equities.

Rosenberg shared a scary quote from Howard Marks: “Most valuation parameters are either the richest ever or among the highest in history. In the past, levels like these were followed by downturns. Thus a decision to invest today has to rely on the belief that ‘it’s different this time.’ I’m convinced the easy money has been made.”

He pointed out that even the Fed admits that valuations are high. Our policymakers themselves believe this can’t continue for long. In fact, the Shiller CAPE ratio now stands at its second-highest level in decades. How long will that last?

History shows that high P/E ratios are usually followed by years of low returns in equities.

The 2% Inflation Target Is Nonsense

Later, Rosenberg moved on to monetary policy and picked up on the Federal Reserve’s 2% inflation policy.

To paraphrase, he said, “On what planet does 2% annual inflation constitute price stability? Prices can’t be rising and stable at the same time. This makes no sense. Furthermore, why 2%? Why not 1%? Whatever the inflation target, the Fed has proven unable to hit it, so maybe it’s time to rethink this whole idea.”

Rosenberg also pointed out that the composition of the Federal Open Market Committee had vastly shifted since 2017. At the beginning of 2017, there were no hawks in that group. Between departures, additions, and voting rotation, now it’s four hawks, one dove, and one unknown, by Rosenberg’s assessment.

This should not comfort anyone who hopes the Fed will pull back on tightening and balance sheet roll-offs.

Credit Shows Warning Signals

Then Rosenberg shifted to late-cycle behavior and looked at the erosion in credit quality as one of the warning signals.

He stressed that former big buyers of corporate debt have started to “pull back.” Although profound, this trend has not received proper attention among investors.

The situation on the retail side isn’t better either. Rosenberg pointed out that consumers begin to struggle to make credit card payments.

He quoted new Fed chair Jerome Powell as saying that we are encouraging risk-taking too much. One of Powell’s primary concerns is that more accommodative policy could undermine financial stability.

And yet, his predecessor Janet Yellen saw no “red flags” regarding financial stability.

Get Live Updates from the Strategic Investment Conference 2018

Learn from 25 top financial experts, best-selling authors, and investment professionals as they discuss their best investment ideas and predictions for the economy, financial markets, and geopolitical relations. Tune in to the SIC 2018 live blog now!

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules