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ZeroHedge: Killing The ‘Stocks Are Cheap’ Myth Once And For All
Be prepared for the next great transfer of wealth. Buy physical silver and storable food.
Each and every day we hear, stocks are cheap – P/Es are low, money-on-the-sidelines, sentiment is contrarian-wise weak, ‘it’s an election year’, and many other anecdotal BTFD-driving broker-based sound-bites. The truth will perhaps set you free. On both a valuation (trailing P/E and market-cap/GDP) basis and cyclical (long-term sideways trends, percentage holdings of stocks, historical election/decennial patterns, coincident-to-lagging indicators, and financials leading) basis, the fact is – the only drivers of bullish reasoning here is recent momentum, an implicit ‘rationality/Bernanke put’, and an implicit bias towards self-sustaining behavior by an entirely-dependent marketplace of professional commission-takers.
Valuation Insight:
On a trailing P/E basis, we are anything but cheap. In fact over the past 90 years we are almost perfectly ‘average’ and have not seen the re-emergence of secular bull markets until this trailing (hope-less) data drops notably further…
The stock market’s value (market-cap) is well above its 70-year average relative to US GDP. At 2-sigma over its long-term average, stocks appear anything but cheap…
as the ponzi-like demand for stocks – by every fast-money hopeful investor/trader – maintains a status quo that remains notably away from long-term risk aversion realities.
Cylical Insight
On a long-term cycle basis, we have a few more sideways years (at best) before expectations of a ‘secular bull’ can have any credence…
as the typical sideways range-bound market has last 15-25 years, and we are well ahead of historical trend as we keep hoping that this breakout will be different…
and we are also well ahead of all the usually-cited cycles – election, seasonal, decennial – as hope remains efusive…
and fundamentally the leading-to-coincident indicator – which has tended to historically peak with stocks over the last 50 years – has rolled over quite notably divergent from stocks…
and the typical leaders of any secular rally – the financials – will be under more pressure as the Fed maintains ZIRP and the hope of more QE keeps the curve flat; making financials a headwind rather than a tail-wind for a broad market rally…
The bottom-line is that buying stocks here is a hope strategy – as it always is really and we have seen these kind of hopeful situations twice before in the last 10-15 years. As someone once said, fool me once, shame on you; fool me twice, shame on me; fool me thrice, shame on Bernanke.
Charts: BofAML
via zerohedge
2012-08-15 09:23:57
Source: http://silveristhenew.com/2012/08/15/killing-the-stocks-are-cheap-myth-once-and-for-all/
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