7/18/2018 – A mixed day with the Dow Jones up 79 points (+0.32%) and the Nasdaq down 1 point (-0.01%)

Now, I would hate to ruin your day, particularly if you are a bull, but here goes nothing.

I know you are sick and tired of this chart, but nothing has changed.  Shiller’s Adjusted S&P P/E ratio is now at 32.74. Slightly off highs, but still arguably at the highest level in history (if we adjust for 2000 distortions) and still above 1929 top of 29.55. In other words, the stock market has never been more expensive. It would have to collapse 50% just to hit its median price and we are not even talking about overshooting to the downside.

But what about earnings? Aren’t we supposed to have 4% GDP growth with the S&P earnings surging to the moon? After all, President Trump said so……MAGA?

NO!!!

Notice something of significant importance from the chart above. The S&P earnings are back or slightly above their 2014 levels. AKA….what growth? Since their 2016 dip bottom, everything that could be thrown at the market from the bullish side was already done. Weak dollar, tax cuts, money printing, etc….. The opposite is true now. The FED is tightening and deleveraging their balance sheet, the dollar is surging and Trump’s tax cuts are already priced in.

BUT, Warren Buffett said it’s a good time to be a long-term investor.  

Umn, perhaps that’s a good idea if you are willing to wait until Warren Buffett reincarnates as a $1000 bill.

Here is the bottom line, you have to dismiss what Mr. Buffett says as he now represents the stock market in its entirety. Instead, pay attention to Mr. Buffett’s favorite market indicator of Corporate Equities to GDP is saying.

The said chart is clear in its conclusion. The stock market today is selling at the second highest valuation level ever. Certainly not a good time to look for value that Mr. Buffett so dearly loves. Valuations would have to decline over 50% just to hit their median.

Finally, the scariest chart of them all. 

It is truly mind boggling to see how long and leveraged everyone is. When the market finally cracks, as it surely will, all of the red on the right hand side will act as jet fuel to the downside.

To very quickly summarize, the stock market is incredibly expensive and sitting at historically high valuation levels. At the same time, positive drivers that were in force over the last few years (low interest rates, QE, weak dollar, margin expansion, tax cuts, etc…) have either reversed or in process of doing so. Finally, long-term bullish sentiment has never been higher as is represented by historically high margin debt levels.

What can possibly go wrong?

Luckily, our mathematical and timing work is clear in this regard. If you would like to find out what the stock market will do next, in both price and time, please Click Here

A positive day with the Dow Jones up 143 points (+0.58%) and the Nasdaq up 3 points (+0.04%)

At this juncture the stock market continues to perform exactly as anticipated.

Once again, we expect this most recent move higher to continue into our XXX TIME turning point. At that time the stock market should……The best upside completion target we have is on the Russell 2000. The index suggests it will top out at XXX. If you would like to find out what the stock market will do next, in both price and time, please Click Here

So, who the f&#* is buying this stock market? 

The answer shouldn’t surprise you.

Stock Buybacks Hit Record $680 Billion In The First Half

From a purely financial point, companies in the S&P 500 that have repurchased shares are expected to see a return on investment of about 6.4% this year, a percentage that falls below the past six rolling five-year periods as measured by Fortuna Advisors, a financial consulting firm that has examined buyback trends going back to 2007.

CEOs, CFOs and Treasurers know all of this, of course, but to them the real goal is simpler: to cash out as soon as possible, while using the company’s balance sheet to soak up any insider sales. If the stock goes up in the process, so much the better.

Gregory Milano, Fortuna’s CEO, summarized it best:  “The majority of capital deployed is going right back to shareholders and not reinvestment in businesses. If that’s the only thing you’re relying on, it’s going to end badly.”

Of course it will, but as we approach an absolutely ridiculous $1 trillion in buybacks – actually the annualized first half buyback total of $678 billion would imply over $1.35 trillion in 2018 buybacks – at least it will end with a bang.

Indeed.

We have discussed this before. It is a well known fact that corporates behave in the exact same fashion as retail investors do. That is, they buy at the top and sell at the bottom.

So, it shouldn’t come as a surprise that they are blowing their debt driven cash stock piles on stock buybacks in the market that is selling at the highest valuation level in its history. In other words, just another red flag that something terrible is just around the corner.

If you would like to find out what happens next in the stock market, in both price and time, based on our mathematical and timing work, please Click Here