Just A Correction Or Did A Bear Market Already Start?

Daily Chart August 14 2015

8/14/2015 – A positive day with the Dow Jones up 69 points (0.40%) and the Nasdaq up 15 points (0.29%)

The primary line of thinking on “The Street” is as follows. We are undergoing a regular correction and as soon as it’s over, the stock market will push to new highs. For instance, This could be correction stocks are waiting for. AKA, buy the dip.

My question is, what if this “mild correction” turns into a real bear market? What if this 5-10% correction turns into a 20-30-40% decline over the next two years?

Don’t forget, the 2000 and 2007 bear markets started with small corrections as well.

Last week I shared the following cyclical breakdown with you Shocking: The Real Reason Behind Stock Market’s Decline & What’s Next

This week, let’s review our primary bearish driver. Excessive overvaluation.

One of the primary bullish arguments is a claim that the stock market is not expensive by any historical measure. I have argued against this notion by presenting a number of metrics over the last 6-9 months. The article below summarizes most of them in a nice fashion and with charts. It is definitely worth 5 minutes of your time.

Forbes: Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts

The case, charts and numbers presented in the article above are right on the money. Or, you can just look at the Shiller’s Adjusted S&P ratio chart below. We have seen higher valuations only at 1929 and 2000 tops.

PE Ratio

However, here is one crucial factor that most analyst, even the bearish ones, miss. ALL of today’s valuation metrics would be even more out of sync with reality if analysts considered how much “extra juice” zero interest rates, QE and share buybacks infused into the corporate earnings over the last 5-6 years.

What is that number?

Given current distortions, no one knows and the real number in question cannot be calculated at this time. It is arbitrary at best, but I would estimate that the drivers above added somewhere between 50-100% to today’s corporate earnings.

Here is what that means. If we are to take out QE stimulus, zero interest rates and share buybacks, today’s P/E ratio would not be around 27.44 (which is outrageously expensive), it would be somewhere in the neighborhood of 35-50. Making today’s stock market not only overvalued, but are you “freaking kidding me” overvalued. That is to say, you don’t have to be a genius to figure out how this ends.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. August 14th, 2015 InvestWithAlex.com

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