Well, kind of. The chart below is a very simple, yet a power look at today’s valuation levels. It shows that while we have already surpassed 2007 valuation levels, we are still a few clicks away from the 2000 levels. At the same time this is not the main issue here.
It is important to understand where we came from, what we are comparing and why it is incredibly important for your overall portfolio. The late 90’s and subsequent top in January of 2000 were caused by the tech bubble. We all know that. As a result of its collapse, the FED’s had opened the flood gates of credit to stabilize the economy and to avert a deep recession. That money flowed directly to real estate, mortgage finance and the stock market….creating a powder keg that exploded in 2007-09.
The FED’s, once again, raced to the rescue, scared to death, trying to avoid the next “Great Depression”. This time around, not only did they flood the market with cheap credit, but they went as far as creating money out of thin air and monetizing the debt to the tune of $3 Trillion over the last 3 years alone. The money, once again, flowed into the stock market, and to a lesser degree real estate, creating overvaluations and speculation in every sector of the economy.
So, let me ask you. Is it different this time? Can a collapse/recession be avoided? Are these valuation at an appropriate level or is the stock market incredibly overpriced?
I think you know what my answer will be. It’s clear (as per chart below) that the market is above 2007 levels. What that chart does not show is that today’s values, as opposed to values in 2000, are driven by credit. Meaning, in real terms, today’s market is likely to be a lot more expensive than it was at the high of the tech bubble.
Dr. Marc Faber clearly agrees in the article below. As always, his analysis is right on the money. I highly encourage you to read it.
Finally, I have clearly stated a number of times on this blog and as per my mathematical/timing work, the bull market from the March of 2009 bottom has topped out on December 31st, 2013. Further, this same mathematical work indicates that the market is set for a bear market leg that will last into 2017. As such, it would be prudent to educate yourself on the matters above while protecting your overall portfolio and wealth.
I wish you luck.
Chart Courtesy Of dshort.com
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Dr. Doom: Tech stocks even more overvalued now than in 2000
With stocks worldwide off to a bad start in 2014, one man isn’t surprised by any of this.
Dr. Marc Faber, editor and publisher of the Gloom, Boom, and Doom Report, thinks the drop in the markets, particularly with US stocks, were nothing compared to what they could – or should – have done.
While turmoil in emerging markets is often cited as the culprit for stocks’ decline, others are pointing the finger at the Federal Reserve Bank for tapering its monetary stimulus. Faber believes the fall in equities is the fault of the Fed, but not because of tapering.
“It’s easy to blame someone else for ones problems,” says Faber. “Emerging markets central bankers are blaming now the Fed for the tapering… The Fed has brought about problem in emerging economies. But, it’s not the tapering. It’s the previous bubble they created because investors were chasing yield. They bought emerging market stocks, emerging market currencies, and bonds. They pushed up these asset prices to relatively high levels.”
Though the correction in stocks caught some off guard, Faber says he wasn’t surprised by anything other than people’s reaction.
“The market in the US, the S&P went from 666 in March 2009 – almost five years ago – to 1,850,” says Faber. “Now the market dropped 7% and it seems that it’s the end of the world. This is ridiculous.”
“Compared to the previous increase in prices,” says Faber, “the market retreat of 7% is nothing, nothing at all!
Where Faber sees a bubble is in the tech sector, particularly with social media stocks. He was short Twitter, which until Wednesday was up 45% from its IPO closing price of $44.90. He says he covered his short as shares dropped to $50 per share Thursday. However, he is generally not hopeful for the sector.
“Social media stocks are more overpriced than the internet shares were in year 2000,” says Faber.
Besides Twitter’s staggering 24% drop on Thursday, Pandora was down 10% and LinkedIn took a 7% hit in afterhours trading before Friday morning’s opening bell.
Faber warns investors hoping to make easy money by shorting social media stocks that they may get hurt. Yet he doesn’t buying them to make a quick buck is a good idea, either. In other words, investors should just stay away from social media stocks.
“In year 2000, between January and March, [internet stocks] still went up 30%…. And then, it collapsed,” says Faber. “I’m not saying that individual investors should short these stocks because they may get burned. But, by and large, the fact that they still go up doesn’t make them good value from a long-term perspective.”
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Stock Valuation Higher Than 2000 and 2007 Tops? You Bet Your Ass They Are!!! Google
