CNBC Writes: ‘Huge amount of downside’ in S&P: Fleckenstein
Bill Fleckenstein is not ready to call the top for the market just yet. But pointing to the S&P 500‘s valuation, he says that once stocks do start to fall, the decline could prove extremely painful.
“The [price-to-earnings ratio] is 16, 17 times earnings,” Fleckenstein said on Tuesday’s episode of “Futures Now.” “Why would you pay 16 times for an S&P company? I don’t care about where rates are, because rates are artificially suppressed. Why isn’t that worth 11 or 12 times? Just by that analysis, you’d be down by a quarter or 30 percent. So there’s a huge amount of downside.”
For Fleckenstein, a noted short seller who is famous for making money in the 2008 crash, the Federal Reserve‘s quantitative easing program has led investors to badly misprice stocks.
The Fed “printing money does not make the economy work, but it sometimes makes stocks go wild,” Fleckenstein said. “The reason the stock market did well last year is because the Fed printed $1 trillion.”
Bill is right on the money and while he is not ready to call the top, I am. In one of my previous posts MARKET TOP, I have identified December 31st, 2013 as the top of the bull run from the 2009 bottom.
It has also been my premise all along that fundamentals no longer matter. Not in terms of identifying some sort of a new stock market environment, but as of right now. The fundaments do matter a great deal under “normal” circumstances, yet normal circumstances have been greatly distorted by massive infusion of credit into our financial system.
Credit that drove our stock market prices beyond any reasonable valuation and well above 2000 and 2007 tops. Sure, earnings, P/E ratios and other metrics matter. Yet, most metrics we revert to today have been distorted by the same credit infusion. Leading to higher earnings and corporate profits. The bottom line is, when credit collapses so will all other metrics. Do not be fooled, all of this is nothing but an illusion.
As I have said so many times before, my mathematical work shows that we are in for a 3 year bear market that will take us into the 2017 cyclical bear market bottom that started in 2000. Do you need more information and exact price/time targets? My premium subscription service will be available next Monday.
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