4/6/2015 – An up day with the Dow Jones up 117 points (+0.66%) points and the Nasdaq up 30 points (+0.62%).
The bulls are breathing a sigh of relief after Friday’s dismal job’s report is interpreted as “No Imminent Rate Hikes”. In fact, FED’s Dudley confirmed this view earlier in his speech.
“Whenever the data support a decision to lift off, I think it is important to recognize what this would signify. It does not mean that monetary policy will be tight. We will simply be moving from an extremely accommodative monetary policy to one that is slightly less so.”
With that in mind, I continue to maintain that most bulls are missing the big picture here. Today’s market action is identical to an out of fuel plane barely making it over a mountain range only to realize that there is no way in hell that it can glide over the next one. Maybe not a good analogy considering the timing, but you get the picture.
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. 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 19.65 (which is freaking expensive) , it would be somewhere in the neighborhood of 35-50. Making today’s stock market not only overvalued, but are you “f&*$ing kidding me” overvalued. Hmm, I wonder how that 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. April 6th, 2015 InvestWithAlex.com
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