Markets - Watch Out Below
- dejongistani
- Feb 20, 2018
- 1 min read
The markets have wobbled and largely recovered. But have they really recovered and where will they go next. Considering the markets are fundamentally broken, most options to capital markets have been eliminated (interest rates at 0% ~ 1% for savings accounts and fixed income and large players gobbling up even single home real estate investments), the value of stocks are not correlated their price.
Nearly all of excess capital including retirement accounts, insurance float, university endowments, corporate buy backs, passive investing funds and central bank funny money is all funneled absentmindedly into the stock market. With this much programmed buying the price of stocks simply can’t go down. For the last nine years this is indeed what we’ve seen.
The current situation is that US market price to earnings ratio, P/E ratio, are at all time highs. Not even the super bubble 2000 stock market saw valuations at these levels. The underlying financials of both corporations and consumers is in such a state that half of Americans don’t have an emergency fund of $500 or about a weeks wages for a minimum wage job. Add on top of this that stock market margin debt is also at all time highs so when there are small dips in the market like we’ve seen recently brokerage clients face margin calls and have to liquidate positions exacerbating volatility.
This can only end badly as the low paid employees are contributing to retirement funds and retirees need to be paid and central banks must eventually stop printing funny money and get the stocks off their books via sales. Watch out below!
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