The Market Is At Least 28% Overvalued

I have been banging the table on this for quite some time.

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www.businessinsider.com...

Based On Standard Models

"In light of yesterday's update of the Q Ratio, let's check out the latest overlays of the three valuation indicators I routinely follow. Here are links to background explanation. Note: The charts below have more current data than the first two background links, which take you to September 1 indicator values.

The relationship of the S&P Composite to a regression trendline (more)
The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
The Q Ratio — the total price of the market divided by its replacement cost (more)

To facilitate comparisons, I've adjusted the Q Ratio and P/E10 to their arithmetic mean, which I represent as zero. Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I'm using as a surrogate for fair value. Based on the latest S&P 500 monthly data, the index is overvalued by 41%, 34% or 28%, depending on which of the three metrics you choose."

Prolly more than 28% when it comes down to it. Get ready for a bumpy ride. Crashes imminent. Invest long in dune buggies w/ machine guns. And leather eye patches.

Originally posted by erumisato
Prolly more than 28% when it comes down to it. Get ready for a bumpy ride. Crashes imminent. Invest long in dune buggies w/ machine guns. And leather eye patches.

Go long in can goods and shotgun shells... Dibs on the Thunder Dome!

I no longer allow myself to listen to the folks who use statistics and mathematical formulas to determine where the market is heading. Post 9/11, many of the economic indicators and formulas we used to determine market conditions and whatnot were thrown for a loop. After the meltdown of 08, it was even worse.

Now I just check and see who's investing. If the common man is jumping into a market, it's time to sell. When they get thrashed, lose their shirts and give up, it's time to jump in.

reply to post by Crakeur


Good instincts and (un?)common sense.

To go purely on technical analysis is rather foolish at this stage in the game.

reply to post by leo123


I just buy companies I think will do well for the next 20 years or so and look away. The rest is just noise as far as I am concerned.

That said if you want to create overvalued / undervalued scenarios use the earnings yield of the s&p 500 companies. Curently about 8.5% when a ten year Treasury is under 3%. Given the average historical spread is about 2.5%, it means we are undervalued by over 100%. A logical mind will understand though that as the market rises, rate sprobably will as well. Let's say we end the medium term with 10 year treasuries at 5%. This would mean the markets are undervalued by about 33%.

reply to post by unityemissions


Between Madoff and all the other weasels manipulating the markets for their own benefit, and the apparent lack of real oversight, it seems to me that, to some degree, the markets are rigged. It's like a casino. Sure, you might win but the smart money is on the House taking your money.

reply to post by Crakeur


The big players who have the means to manipulate market prices have been there since the beginning, but what seems to be happening in recent years is that it's all somewhat out in the open. The greedy have crossed into the realm of hubris. This will be their own demise, eventually. I'm fairly certain this is cyclic, and has happened time and time again throughout history. Civilizations, like societies, come and go. I haven't a clue how far-reaching the effects of all of this corruption will go, but do know that this is the collapse of at least a few systems of organization. It became quite obvious to me that at the very least our society was on a major decline, when the people became apathetic and demoralized.

That's the problem with human investors, we think like a rat who remembers the cheese in a maze, not like a gecko who aims his tongue where the bug will be. Rat thinking says stock prices should always follow the zero value on the chart. Lizard thinking says stock prices will be in the direction stocks are moving. If you used the professors guideline in the mid-90s, you would have completely missed out on the huge gains during the dot-com bubble.

Personally I'm happy with a few little gains. I only buy when the overall market is moving up, I buy a stock that's also rising, put a trailing stop loss on it, and when the price oscillates the stock sells at a modest gain. The trailing stop loss is my insurance policy against plunges in stock value. I only wish I knew how to short so I can make some modest money during market down moves.

Change is opportunity, fear can make you miss opportunities.

reply to post by Crakeur


You can't listen to what the numbers are telling you because the people who pull all the strings listen to them as well. With the willingness of the populace to allow the government, or various other entities (like banks), to run the economy like another branch of government we have massive amounts of manipulation in the markets. Logic, reason, indicators, all go out the window when you can manipulate the market with interest rates, stimulus packages, regulations, etc.

It doesn't matter what the markets should be doing because someone is always fiddling with the dials, making it act in the way they want it to perform.

The one I follow for real estate valuations takes the median sale price in an area and divides it by the median income. Historically (60+ years of data) in the US it has averaged 2:1 right across the country with the odd deviation pocket here and there - as expected. In 1995 it started to take off and by 2006 it had reached 4.5:1 so it was quite obvious it was not a matter of if, it was a matter of when that puppy was going to blow. And of interest it is STILL at 3:1 so your real estate prices have another 30% to go just to get back to historical norms - not to mention that when any sector undergoes a major correction, there is usually some overshoot to the downside before it comes back to the norm.

Up here in Canada we historically have been at 3.5:1 - why the divergence over the US I don't know, but that's the way it is. If you look at Vancouver right now it is 9.8:1 and using this valuation model it places Vancouver as the most unaffordable real estate in the world! Here in Vic it is 7.7:1 ranking us as number 8 worldwide. You just KNOW that it will pop sooner or late.

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The models I use are never "timing" models, they are valuation models and some times a market sector can go much higher (or lower) and go on for much longer that common sense dictates, but it always comes back to earth. For example, in 1997 I got out of the Nasdaq tech side because it was wildly over valued even then. Well, as you know that market went on for another 3 FLIPPING years to nosebleed valuations before it blew. And the other thing that virtually always rings true, is the larger the over or under valuation, the larger and more violent the correction.

So I have always found valuation models work the best. Sometimes, though, you have to be very patient, but they will always set you free.

In the midst of this over-valued property pricing,
explain this:
Why are some King County property tax assessments going up?

this is crazy

Originally posted by imd12c4funn
In the midst of this over-valued property pricing,
explain this:
Why are some King County property tax assessments going up?

this is crazy

The other is the percentage of the home's actual value the assessor shoots for. Under Hara's predecessor, assessments were based on 85 percent of what the home might actually sell for. Hara is moving that up to 92.5 percent. In addition, the county used to base that on a three year average that could keep the home at a higher or lower number. Hara says he's moved it do a two year average that's more responsive to the actual market conditions. According to Hara, that may be what's accounting for Newbeck's higher tax bill.

Classic example of some 2 bit municipal employee screwing with the data to try and pad the county's tax pocket.

I would be agressively appealing this, even to the point of going to court.