[OT] CAPE ratio, P/S ratio, yield curve, ISM PMI, Conf board LEI
Sunday, January 26, 2020 4:43 PM
Not only is the S&P 500 CAPE ratio above Black Tuesday level, and not only is the S&P 500 Price/Sales ratio at a record high (above dot com bubble level), and not only did the treasury yield curve invert about 5 months ago, and not only did the manufacturing sector begin contracting 5 months ago (now contracting faster)....... but now the conference board leading economic indicators index is showing signs of rolling over. The LEI index was down 5 out of the last 6 months. I forget, is the LEI a leading indicator? Cuz the S&P 500 is pretty darn close to its record high. If the phony unemployment rate starts to go up then I think the signs are all there for a downturn in the US economy and stock market. Anybody here still just as exposed to US stocks as they were a couple years ago?
Maybe the Fed can pump a couple trillion into the stock market to save us all. Who knows?
Maybe the Fed can pump a couple trillion into the stock market to save us all. Who knows?
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6 comments
might add some of that.
SJG
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My (admittedly naive) interpretation of QE is that it successfully reduced interest rates and caused people to pile into stocks. There's something like $4 trillion of QE still on the Fed books and the unwinding, I would think, would depress the stock market. And the implications for gold and mining stocks are also obvious. I do have some gold stocks -- but I'm too chicken-shit to have much.
Another macro trend is that boomers are going to be retiring and cashing in their stocks which, I would think, would also depress the market. And we've already discussed that the market is simply over valued if you look at the CAPE.
I follow Shiller on Twitter (respect him enormously) and he recently gave this interview at Davos:
https://www.youtube.com/watch?v=iVO-uMui…
His latest book is about how viral stories influence the stock market and he brings up examples from the 2008 downturn, to Bitcoin, to Donald Trump. You can be the greatest mathematician and try your best to predict the markets -- but a lot of stock market behavior is driven by *irrational* human behavior and stories that go viral. I didn't post this because of his Bitcoin example and it's not meant to contradict anything you've posted.
As Shiller points out, Trump is an absolute master of manipulating the media and coming up with horseshit stories that capture the imagination or ordinary people and that go viral. Trump has a very intuitive, visceral, understanding of human behavior. Social media, Fox, etc...makes things even worse.
If there was some way to know that the price of an issue would be different than it is today, then it would already be at that new price right now.
What you have time to collect and do computer analysis on is far less than what the mangers of the insurance, hedge, and retirement funds can do. It is their trades which determine the current pricing. The information you are collecting is only an attempt to rationalize current pricing.
SJG
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