Both Shiller p/e and Tobin's q warn stocks are seriously overvalued

As reported by Brett Arends, here:

Smithers found that over the past century the Shiller PE had an R-squared to subsequent returns of 0.52, the “Pseudo-Indicator” one of 0.61, and the q an astounding 0.79.

So if the past is any guide, if you want to get a good estimate of the future returns from today’s stock market you should completely ignore the low yields on cash, certificates of deposit, or bonds. You should pay more attention to the Shiller PE, and you should pay the most attention to the Tobin’s q.

And what do these tell you? “As at the 31st December, 2013,” says Smithers, the “q indicated that U.S. non-financial equities were overvalued by 73% and CAPE indicated an overvaluation of 76% for equities, including financials.”

Two Reasons For Legal Offshore Cash

Political risk, as in:

If the country implodes and you've got to renounce citizenship you'll have some resources abroad waiting for you.

Litigation risk, as in:

Rich people make big targets, so to prevent everything you've got from being exposed to a lawsuit, you park some money out of reach.

Brett Arends explains here.

Does it inspire confidence that a prospective president might think that way?

Male Unemployment is 11.2 Million, Not 4.2 Million

So says Brett Arends, here:

Millions here are still out of work. The unemployment situation is far, far worse than the government is telling you. Forget the official jobless rate, 9%. It’s meaningless. Even the so-called “underemployment” rate doesn’t tell the full story. Consider this: According to the Labor Department, the number of men age 25 to 54 who are out of work is officially 4.2 million. The reality? Deep in the footnotes the Labor Department says there are 61.6 million men in America age 25 to 54, while just 46.7 million are in full-time work. That leaves 14.9 million left over. Another 3.7 million work part-time. Seven million aren’t accounted for at all.

Private Equity Performance Proves Public Markets Are Not Efficient

So says Brett Arends, here:

If you’d invested $100,000 in the Standard and Poor’s 500 index 25 years ago, and stuck it out through all the turmoil that followed, you would have made about $800,000 in profits in return for all your trouble.

Sound good? Try this. If you’d invested in a typical basket of private-equity funds you’d have made $2.1 million. No kidding.

Q1 Non-Bank Corporate Debt Surged to a Record $7.3 Trillion

And Brett Arends, same article, thinks corporations used the borrowing to finance the stock buy-backs, which kind of puts the taint on both their stocks and their bonds:

The total [borrowing] at the end of 2007, at the peak of the so-called “credit bubble,” was just $6.7 trillion.

This borrowing spree has pushed overall gearing for nonfarm, nonfinancial corporates to hefty levels. The Fed says that U.S. nonfinancial corporates now have debt equal to 50% of their net worth. It’s near record levels for modern times. As recently as 2006, it was just 40%.

When a company borrows money to bolster its own stock price, it makes me wary of the bonds. When the executives aren’t even willing to invest their own money, it doesn’t exactly make me enthusiastic about the stock either. 

Q1 SPX Rise of 5 Percent: Companies Painted The Tape

Just like they're doing in the last three days, along with everyone else, to make Q2 look better after a tough couple of months.

Brett Arends has the story here:

So who was driving up the market? What was creating this boom?

Turns out it was the companies themselves. TrimTabs says companies spent a thumping $124 billion in the first three months of the year trying to boost their share prices by buying up stock.

That works out at about $2 billion for every day the market opened.

Meanwhile, according to Trim Tabs, guess who avoided buying stock during the first quarter? Company executives. The “insiders.”

Phony as a $3 bill.

Why Hold Bonds in Tax Protected Accounts and Stocks Outside Them?

"Bond coupons are taxed as ordinary income. Stock dividends are taxed more lightly."

-- Brett Arends, here, on a completely different topic.

GOLD AND THE U.S. MONETARY BASE, THEN AND NOW

Interesting stuff from Brett Arends two days ago at The Wall Street Journal:

Dylan Grice, a strategist at SG Securities in London, thinks global conditions today could unleash another gold boom like the one in the 1970s. ... Mr. Grice calculates that even at today's prices, the bullion that the U.S. government holds in places like Fort Knox is still only worth enough to back 15% of the U.S. monetary base. That is near a record low.

At the peak of the gold mania in 1979-80, gold prices rose so far that the backing exceeded 100%. How far would gold rise if that happened again? To around $6,300 an ounce, Mr. Grice says.

Read all about it, here.

Apathy Precedes Bull Markets, Not Fear

The secular bull market in gold since 2001 is coincident with a secular bear market in stocks since 2000, if this November 30, 2009 analysis by Brett Arends for The Wall Street Journal is correct. The current stock market rally is therefore a cyclical bull market within the long term bear market, which at present elevated levels is ground where angels fear to tread, or ought to, as the title "Gold Run a Reason to be Wary of the Stock Market" suggests:

The booming gold price is making me very nervous. About Wall Street.

Why? Because gold's rocketing boom -- it's risen from around $260 an ounce about a decade ago to just under $1,200 now -- is a vivid daily example of what a real bull market looks like. ...


Looking back to early March, there certainly was a lot of panic and capitulation, which you usually see at a market bottom. People talked of a new "Great Depression." One thing I noted at the time was that investors were shying away even from rock-solid defensive stocks with big, well-protected dividend yields. People weren't just scared; they were petrified.

Is that really how a massive bear market usually ends?

The last example before our eyes was gold, whose big bear market ended a decade ago. It looked very different.

Like shares in the 1930s and the early 1980s, gold ended its secular bear market in 1999-2001 with a whimper, not a bang. People didn't panic; they simply lost interest.


Read the rest at the link.