Market cap to GDP ratios March 2009 vs. March 2014 flash valuation warning

Probably the broadest measure for stock market valuation purposes is total stock market capitalization divided by GDP. Warren Buffett uses it and John Hussman has spoken approvingly of the measure.

But because we have to wait for GDP numbers for at least a month after the quarter end, the ratio cannot be a real-time valuation tool. And given that revisions to GDP can be substantial in the 2nd and 3rd estimates, as well as in the annual summer revisions, precision using the 1st estimate is also wanting. Nevertheless the calculation provides a big picture snapshot of where we have been in the market cycle, and gives forward guidance for long term investors. Presently it appears to counsel taking chips off the table and waiting in cash for a better opportunity to invest. 

For the following I use nominal figures for GDP as revised in the most recent updates from bea.gov and calculate market cap using the popular Wilshire 5000 (level x $1.2 billion) as close to March 31 as practicable.

A comparison of March 2009 to March 2014 is instructive, since March 2009 was a pretty good buying opportunity both in terms of the absolute level of the stock market after its decline and the coincident Shiller p/e valuation which was about 13.3 on March 1. The ratio has almost doubled in the interim, indicating that now is probably not a good time to commit large new sums to stock markets. The current Shiller p/e begins the day at 26.31, which is also nearly doubled from five years ago.

That said, the 10 year Treasury presently pays just 69 basis points more than the dividend yield of the S&P500. At the October 2007 stock market high, the 10 year Treasury paid 276 basis points more than the dividend yield of the S&P500. You could argue the Fed caused the markets to crash by taking rates much too high in 2006 and 2007 and that Janet Yellen is bound and determined not to let that happen again anytime soon, meaning stock markets could have higher to go. Keep in mind that the inflation-adjusted all-time high of the S&P500 was 2045.09 on August 1, 2000. We're at 1962.46 this morning. 

March 30 2009

$10.32 trillion market cap

---------------------------------------------- = 0.72

$14.38 trillion GDP

March 31 2014

$23.99 trillion market cap

---------------------------------------------- = 1.41

$17.02 trillion GDP

Banks probably will need ZIRP until March 2015 to be fully recapitalized from the crisis

In March 2013 Warren Sulmasy estimated that banks had lost $1 trillion in the crisis, and had recapitalized as little as $300 billion of that by that time.

Chris Whalen has estimated that ZIRP yields banks profits of $100 billion quarterly at the expense of savers who are not fairly recompensed for their deposits under the Federal Reserve policy known as zero interest rate policy.

So theoretically by March 2014, one year on from Sulmasy's estimate, banks had recouped an additional $400 billion, with $300 billion yet to go, which should take us to the spring of 2015 before we can say that banks should have been made completely whole from the crisis.

ZIRP should most definitely end by then, or things are worse than we imagine.

Business as usual: a government of the banks, by the banks and for the banks.

Elton John thinks Jesus would have supported gay marriage when he didn't really support normal marriage in the first place

I used teh word normal instead of heterosexual just to piss you off.

Story here.

[I]n the resurrection whose wife of them is she? for seven had her to wife. And Jesus answering said unto them, The children of this world marry, and are given in marriage: But they which shall be accounted worthy to obtain that world, and the resurrection from the dead, neither marry, nor are given in marriage: Neither can they die any more: for they are equal unto the angels; and are the children of God, being the children of the resurrection.

-- Luke 20:33ff.

The reasons why his followers weren't supposed to marry are complicated, theological and not generally understood by any church, being the same reasons for requiring personal poverty of his followers. On these NT Wright will be of no help to you. 

US company clones 100 cows . . . it's called the . . .

U.S. Senate.

Five years after the recession ended . . .

. . . Democrats are still trying to pass "emergency" unemployment benefits.

It must be a depression, Obama's depression.

More than 7 years after the crisis began, banks are still failing

The Freedom State Bank, Freedom, Oklahoma, failed tonight, costing the FDIC $5.8 million. It's the 12th failure of 2014.

Metropolitan Savings Bank, Pittsburgh, Pennsylvania, kicked off the wave of bank failures in the current crisis on February 2, 2007, with assets of $15.8 million. About $1.2 million in deposits exceeded the FDIC insured limit at the time. It had been the first bank failure in the country since 2004 and the first of a string of failures which now totals 504 banks and close to $89 billion in covered losses.

Stay tuned. 

Supremes unanimously slap down the King of constitutional law in the White House for 13th time

From John Fund here:

"Those decisions are very revealing about the views of President Obama and Eric Holder: Their vision is one of unchecked federal power on immigration and environmental issues, on presidential prerogatives, and the taking of private property by the government; hostility to First Amendment freedoms that don’t meet the politically correct norms; and disregard of Fourth Amendment protections against warrantless government intrusion. These are positions that should alarm all Americans regardless of their political views, political-party affiliations, or background."

The first three months of 2014 were worse than the whole 2001 recession

Jeffrey Snider, here:

"The first quarter of 2014 is worse than anything seen during the 2001 recession – which the worst contraction then was -1.2% in the third quarter of 2001. In raw GDP terms, that would make the first three months of 2014 worse than the whole of the 2001 recession."

Tyler Durden of Zero Hedge is crazy, but you knew that

The website that specializes in the economic wacky, lately popular on the right as a rhetorical club against Obama which Tyler Durden exploits to gain eyeballs, says today here that ObamaCare spending is the cause of the total collapse in 1Q2014 GDP. You know, like ObamaCare is responsible for all you full-timers getting part-timed.

ObamaCare, the heart of all darkness.

That's funny, because in April Zero Hedge maintained ObamaCare spending was the sole cause of the rise in 1Q2014 GDP.

Well which is it?

In other words, in April ObamaCare was the only thing responsible for positive GDP ihao, but in June it is the only thing responsible for negative GDP. This is because we're supposed to believe that healthcare services spending evaporated in the final estimate of GDP (a swing from +$39.9 billion in the 2nd estimate to -$6.4 billion in the 3rd), evidently accounting for $46 billion of lost spending in the Zero Hedge world of weird math between Q4 and Q1. The swing negative caused the personal consumption expenditures collapse, he says, which fell almost $60 billion inflation-adjusted Q4 to Q1.

Of course, that's comparing apples to oranges. Healthcare services spending in Q4 was positive $24.4 billion. That makes the swing barely $31 billion from positive into negative territory, not $46 billion.

From that you wouldn't know that PCE was still positive in the 3rd estimate: $27.7 billion. Nor that goods consumption collapsed $24.5 billion from Q4. Nor that spending on utilities was up a whopping $23 billion because of the cold weather. Nor that the output of nonprofits swang nearly $28 billion into negative territory from positive, while receipts for goods and services of nonprofits suffered a similar swing, $29 billion from positive to negative. Schwing!

Does he read the report?

The inflation-adjusted decline in GDP totaled just over $118 billion, $81 billion of which was from a decline in private domestic investment from positive $16 billion in Q4, mostly inventories, and $58 billion of which was from a decline in net exports of goods and services, from a positive $37 billion in Q4. That's where the real decline was, a total swing of over $190 billion from just those two categories.

Maybe the silliest thing Durden predicts is that all that "lost" ObamaCare spending will magically reappear in Q2.

Which leads us to ask: What if ObamaCare actually did reduce healthcare services spending in Q1? Isn't it conceivable that a bunch of people, now qualifying for subsidies under the program, had significantly reduced costs? Who knows, the $6.4 billion drop might actually be the first and only drop we're ever going to see in healthcare services spending under ObamaCare.

I'll bet on that before I'll bet on a 5% GDP print from Obama.

Obama vs. Bush on GDP

Bush's average quarterly report of GDP: 2.1%. Obama's average quarterly report of GDP through today's final number for 1Q2014: 1.6%.

Too hot to shop: There goes Q2 GDP

Keeping the people ignorant of their poverty: Obama's media shills bury the awful GDP story

NBC briefly had a red banner headline at the top of the page and then moved the GDP story to the top left but not among the page lead stories.

ABC buried the story near the bottom left.

CBS buried the story near the bottom right.

GDP tanks 2.9% in first quarter, CNBC shills for Obama calling it disappointing, doesn't even put GDP in headline

Consensus estimate for GDP has worsened to -1.7% from -1.6% at fxstreet

Bob Brinker mentioned the consensus estimate for GDP this last weekend on his radio program Money Talk at -1.8%. fxstreet.com had had the consensus estimate at -1.6% as recently as last week, but now shows it at -1.7%. Very curious.

How did the winter get so much worse in the last month for its impact on GDP? After all, everyone has blamed the -1.0% print in the second estimate on the bad winter. But somehow things are much worse than we thought because of the weather? 70% or 80% worse than we imagined?

It's not because of the winter, dear friends. It's because your master wants you to suffer, wants to cut you down to size, wants to destroy your aspirations.

He is succeeding.

How does it feel to be a slave?

The keys to corporate profits since the 2008 panic

Layoffs and ZIRP and buybacks, oh my! Layoffs and ZIRP and buybacks, oh my!

Art Hogan doesn't think valuation is a fundamental

Here:

"At these levels you need a strong catalyst, and I thought we got that, but we've got investors that are nervous about things other than fundamentals, namely geopolitical and valuations, so the path of least resistance is to take chips off the table. There's a large cohort of investors looking for any opportunity to take some money off the table near record highs," said Art Hogan, chief market strategist at Wunderlich Securities.

-------------------------------------------------------------------------

Translation: paying too much for something shouldn't concern you.

$82,077: What you need to make to afford the median existing home price in May 2014

The median sales price of an existing home in May rose to $213,400 from $201,500 in April.

In May you needed to make $82,077 for that home to be affordable to you.

In April you needed $77,500.

Housing affordability is generally calculated by multiplying your salary by 2.6.

Just 10.5% of individual wage earners made $80,000 or more per year in 2012, which means the vast majority of Americans must settle for homes which are priced in the bottom half of the market. Two people each making the median wage in 2012 of $27,519.10 could afford a home priced at no more than $143,100, which was the typical price of a suburban home in the collar communities of Chicago in . . . 1993, over twenty years ago.

"And it is a device of tyranny to make the subjects poor, so that a guard may not be kept, and also that the people being busy with their daily affairs may not have leisure to plot against their ruler. Instances of this are the pyramids in Egypt and the votive offerings of the Cypselids, and the building of the temple of Olympian Zeus by the Pisistratidae and of the temples at Samos, works of Polycrates (for all these undertakings produce the same effect, constant occupation and poverty among the subject people); and the levying of taxes, as at Syracuse (for in the reign of Dionysius the result of taxation used to be that in five years men had contributed the whole of their substance)." -- Aristotle, Politics, 5, 1313b.

Run away: Today's total market capitalization/GDP ratio is 1.46

$25.003 trillion
-------------------  = 1.46 (June 23, 2014: a really bad time to invest)
$17.101 trillion


$10.222 trillion
------------------- = 0.71 (April 6, 2009: a pretty good time to invest)
$14.381 trillion













h/t John Hussman, Warren Buffett

Consumer indebtedness has exploded since the 1980s

Americans haven't saved 10% since 1984