This is a summary/my interpretation of key points from an article published on ZeroHedge by John Hosman
S&P is overvalued by two thirds.
-S&P 500 to lose two-thirds of its value. Fed and other central banks for 30 years, allowed both the U.S. economy and U.S. corporate revenues to grow at the same rate as the past two decades, while stock prices remain unchanged, with no intervening periods of recession or investor risk-aversion, or alternatively
We are in the Melt up phase, gap up everyday and no gap fill. 70 days of vertical ascend with no more than 1% decline in the period on any bad news.
-We forget, one of the striking things about bull markets is that they often end in confident exuberance, while simultaneously deteriorating from the inside. We’ve certainly observed this sort of selectivity during the past year.
Fed 'Not QE" is the catalyst for melt up last phase.
-The market advance in 2019 fully recovered the market losses of late-2018, fueled by a wholesale reversal of Fed policy, hopes for a “phase one” trade deal, and as noted below, a bit of confusion about what actually constitutes “quantitative easing.”
Only 11% correction over a decade
-Yet for all the bullish exuberance, speculative enthusiasm, and fear-of-missing-out (FOMO) we’ve observed among investors in recent weeks, and indeed, in the past two years, the fact is that a pullback of just 11% in the S&P 500
Market will drop in couple of weeks of sharp selling.
-Given current overextended extremes, the entire gain of the S&P 500 since early-2018 could be given up in a handful of trading sessions. For example, the S&P 500 lost 11% in the 15 sessions following the March 2000 peak, 12.5% in the 30 sessions following the September 2000 correction high, and over 10% in the month following the October 2007 market peak.
Everything is going up, good, bad and ugly.
-When speculation is uniform, even an overvalued market can easily be driven to further overvaluation. This sort of uniformity is a hallmark of robust bull market periods, and was observed during much of the technology and mortgage bubbles.
This bubble is bigger than all other bubbles
-Investors should keep in mind that market valuations stand nearly three times the historically run-of-the-mill valuation levels from which stocks have historically generated run-of-the-mill long-term returns.
-In fact, the highest level of valuation ever observed at the end of any market cycle in history was in October 2002, and even that level is less than half of present valuation extremes.
What is driving this insanity?
Investors believe that they have actually learned something from history. And then, they are doing exactly the same thing themselves, because they will imagine that this time, their time, is somehow different.
Who is ultimately to blame:
Fed for 30 years of hand out and bail out and Investors who rush in to buy because of FOMO
S&P is overvalued by two thirds.
-S&P 500 to lose two-thirds of its value. Fed and other central banks for 30 years, allowed both the U.S. economy and U.S. corporate revenues to grow at the same rate as the past two decades, while stock prices remain unchanged, with no intervening periods of recession or investor risk-aversion, or alternatively
We are in the Melt up phase, gap up everyday and no gap fill. 70 days of vertical ascend with no more than 1% decline in the period on any bad news.
-We forget, one of the striking things about bull markets is that they often end in confident exuberance, while simultaneously deteriorating from the inside. We’ve certainly observed this sort of selectivity during the past year.
Fed 'Not QE" is the catalyst for melt up last phase.
-The market advance in 2019 fully recovered the market losses of late-2018, fueled by a wholesale reversal of Fed policy, hopes for a “phase one” trade deal, and as noted below, a bit of confusion about what actually constitutes “quantitative easing.”
Only 11% correction over a decade
-Yet for all the bullish exuberance, speculative enthusiasm, and fear-of-missing-out (FOMO) we’ve observed among investors in recent weeks, and indeed, in the past two years, the fact is that a pullback of just 11% in the S&P 500
Market will drop in couple of weeks of sharp selling.
-Given current overextended extremes, the entire gain of the S&P 500 since early-2018 could be given up in a handful of trading sessions. For example, the S&P 500 lost 11% in the 15 sessions following the March 2000 peak, 12.5% in the 30 sessions following the September 2000 correction high, and over 10% in the month following the October 2007 market peak.
Everything is going up, good, bad and ugly.
-When speculation is uniform, even an overvalued market can easily be driven to further overvaluation. This sort of uniformity is a hallmark of robust bull market periods, and was observed during much of the technology and mortgage bubbles.
This bubble is bigger than all other bubbles
-Investors should keep in mind that market valuations stand nearly three times the historically run-of-the-mill valuation levels from which stocks have historically generated run-of-the-mill long-term returns.
-In fact, the highest level of valuation ever observed at the end of any market cycle in history was in October 2002, and even that level is less than half of present valuation extremes.
What is driving this insanity?
Investors believe that they have actually learned something from history. And then, they are doing exactly the same thing themselves, because they will imagine that this time, their time, is somehow different.
Who is ultimately to blame:
Fed for 30 years of hand out and bail out and Investors who rush in to buy because of FOMO
