Warren Buffet Indicator: 'SELL! ! ! !'

[JimBowie1958]

Buffett’s market prediction methodology – which is appropriately referred to as “The Warren Buffett Indicator” – is one that he himself has called “probably the best single measure of where valuations stand at any given moment.” In plain English, the indicator states that the best measure of whether a market is undervalued (good) or overvalued (bad) is determined by the relationship between total market capitalization and the GDP (gross domestic product). Also commonly referred to as the “Total-Market-Cap to GDP Ratio,” the indicator is expressed as a ratio. If total market capitalization is more than 100 percent of the gross domestic product, this means stock is highly overvalued. Thus, the Warren Buffett Indicator screams “SELL!” ...

When market cap stands at more than 100 percent of the GDP, it essentially means that national economic output is lower than the amounts being earned by the companies fueling that economy. And although not a fool proof science – Buffett has admitted the ratio “has certain limitations in telling you what you need to know” – it’s logical to perceive it as indication the stock market is straying into the off-kilter zone. In 2000, just prior to the epic dotcom bubble pop that sent the market spiraling, the Total-Market-Cap to GDP Ratio was at 183 percent. Seven years later when the housing market nosedived and brought the economy down in a sickening plunge, the ratio was at 135 percent. ...

With that in mind, it’s time to heed that sage advice and cast the Buffett Oracle ahead, by simply looking at what’s happening today. According to recent data, today’s Total-Market-Cap to GDP Ratio stands at 142 percent – a full seven points higher than it was just prior to the housing bubble burst of 2007. Nervous yet? If not, you should be.

See more at: Warren Buffett Indicator Signals Massive Market Collapse? ? Farnsfield Research

The market has been pumped into a bubble and is way over valued. The question is 'How long can the Federal Reserve keep it pumped up and not scare most of the world into abandoning the US dollar as world reserve currency?'

Already the BRIC nations are setting up a competing system of currency trading and the dollar is being abandoned, though it only amounts to a sliver of the global markets to date.

IF the Federal Reserve keeps printing US dollars by $65 BILLION a month and giving them to Wall Street banks, that steals the purchasing value of the existing currency and gives it to the banks, and nations holding our bonds lose. That drives them to looking for an alternative to the USD and that is a disaster since the oil markets have tied the USD to the oil markets demand for USD. How long will the Saudis insist that their customers buy their oil in USD if the rest of the planet is going over to a new commodity or currency?

 

[JimBowie1958]

Warren Buffett's Favorite Market Indicator Shows the Stock Market Is Overvalued : investing

 

[Toro]

Stocks are over-valued.

The median price-earnings ratio of stocks in the SP500 is 20x, which is very high.

However, markets don't fall due to valuation. It can, and most likely will, continue moving higher.

But the long-term expected return is low right here.

 

[Rozman]

A bit late to the party....
I think rational people have known this for some time now....

Then we have the Obama suck ups who feel the market has grown because of Obama...

 

[JimBowie1958]

A bit late to the party....
I think rational people have known this for some time now....

Then we have the Obama suck ups who feel the market has grown because of Obama...

Not sure the term 'suck up' covers all the bases on that category....

 

[SteadyMercury]

Warren Buffett's Favorite Market Indicator Shows the Stock Market Is Overvalued : investing

Well shit since you're taking Buffet as gospel let's include what else he said that November:

Warren Buffett says stocks are ?in a zone of reasonableness? - The Tell - MarketWatch

I would say that they’re in a zone of reasonableness. Five years ago, I wrote an article for The New York Times that said they were very cheap. And every now and then, you can see that that they’re very overpriced or very underpriced. Most of the time, they’re in an area where maybe they’re a little high, a little low, and nobody really knows exactly. They’re definitely not way overpriced. They’re definitely not underpriced.”

If you live long enough, you’ll see a lot higher prices. I don’t know what stocks will do next week or next month or next year, but five or 10 years from now, I would say they are very likely to be higher

or from something more recent in 2014: Warren Buffett on CNBC: Berkshire has eliminated most of its US catastrophe insurance business due to low rates.

Buffett said he's been bullish on the U.S. economy since the fall of 2008, but he doesn't expect it to rapidly accelerate this year. Instead, he thinks it will continue its slow upward trajectory.

Or do you just pick and choose articles that throw his name out there when it is angled to scream market collapse is coming?

 

[JimBowie1958]

Warren Buffett's Favorite Market Indicator Shows the Stock Market Is Overvalued : investing

Well shit since you're taking Buffet as gospel let's include what else he said that November:

Warren Buffett says stocks are ?in a zone of reasonableness? - The Tell - MarketWatch

I would say that they’re in a zone of reasonableness. Five years ago, I wrote an article for The New York Times that said they were very cheap. And every now and then, you can see that that they’re very overpriced or very underpriced. Most of the time, they’re in an area where maybe they’re a little high, a little low, and nobody really knows exactly. They’re definitely not way overpriced. They’re definitely not underpriced.”

If you live long enough, you’ll see a lot higher prices. I don’t know what stocks will do next week or next month or next year, but five or 10 years from now, I would say they are very likely to be higher

or from something more recent in 2014: Warren Buffett on CNBC: Berkshire has eliminated most of its US catastrophe insurance business due to low rates.

Buffett said he's been bullish on the U.S. economy since the fall of 2008, but he doesn't expect it to rapidly accelerate this year. Instead, he thinks it will continue its slow upward trajectory.

Or do you just pick and choose articles that throw his name out there when it is angled to scream market collapse is coming?

To say that stocks are "definitely not way overpriced" is to imply they are over priced.

And the economy crawling upwards has zip to do with a stock market floating on $65 billion of QE2 monthly.

Why don't you just shut the fuck up and go back to your crack pipe?

 

[SteadyMercury]

To say that stocks are "definitely not way overpriced" is to imply they are over priced.

I'd agree they are overpriced, I expect a correction this year and lower returns for the next decade. That is far different than a market crash, which is what the ad spam you keep regurgitating is using his name to imply.

Why don't you just shut the fuck up and go back to your crack pipe?

Awww you frustrated? You drinking again already this evening sounds like. I see you for what you are, a worthless drunk who doesn't have a clue about investing and have sat on the sidelines while others made huge returns during an amazing bull market, so now you're just the bitter ranting guy.

Go back to google to find more fear mongering investor newsletter ads to convince yourself the end is nigh.

 

[JimBowie1958]

To say that stocks are "definitely not way overpriced" is to imply they are over priced.

I'd agree they are overpriced, I expect a correction this year and lower returns for the next decade.

The only intelligent thing you said in all that shit pile of bloviation.

Spare us all and go shit somewhere else why doncha?

 

[SteadyMercury]

The only intelligent thing you said in all that shit pile of bloviation.

Spare us all and go shit somewhere else why doncha?

How about you stick to subjects you understand? Your investing knowledge appears to be limited to "articles" pedding doom to sell newsletters, you've bought into it and look like a fool regurgitating it.

Now go open another bottle of booze, or go to the mailbox to see if your leech check is there to buy more, whatever you do on Tuesdays.

 

[Toro]

Market crashes are very rare. However, we don't really know what will happen after QE ends.

We will have a bear market, i.e. a 20% decline, at some point. There have been 12 bear markets since 1945, or one on average about every 5.5 years. We are 5.4 years into this bull market. The longest time period without a bear market has been 7.8 years.

Usually, bear markets are caused by a recession. In 8 of those 12 bear markets, the economy rolled over into recession several months later as stocks anticipated economic weaknesses. There is nothing to think a recession is imminent. In fact, the economy may be accelerating.

There have been four times when there was a bear market without a recession - 1962 (Kennedy's showdown with the steel companies), 1966 (accelerated spending on Vietnam and worries about capital leaving the private economy), 1987 (market crash and portfolio insurance), and 1998 (Russian default and the collapse of Long-Term Capital Management). Perhaps the end of QE will fall into this category.

 

[SteadyMercury]

We'll find out in October. I'm retiring at end of year so have been shifting more conservative but will still be at least 60% stocks, might make for an exciting ride.

 

[sameech]

Market crashes are very rare. However, we don't really know what will happen after QE ends.

We will have a bear market, i.e. a 20% decline, at some point. There have been 12 bear markets since 1945, or one on average about every 5.5 years. We are 5.4 years into this bull market. The longest time period without a bear market has been 7.8 years.

Usually, bear markets are caused by a recession. In 8 of those 12 bear markets, the economy rolled over into recession several months later as stocks anticipated economic weaknesses. There is nothing to think a recession is imminent. In fact, the economy may be accelerating.

There have been four times when there was a bear market without a recession - 1962 (Kennedy's showdown with the steel companies), 1966 (accelerated spending on Vietnam and worries about capital leaving the private economy), 1987 (market crash and portfolio insurance), and 1998 (Russian default and the collapse of Long-Term Capital Management). Perhaps the end of QE will fall into this category.

We will be dragged into a recession next year by economic issues overseas. US companies and the stockmarket are heavily invested in emerging markets. Slow down there will drop stock values which will slow the US economy which will trigger a formal recession.

 

[JimBowie1958]

Market crashes are very rare. However, we don't really know what will happen after QE ends.

We will have a bear market, i.e. a 20% decline, at some point. There have been 12 bear markets since 1945, or one on average about every 5.5 years. We are 5.4 years into this bull market. The longest time period without a bear market has been 7.8 years.

Usually, bear markets are caused by a recession. In 8 of those 12 bear markets, the economy rolled over into recession several months later as stocks anticipated economic weaknesses. There is nothing to think a recession is imminent. In fact, the economy may be accelerating.

There have been four times when there was a bear market without a recession - 1962 (Kennedy's showdown with the steel companies), 1966 (accelerated spending on Vietnam and worries about capital leaving the private economy), 1987 (market crash and portfolio insurance), and 1998 (Russian default and the collapse of Long-Term Capital Management). Perhaps the end of QE will fall into this category.

Retrace on a typical period of gains is around 20 to 45%, but since a lot of this is pumped by the Fed dumping $65 billion /month into the markets via their favorite butt-buddy Wall Street banks, who knows how far it will tumble?

My guess is that the DJIA will stair-step down to around 13,000 by the end of 2020, a long way down the road, till all the easy money has been shaken out. When most investors are long term investors primarily interested in dividends the market will be stable again.