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The next Big Short (predicting the next recession)Hi guys, I will be presenting a trade idea that is of a much larger scale. This trade idea involves predicting the next recession - something that is at the back of almost every investor's minds. I will be proposing an open trade at 45.06, which is represented close to the fibonacci 0.786 level, a stop loss at the 51.94 level (which is close to the previous high), as well as a conservative take profit level at 40.22 as represented by the fibonacci 0.618 level as well as a second, more risky take profit at 20.51, which is represented by the previous low. The reasons for the next recession can be summed up by the following statement: a bubble in the fixed income market. 1. Ultra low interest rates by government bonds push yield-hungry investors to corporate bonds, which offer a much higher yield. 2. This leads to the cost of borrowing to fall for these corporates, which in turn provides more capital for the companies to conduct share buybacks, thus artificially pushing the prices of stocks up (which is why we see the S&P 500 testing new highs despite cash flows out of the stock market and into cash and bonds being the highest since 2008) 3. Lesser transparency and covenants by these companies as there is inelasticity and a fall in bargaining power by lenders for corporate bonds. 4. The fallen angel risk as well as the credit downgrade risk has been rising and is at an abnormally high rate at the time of writing, reflecting that companies' debt to equity ratio is increasing. It is only a matter of time that companies will start being unable to repay or refinance their debt, and this will be exacerbated by a mass sell-off of CLOs in the event of a fall in consumer sentiments in the bond market, therefore increasing companies' cost of borrowing and rendering them unable to refinance and repay their debts. I am open to any criticism and I humbly accept that my opinion has many caveats. Do let me know if you guys have any opinions on this trade idea. Cheers!
AMEX:VEAShort
by josephtwe123
Take advantage of millenials stupidity27% of tesla shares are sold short. Price is surging, sellers are going to cover. After that happens, and maybe some hesitation, it may be interesting to short sell this. Links to check %floats of most shorted stocks on the US market: www.highshortinterest.com www.marketbeat.com Something like this can happen so let's first wait for short sellers to get squeezed :) With millenials being what they are this thing could even go into a bubble. They say IQs have dropped by 14 points since the last century... And they're persuaded of being right. A giant herd of brainlets persuaded they are right that keep buying. That alone would make the price go up up up. Around 78.6%, IF shorts got squeezed (not too many shares sold short), would be a good place to sell. Keep your eyes open for excitement "the bull market is back" if they start buyign aggressively the trade is cancelled, have to wait for the rally to end...
NASDAQ:TSLAShort
by MrRenev
40
Another Burst Bubble?Organic growth seems nowhere in sight as BTC continues to make parabolic moves fuelled by questionable means. Some say the entire market is simulated and just being held up by Tether and Co. Rampant manipulation and wash trading keep Bitcoin a niche asset which is far from worldwide adoption. Here is my analysis, you'll see the use of a Schiff Pitchfork and Fibonacci Spirals to create this effect. The use of these tools produce clear Support/Resistance guidelines and a blueprint for the future. The next target is roughly 7200, then we move into the 65xx's. :D Risk management and proper position sizing. You don't want to get rekt in one trade. You want to slowly grow your account into something formidable. All the best to you! :D
BITSTAMP:BTCUSDShort
by RaoulHayes
14
Tether bullrun or exitscam? Some thoughts and bigger pictureWell, you already know how I feel about all of this and how this has come about. If you read my other idea, tether has actually printed another billion fake dollars in the meantime and injected it into the system and actually are buying bitcoin with it... No bull was telling you that about that, right? There are major fundamental problems with the underlying price of crypto, ignore it and one day you might not only see a negative portfolio, but a blank webpage. To remind you again, many of those smaller exchanges are probably going to exitscam, including a few big ones. Quadriga is already done, but there will be other big ones as well, like Bitfinex, Binance and/or Kraken. Wait long enough to see how price can drop several K's within an hour, it's actually not something new and is not exclusive to crypto. Liquidating every single crypto for fiat and I'm out of this sick manipulated fraud market. I've actually broke my own rule by shorting too prematurely when I explicitly wrote a few times at 2 April to not short this at all, although it was a hedged short, it's still painful and I'm done with it. Crypto community has been extremely toxic last few months, exactly what I've wrote over a year ago, but exceeded my expectations. I will not have any regret if this pumps much higher or to new ath, not at all, when other markets are way better tradeable instead of being stuck in a huge pnd, with extreme uncertainty 24/7 if it doesn't dump or exchanges are being raided and all money is gone. In fact, I'll get my life back and be free in the weekends, playing with bigger cap where you actually can scalp and be done with it within 30m instead of being scammed with a huge dildo with crypto after weeks of waiting, all done in 15-30 minutes. When you got a stop buy or sell, you get wicked out with a 20-50% wick single order to get filled at the top or bottom, I'm really sick of this bullshit. When there is a flashcrash, exchanges like Bitstamp pretend they care and are investigating it, but when a huge pumpwick happens, it's all silent, the hypocrisy. But you already know why they all carry the hodl-meme, which reinforces the counterparty's argument that crypto is absolute dogshit and has no value (zero). If you wanna hodl and not use it, then be my guest and hodl to 0. If crypto is not going to be used, wtf is the point in hodling it. Another hypocrisy is that hodlers are in it for the tech, that's such a bs, they are all here for the $, but they don't realize or are not honest that it was done mainly by tether and exchanges and that their ultimate goal is $ as well and what do you think will happen in a negative/zerosum game. Next to that, tech gets obsolete fast, anybody who ever worked in tech (hardware or software) knows this full well. If crypto is going to have a future, it needs adoption and be used. My toiletpaper has actually more value than most of shitcoins. Even if we go Mad Max style and even if there was affordable internet and electricity, if anything at all and even if crypto was to be used, prepare to get robbed or killed for a dogecoin. People laughed at me for saying that exchanges were pumping entire market for years, whether the money existed or not (tether, customer funds or with no money at all (i.e. MtGox). Well, in last court hearing, it's now been proven that exchanges like Bitfinex and others buy bitcoin on their own exchange. Conflict of interest much, trading against clients. But I don't think those bigger crook exchanges are going to get away with fraud. They most likely will get the max punishment (because they know full well and planned this a long time ago), i.e. under the Patriot act otherwise Rico, so we can expect employees and ceos to get long prison sentences, like what happened with Liberty Reserve, 20 years of prison and total asset forfeiture. Some who read this are probably complicit in this conspiracy and massive fraud having destroyed a lot of people's lives, then I have a question for you: I know you live in the now and not thinking about the future, so when you get stripped naked and put to jail and when you're released and are then financially and socially destroyed for the rest of your life, please come back to me to tell me if this was worth it. If there was no manipulation since Bitcoinica to MtGox to Bitfinex to Binance, then most people would probably never heard of bitcoin, because price would have never pumped to $20k. On the other hand, there is a big possibility that this entire crypto goes in the history books as the biggest fraud in known human history and flushed down the toilets soon, i.e. to balance one extreme with the opposite. Needless to say, I'm done with this shitty crypto market. It's become a disease for body, mind and soul since not only are you playing vs the house with unlimited fake money that can put green dildos of 300% in matter of no time, you risk of losing every single cent in a raid or exitscam, which I feel is already happening and majority to come. Next to that, most people in crypto are so extremely toxic and can't think and feel for themselves that I feel stuck in a sea of kindergarten. I've noticed a pattern, especially in crypto, that is that most if not all people will not listen, no matter what you say, they rather listen to strangers even when you fully speak your mind without anything hidden that fully comes out time after time, they rather get burned, disappointed, learning nothing to do it all over again. This I've encountered a long time ago when I was awake when I wanted to help people, it was totally impossible. When I gave up forcing people to help themselves and instead inspire them, that's where the change came, BUT, it's always a very few out of hundreds of people. Well, if you can help at least one soul, that's good enough. Anywho, I'm pretty sure I'm not the only one thinking and feeling all of this. Better quit crypto, don't come back and see if those exchanges still exist after it's regulated or better yet, if crypto still exist (especially Bitcoin - it would not surprise me to see a BSV flippening and outperforming Bitcoin (Core)). I highly doubt most exchanges you know today still exist (timeframe < 2021, possible extension to 2024). And yeah, I say this after it's pumped almost 300%, better get out before a potential bankrun and don't regret if you do not get the top, because that says more about you than me, especially when you get all emotional about it and that all for greed, amazing. We are again in a bubble (within a bubble), exchanges pumping their own (empty) books while they washtrade in consolidation areas to create huge volume when there is no new big money coming in. See the on-chain data on the blockchains, oh the irony of scamming people to manipulate their perceptions like that Pomp shill. I would have been bullish if we completed the pattern to 2-2.2k and seeing a proper bottoming with characteristics of one, but no, let's pump 300% from 3k to 9k, initiated by that bullshit "100m mystery buy order" fakenews, when I knew and wrote about in my previous idea that it was exchanges and people still to this day believe it's fresh money coming in and whales are doing this... Are you kidding me? Whales (lucky early adopters or hedge funds) are the very targets of the orca whales (exchanges and cartel of manipulators), I've written about this a long time ago, which makes absolute sense. The target is not the small money anymore, think about it. Once almost everyone knows about something, it's over. They took the wrong bet by trying to manipulate public sentiment and they horribly failed. People already knew about it and if they weren't in before, they aren't now. Don't buy the retail think of that every joe smoe comes in at 20k, that's complete bullshit. I've talked about this a lot with friends how fomo actually can be extremely rewarding vs trading using TA when you actually know potential targets beforehand. It's absolutely the fastest way to make money and most of the time it's a lot of %. Don't believe everything people say, most of them try to be wise when they are full of shit (not even traders, but analysts...). Anywho, all they did was to ensure their own coming destruction, hope it was worth it. You won't buy a lambo when in jail, nor do you when you get out of it. I've posted this a while back, but it could have been avoided, now it's way too late and it's a one way ticket to hell. Good luck and stay away from this market. Targets are marked as horizontal lines: Blue = aggressive buys Green = Safe buys Scale in per target block, don't go all in and do not leave any money on the exchanges. When it's time, buy and sent to private wallet.
Short
by CryptoSwindle
11
Market cycles applied part 2. June & December bubbles.Let's assume 8950 was the top, or very close to it. Just to be prepared in the eventuality people that shorted at 8800 ish are not going to get liqudiated. Never know... Want to have a look at BitconnectCoin previous bubbles or in other words months of June & December. 1- June 2011 2- December 2013 3- June 2014 4- December 2017 5- December 2018 6- June 2019 What we can extract from these 6 examples (or 8 with dec 2013 *3) > When it dumps, if this was the top (I believe it is), it probably sees a large retrace (EW 1 rule). EW says 0.786 at least. Can be slighlty less. > Bitcoin dropped 11% at 6k and 22% at 8.4k, next dump 33%? That would bring us to 6000 exactly. > Where to re-enter exactly? This is for me to know and you to find out. Re-shorting around 0.786 is a pretty good RR, above 5... > People keep falling for the same stuff. Every body sees the same chart. I don't get it. Too obvious... Rince and repeat december 2020 maybe. > Bottom 900 to 1800 not sure where exactly yet... On the bubble chart denial it at the top, on the wall street cheat sheet denial is in the middle. Careful you talk about the same thing when you use that term. Honestly, they are in denial during the entire bear market. We should use different names. This:
BITSTAMP:BTCUSDShort
by MrRenev
28
When to Buy Stocks - S&P 500 Dividend Yield CurveBefore start reading on; this chart is inverted. More on that later Interpretation According to Mike Maloney, the S&P 500 dividend yield curve is the second best way to measure a stocks value (after the Shiller S&P500 PE Ratio -made a post on this, go check it out). The ratio indicates how much a company pays out in dividends each year relative to its share price. In other words, it measures how much "bang for your buck" you are getting from dividends. In the absence of any capital gains, the dividend yield is effectively the return on investment for a stock. The lower the dividend yield, the less you get for your investment and hence the more overvalued a stock. The historic S&P 500 Dividend Yields were deducted by Robert Shiller and published in his book Irrational Exuberance. Why is the chart inverted? Two reasons 1. This allows you to see, bubbles are up instead of down, and undervalued is down instead of up 2. The higher the yield the more undervalued the stock is, the lower the yield the more overvalued the stock is Areas of S&P 500 Dividend Yield Curve Stocks are undervalued: 1% - 4% Stocks are undervalued: 4% - 5% Stocks are fair value: 4% - 6% Stocks are undervalued: 6% + Keeping an eye on... The alarming thing when looking at this chart is it has only once ever been this high and that was at the beginning of the millennia and this chart goes all the way back to 1872. As of the time of this writing it is at 1.94. The highest it’s ever been is 1.11. This goes to show the size of the bubble we are currently is. Note: This "indicator" is used to find the best time to purchase stocks, not to pick or find the market top/bottom How to “rebalance the dividend yield curve” Going back to Mike Maloney and his analysis...to bring down this dividend yield he sees two ways the market can seek equilibrium. 1. The market goes sideways for a decade while we have raging inflation that will balance this out and then bring dividend yields and PE’s ratios back into line 2. It crashes, the markets go down The currency supply collapses, therefore this has to be a deflationary collapse, this cant be an inflation in what they call an invisible crash. Note that the source of the material here is from 2011 Source: www.youtube.com (58:22)
MShort
by Muncher
Downside Risk For Microsoft Is AstronomicalMSFT is one of the only tech stocks that has made a significant higher high since the December 2018 selloff. I posted a short trade setup back then, suggesting that it would be unwise to short until the recent low was breached. Indeed, MSFT defied my original expectations and headed up, even breaking new highs. Due to this, it is one of the assets that is furthest away from its parabolic trendline on the linear chart. You can see Netflix very close to breaking down right now: On the logarithmic chart for MSFT, we can see that it has held a parabolic trendline (purple) since its inception! That's CRAZY. Here's where it is currently (right in the 118 area): If the stock market continues its slide, I think we can expect Microsoft to at least test its own uptrend line again. If that breaks, I think it will likely enter free-fall mode. I have the opinion that most equities are not truly valued much above 2008 levels. This means that many could retrace the entirety of their gains from the last 10-15 years. The lowest bearish targets may not be reached, but they remain a distinct possibility, and I think investors should prepare for this scenario. If we do finally see some major breakdowns, I'd like to observe the market's reaction at higher support levels before blindly assuming further downside. Supports are outlined on the above chart. This is not financial advice! Purely my opinion and should be only used for educational/entertainment purposes. -Victor Cobra
NASDAQ:MSFTShort
by VictorCobra
$DJI- Massive Crash ImminentElliot wave patterns always move in the same specific way. In a 5 wave pattern which will inevitably be followed by an ABC correction. The textbook example of the pattern is shown right below the monthly Dow Jones Chart. The Dow Jones is a compilation of the top 30 stocks. A crash in the majority of these stocks would rock the global economy in ways that we have never seen. By now you’ve probably been hearing people say here and there that the stock market is a bubble. They’re not the majority, but we saw the same sort of behavior during the Bitcoin rise to $20,000. Which was, of course, a massive bubble. These views should be taken seriously. Because of the way that the Elliot wave works it is impossible for there to not be a massive ABC correction to follow, which could potentially last for decades. Instagram: @Crypto_Planet_VIP Website: Cryptoplanet.cash
DJ:DJIShort
by dmitch696
1
Bitcoin Dominance 70% more room to grow or Triple top ??With BAkkt set to launch Bitcoin Futures next month, it moved from 700$ which was expected with the FOMO. The dominance has been significantly rising in January 2019 and made a strong uptrend movement. However, with the fear index rising we can expect a drop in the dominance which can be good for altcoins and also for institutional buyers, as it can be also taken as Triple top pattern. Most of the people have put their long entries between 8200$-8700$ which is most likely to happen. Expect Bitcoin dominance to be around 60%-62% in coming weeks.
CRYPTOCAP:BTC.D
by setrader33
1
Are We Nearing The End of An Era? (Amazon & Netflix)In the last year or so, any time I've said to certain people that I thought Amazon, Apple, and other tech giants were in a bubble, they thought I was crazy. But now...I've noticed people are starting to worry. The chart looks scary. If the double-top is confirmed, and these guys break down below their December 2018 lows, we could easily see our first widespread stock market panic since 2008. Growth has stagnated, yet the job market is flourishing. Friends of mine are making six-figures right off the bat at tech companies I've never heard of, acting as glorified secretaries. Things don't add up. Where does this money come from? Back in December, I wrote a few pieces on why I thought big tech was going to slow down. My primary feeling is that things have changed too rapidly in our every day lives for us to both biologically and psychologically cope with all this innovation. I think people are pretty satisfied with the current level of technological innovation, but they're dissatisfied in other areas (income, family, relationships, etc.). Opioid abuse is on the rise. Why do you think that is? People are lost. When everyone starts to give up and look for other routes for fulfillment, there is a point at which people will refuse to pay higher prices for things that give minimal reward. That's not to say that I don't think there will be more innovation. I just don't really see us adapting quickly to this growth. I believe things really need to slow down. When people stop desiring the newest and best thing enough to pay for it, these companies stop making money. Guess what? The growth has been so unsustainable that they cannot afford to stop making money, even for a little while. It's totally ridiculous. The proof of this is the panicky response of the FED to any sort of potential stock market worry. They're like my 11-month old kitten. Articles keep popping up about how it's not time to panic "yet." The problem with these soothsaying excuses for journalism is that it will be too late. Even the media can't afford to lose money. No one wants a crash, because it would be devastating. But that's life! You can deny the hardships of existence all you want, but eventually things will turn bad. But hopefully, if things turn bad, they won't stay that way. Another pet peeve of mine is seeing two articles from Barron's within the SAME day: "Stocks Surge Because The Trade War May Not Be That Bad" and "Stocks Plunge Because The Trade War Is Far Worse Than We Imagined." Get it together! The trade war is not the primary cause of economic uncertainty. It's our own greed and our pathetic debt-fueled economy. People are already starting to heavily weigh the risk/reward of staying in certain equities. People are even getting out of more speculative markets like marijuana and smaller crypto projects because they're reducing risk exposure. Yeah, maybe stocks have a liiiiitle bit of upside. But the downside? Anyone with a brain can look at the two above charts and see that there is a lot of room to fall. These are shown in linear scale to emphasize the parabolic nature of the growth we've experienced in the last decade. I picked Amazon and Netflix, because I see their business models as particularly fragile. Too big to fall? Just look at these charts. There is hardly technical support after the December lows are breached until roughly 50% down from that point. What does that tell you about the nature of the growth? I could make an attempt to go into the real economic factors that would drive a 60-95% decline for many tech companies, but there are much more seasoned economists/analysis out there. I'm simply a guy who likes reading charts, sentiment, and particularly the psychology behind denial and delusion. Everyone's guilty of these things, including myself. That's the only way to understand it. In my opinion: Likelihood of sustained upside from here is less than 20% Likelihood of extended bear market (negative 60-90 percent returns) from here is around 60% . This could even extend into the latter half of the 2020's, marking the next decade with poverty and upheaval, but hopefully resulting in some positive change. Likelihood of a medium sized drop and then long consolidation I think is around 20%. That's only if regulatory and financial authorities figure out a solution. If we really start to see breakdowns, I'll probably post some more short setups for some stocks, just for fun. Netflix Bearish Targets: 230-245 130 82 46 (roughly 90% down from peak) Amazon Bearish Targets: 1320 693 288-300 (possible bear market bottom) - Roughly 85% decline from peak. As you can see, the potential deepest retraces for these equities are perfectly in line with previous bubble pops. We may not ever get down there, but there is substantial risk for it to happen. As for where all that money will go? Already some of it is fleeing towards precious metals and a little bit of Bitcoin. Buying property with cash is probably something people are doing as well. It'll be really interesting to see what happens. It would be silly of me not to mention potential upside, by the way. I said I thought it was unlikely at this point (particularly due to the inability of the Dow Jones to sustain a new high above 27000), but it's perfectly possible if a magical stimulus is introduced that pumps the market with more fake money. Based on the potential double-top in the Amazon and Netflix charts above , it seems that people are no longer falling for these shenanigans, but you never know. Microsoft, for example, has blown past the potential double-top target from earlier this year (chart linked at bottom). MSFT is an outlier though. I posted a fractal analysis on the DJI a while ago. The in-depth analysis below shows that there could be more upside before the fractal potential completes, sending us into a downward spiral of uncertain depths. In this chart, you can see that the "mania" phase might have been short-lived compared with 1929. At least that would mean downside may not be as severe as the Great Depression. This is basically me ranting my opinion. No one should take this as financial advice. These are purely my thoughts on the current situation. Thanks for your support! -Victor Cobra
NASDAQ:NFLXShort
by VictorCobra
10
Gold frothy like a BTC impulse bubbleGold is well into rare air, it's looking a bit bubbly. There aren't any reference points to find prior levels for a reversal so about the best that can be done is to project from fibs from the prior waves of the elliot impulse it's working on completing. It's almost definitely working on finishing wave 5 of the impulse which is likely to correct back to the green high volume region before consolidating and then probably moving back up again. Intraday it's still a good idea to have a long bias. It's probably only the dumb money pouring into gold right now but there can still be a lot of dumb money to drive it higher so it's a bad idea to stand in front of the train. This feels a lot like bitcoin during one of its frothy bull runs. TLDR: right now gold is ok for long intraday scalps, but it is a really bad idea for long term investments or swing trades in either direction.
COMEX:GCQ2019
by mljones
The Global Debt Crisis - the End of the Bubble is NearGFDEBTN Monthly FEDERAL GOVERNMENT DEBT: TOTAL PUBLIC DEBT 8:00PM EST At current rate of acceleration, total Federal Government Public Debt will double by April 2023 (4.5 years from today) and then double again by October 2026, just 3.5 years later. By January 2028, total federal government debt will have doubled again in an even shorter time where it will hit a red line - having gone gone fully vertical - doubling every month, week, then day. Obviously this is impossible, and likely there will be major economic consequence before this date. The data does not lie. The world is in serious trouble with the most massive debt bubble to have ever existed. The consequence of this debt bubble is yet to be seen, however, terms such as, “The Great Reset,” amongst others come to mind. It is difficult to fathom the consequence of this bubble, however, we would like to believe that there is a recovery strategy on the horizon. One thing is certain, the path is on track to a 2028 or sooner GLOBAL DEBT MELTDOWN and perhaps the end of modern day finance as we know it. DISCLAIMER This Content is for entertainment purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Posts constitutes a solicitation, recommendation, endorsement, or offer by MarketMotives or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content on this post is speculation, opinion, and entertainment in nature and does not address the circumstances of any particular individual or entity. Nothing in the Site constitutes professional and/or financial advice, nor does any information on the Site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. Market Motives is not a fiduciary by virtue of any person’s use of or access to this Post or Content. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on this Post before making any decisions based on such information or other Content. In exchange for using the Post, you agree not to hold MarketMotives, its affiliates or any third party service provider liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through this Post.
FRED:GFDEBTN
by MarketMotives
Shiller S&P500 P/E RatioBrief Description About the P/E Ratio The p/e ratio is the price of a share of a stock divided by the earnings per share, so it’s the earnings that the company makes during a year divided by the number of outstanding shares. Once calculated the answer is a multiple. This is one of the best valuation metrics that investors have been able to use to judge whether they’re buying an overvalued or an undervalued stock. Using the logic of this fundamental indicator for individual stocks, Dr .Robert Shiller applied this to the S&P 500 , using the S&P 500 as a general gauge of the entire stock market. By doing this, it allowed us to see whether the stock market is undervalued, fair valued, overvalued, and in a bubble, etc. About the Shiller S&P 500 P/E Ratio The Shiller p/e ratio is slightly different from the traditional S&P 500 p/e ratio where; instead of dividing by the earnings of one year, this ratio divides the price of the S&P 500 index by the average inflation-adjusted earnings of the previous 10 years. The ratio is also known as the Cyclically Adjusted PE Ratio (CAPE Ratio), the Shiller PE Ratio, or the P/E10. Areas of the Shiller S&P500 P/E Ratio As you can see on the chart, there are several different ranges with each one describing the "state" of the stock market 0-5 = stocks are extremely undervalued 5-10 = stocks are undervalued 10-15 = stocks are at fair value 15-20 = stocks are overvalued 20-30 = stocks are in a bubble 30-40 = stocks are in an extreme bubble Interpreting the Multiple Think of the multiple this way; you are paying (insert multiple number) times the earnings . Another way to interpret the multiple, it can be counted as the number of years it would take for the individual to get his investment back. Example #1 : Great Depression, one of the worst times in history, the Shiller S&P 500 p/e Ratio was above 32.56, this means you are paying 32.56 times the earnings , and it would take the investor 32.56 years to get his investment back. Example #2 : 1998-2000 the Shiller S&P 500 p/e Ratio was 44.19, this means you are paying 44.19 times the earnings , and it would take you the investor 44.19 years to get your investment back, even if they were to give you all of the earnings as dividends you would still have to wait 44.19 years. That’s insane, that is a lifetime! “Timing beats speed, precision beats power” Analyzing the Shiller S&P 500 P/E Ratio One thing you will notice when doing some analyses of this multiple is the following: whenever the multiple surpasses the 20-30 area, the multiple always returns back to 0-10 area. Once the trend reverses and the bubble pops, it doesn’t stop until the multiple has reached some somewhere in the range of 0-10 (undervaluation) as I have illustrated above with the blue arrows. It does this without exception. It would need to revisit undervaluation before a new “healthy” real bull market were to start again. Once the trend has reversed it doesn’t go straight down, it mimics the movement of a ball rolling down the stairs. You can think of each step of stairs as one of the areas it has to go through before eventually reaching the bottom, similar to how the Fibonacci retracement tool works. Using this historically repeating pattern, I'd say we are currently on another step down the stairs before we eventually make our way down the bottom of the stairs where we revisit undervaluation areas. Once have reached the undervaluation areas, this will also be a moment of consolidation where investors, traders, pension fund managers, self-directed IRA owners will have most likely given up and have thrown in the towel. You will most likely see news article titles saying something along the lines of: to invest into the stock market is one of the worst things you could do, but it couldn’t be further from the truth. You can apply this reasoning to all the different kinds of markets and remember these... "When the time to buy comes, you won’t want too" "Buy when there’s blood in the streets, even if the blood is your own" Why has the the multiple so high over the past 20 years or so, well at least why I think it is high These are some explanations came up with 1 - Interest Rates are Low Specifically the "Interest Rate - Investment" graph For those who have taken macroeconomics in college or university, etc know about this graph. Essentially the idea/theory behind this graph is that investments change according to interest rates. High interest rates = fewer "projects" approved When interest rates are high, and people want a good return on their investment what do they buy? People buy bonds, not cash, because cash doesn't earn interest. By having high interest rates, money is "expensive", it isn't readily available. High interest rates = slower economic growth . Lower interest rates = more "projects" approved When interest rates are low people are going to do the exact opposite of holding bonds, they are going to hold cash, because the rate of return is low enough to not put their money in a locked contract for a specified time frame. When interest rates are low, money is "cheap", it is more readily available. Low interest rates = fast economic growth. alevelecons.weebly.com twitter.com 2 - Bond Yields are Low ---> Stock Market The second reason here ties in with the first one. When interest rates are low, bond yields are low, thus no where else for money to go, except the stock market, the money will flow elsewhere, it will flow to other parts of the economy where investors can get a higher rate of return on their investments compared to the rate of returns of bonds. Buying a bond forces you to be in a locked contract for a specified period of time, with interest rates varying. Whereas, in the stock market there is no locked contract, you have more mobility, very high amounts of liquidity, more mobility and freedom to do as you wish with your money. Example: say you bought some 10 year US bonds in January 2000, you would be getting somewhere around high 5%-mid 6% on your investment, but remember this contract is for 10 years, your locked in for 10 years, can't move out. Instead of buying 10 year US bonds and getting on average 5-6%, you invested in the stock market (ex: SPY ) you would be getting more, about 7-10% on your investment. Which is more logical? Bond yields have been dropping from the beginning of the millennia, you can see that from around 1998-present time (link below). stockcharts.com These are some explanation I was able to come up with and why I think the multiple has been so high ever since the beginning of the millenia or so, I might be wrong, I might be right, don't really know, but thought i'd just put it out there, that others may see this and can get the gears turning. Hope you enjoyed the post!
MShort
by Muncher
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