Perspectives

TSP Charts: New Records?

Yesterday I did some quibbling in my subscriber’s market commentary section about the headlines declaring a new high and a new record for the longest bull market.  My quibbling was about whether we were there yet or was someone just trying to get the first news article out.

I don’t know of any set rules on how these things are determined.  Everyone seems to have their own and in the end what really matters is not where we have been, but where we are going.  I’ll get to that part in a minute.

First the quibble. Here is the SP500 tagging the 26 February high on 21 August.

Tag

New High?

You have to set your chart to 1 minute intervals to see it, but intraday the SP500 did hit a new high.  At the close, not so much.

Anyway, those 6 minutes were used to say the bull market is still intact and wouldn’t you know it, 21 August also tied the longest duration bull market ever.  Or did it?

It depends on what index you use and if you use closing price, etc.  Yes, all quibbling.

I will end my quibbling since the total US stock market definitely hit a new high and small caps are much higher than 26 January.  But if you were using the DOW, then we are not there yet.  The SP500 will probably close higher soon, but what does all this mean?

What does a record setting bull market mean?

Before we answer, let’s look at some other records we broke recently.  Lance Roberts provides us with another look at the SP500 Price to Sales ratio.  And what we see is a record in SP500 price to the SP500 companies sales.  That is called extreme valuations.

The last time we hit the extreme range in 2000, the 10-year follow on return was -2% annualized – hint, hint.

PS returns

So a record setting bull market in this case could mean a record setting bear market.  You know – losses.

Just to back up the revenue picture, Warren Buffet’s favorite valuation measure was recently updated by Doug Short.  It measures the total US stock market to GDP.  And we find another record.

Bubble Buffet

So many records being broke

 

So when will the record setting bull market turn into the record setting bear market?

As I have been saying and waiting and saying…

…corporate profits do not matter, the economy does not matter.  What matters is when the central banks stop their mad monetary experiments.  Like Japan (charts courtesy of Dr. Yardeni)……

BOJ nuts

Print, print, print, print

Printing money out-of-thin-air to buy financial assets at any price tends to elevate prices and elevate and elevate.  It also elevates risk, but all those who take risk into account got pummeled by the central banks experiment a long time ago.

QE and SP500

Notice the correlation between central bank balance sheets and the SP500

The only variable highly correlated to the world’s stock prices have been central bank purchases this market cycle.  Which means if they reverse policy the market will once again be on its own.

I don’t think the central banks are fully willing to let free markets determine prices again, but they may let go a little while.  The Fed is trying, sort of.

Total Assets

Don’t buy this dip

That little dip in central banks assets is setting off fireworks in emerging markets, causing other central bankers to plea for the Fed not to sell down their balance sheets.

Contagion at the global financial periphery is to be watched closely.  Remember how the Fed Chairman said the sub-prime loan fallout was “contained”.

Back to the good news and happy thoughts.

A New High and a Record Setting Bull Market

Bull

It Depends

The Nasdaq, total US stock market, and small caps all hit a new high.  The SP500 tagged it intraday on the day we tied the longest bull.  The DOW needs more time.

Why is the Dow lagging?  Because it raced ahead to the 26 Jan peak and so it has higher to climb.  And the air is getting thin.

pre-Top

The Dow has higher to climb to reach the 26 January peak again

My indicators have not turned down yet so I don’t know when the bull will end.  But I do know extreme valuations mean lower long term future returns.  So when our indicators do turn down, we could be out of this market awhile.

Unless the central banks crank up their printing presses and start buying stocks in the US like they have been in Japan for some time.

It was all easier when we had free markets.  Now we have to read between the central bank tea leaves. But I don’t think the central banks can stop the laws of financial physics forever.  Invest safe.

 

Invest smart.


TSP & Vanguard Smart Investor

Categories: Perspectives, TSP Charts