A favorite Warren Buffett stock market metric is at an all-time high, which could signal a crash is in our near future. Dubbed the “Buffett Indicator,” the billionaire’s metric is signaling that the stock market is a bit overheated and that the bubble will soon burst.
According to CBS News, the Buffett Indicator, while it’s not a flawless indicator, does tend to peak during hot stock markets and bottom during weak markets. As a general rule, if the indicator falls below 80%-90% or so, it has historically signaled that stocks are cheap. On the other hand, levels significantly higher than 100% can indicate stocks are expensive. For example, the Buffett indicator peaked at about 145% right before the dot-com bubble burst and reached nearly 110% before the financial crisis.
The Buffett Indicator is a simple metric to calculate, too. Just divide the total market capitalization of all U.S. stocks by the latest gross domestic product or GDP. Basically, the Buffett Indicator can simply tell you the valuation of the stock market in a historical context right now. It doesn’t predict tops or bottoms.
But, according to further reporting by CBS News, at nearly 149%, the total market cap to GDP ratio has never been higher. It’s even higher than the 145% peak we saw during the dot-com bubble. There are some good reasons for high valuations, such as the new, lower corporate tax rate, the generally business-friendly administration, a prolonged period of historically low interest rates, low unemployment, high consumer confidence, and soaring corporate earnings, just to name a few.
But the writings are on the wall. Many financial analysts have said that this is the biggest bubble in history and when it pops, it could devastate the global economy, lowering the living standards for almost everyone.
https://www.shtfplan.com/headline-news/trouble-ahead-for-the-housing-market_07182018
While the Buffett Indicator is certainly a great snapshot of stock valuations, it’s also not a stand-alone metric that anyone should use to determine when to buy or sell. When asked about the Buffett Indicator and another favorite metric at Berkshire’s 2017 annual meeting, Buffett said, “It’s just not quite as simple as having one or two formulas and then saying the market is undervalued or overvalued.”
The coming crash will be a life changer for everyone. Prayers to all who have not prepared, who have not planned, who are not, simply put, ready (if we can every be truly ready for what’s coming). Saw this on another post – thanks to the author (the 5 stages):
Stage 1: Financial collapse. Faith in “business as usual” is lost.
Stage 2: Commercial collapse. Faith that “the market shall provide” is lost.
Stage 3: Political collapse. Faith that “the government will take care of you” is lost.
Stage 4: Social collapse. Faith that “your people will take care of you” is lost.
Stage 5: Cultural collapse. Faith in “the goodness of humanity” is lost.
I’d keep my eye on US Treasuries. When the yields go up and up, it means foreign buyers of US debt are dumping their Treasuries, which is why yields on them go up, to attract other buyers and finance the debt. When enough US Treasuries are dumped, the dollar goes on vacation, because they’ll be too many of them. The interest alone paid to the Chinese for their debt holdings of our Treasuries is enough to finance their Armed Forces, every year. All indications to me are that we should rig for heavy weather.
S,
You don’t “dump” Treasuries. You sell them on the secondary market typically at a loss to the seller. Someone else buys the Bond/Bill at a discount and then gets paid the full interest due.
What drives up Interest on Bonds and Bills is the auctions. If nobody bids, then interest goes up until someone starts to make offers. That impacts our national budget as Treasuries get paid first, and this runs up against our legally capped Debt.
Foreign countries hold about 1/3 of our debt. They could sell it all tomorrow and it would not make much of a difference except possibly impact future auctions. Russia “dumped” virtually all its US debt and nobody noticed.
This is a very simple explanation of Treasuries, but I’d worry more about the Fed, screwing with the value of the dollar, and interest rates.
10-year treasuries broke above 3-percent for the first time since April 2018. I’d pay attention to that first, as 3-percent increases borrowing costs by 37-percent across the board.
Of course some people who said that collapse would come in 2017 had to revise their predictions to 2018, and now 2019.
Some thought that 3-percent would make paying interest on the national debt impossible, causing the collapse of the whole financial system. Now they are saying that it’s not 3- but 4-percent that will bring the whole house of cards down.
Still “the new normal,” whatever it is, eventually this sh*t show is going to end. When China finally says “Enough” and dumps their treasuries that will be it.
Off Topic Thought for the Day: The question of whether Islam is a religon of peace,which it most assuredly is not,is; given the preponderance of violence attached to it,what kind of person or people are attracted to it.
Islam not a religion at all. It’s a political ideology. It started out as a religion, but Muhammed wasn’t getting many converts. He then changed it to its current political ideology, and the converts flocked to it.
Didn’t the Catholic Church create the Muslim faith? The only outside faith allowed into the Muslim nations is Catholic.
Let the market collapse. I don’t gamble in the rigged stock market. I simply wish if its going to happen that it happens soon. Im getting old and am sick and tired of every day the regression increasing and the Republic weakened bit by bit. bring it on.
The ‘oracle” has spoken.