Time to Grab an Umbrella

Weather Moving In Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Time to Grab an Umbrella - Today’s bubble is “more insane” and “broader” than the dotcom bubble… - Wall Street’s latest narrative to justify today’s skyhigh stock prices… - Have you got your umbrella?… Recommended Link [“What’s happening right now is 100% un-American”]( [Read more here...]( Have you seen this? It’s completely un-American and could be the #1 threat to your money right now. It’s why a former Managing Director at Goldman Sachs says, “It’s a rigged system… and regular Americans need to know what’s really happening.” You can catch her full take by going here now. WARNING: This video comes down tonight at midnight. Don’t wait... [Click Here Now]( Annapolis, Maryland July 21, 2021 [Brian Maher]Dear Reader, Heavy weather barreled through Wall Street Monday — beneath the weatherman’s detection — and gave investors a savage drenching. Squalling rains washed away 925 points from the Dow Jones Industrial Average… before relenting late in the day. High pressure, high skies and high expectations were back yesterday. The Dow Jones reclaimed 536 points. It took back another 286 points today. Once again… all is peace. Yahoo! Finance: Stocks opened higher on Wednesday, following a session in which investors... cast aside their fears that a resurgence of COVID-19 cases might derail a red-hot economic recovery, as strong earnings provided a ballast to beaten-down markets. Strong earnings? A batch of encouraging second-quarter earnings on Wednesday from industry bellwethers Coca-Cola (KO), Johnson & Johnson (JNJ) and Verizon (VZ) gave investors reason to focus on the fundamentals. All three companies topped market expectations, converging with sentiment that drove Tuesday's rally. Just so. Yet, we are not half so convinced the weather will hold. Conditions Are Too Good The barometric pressure has risen to delirious levels, unsustainable levels. The pressure in the gauge cannot sustain. Mr. Robert Shiller’s famous CAPE ratio for the S&P 500 goes at 38.19 — a near-record. 16 is about par. Stocks were only pricier prior to the hell storm of 2000. Not even the peak roars of the 1920s approached today’s extravagances. CAPE came in at 32.56 before the Crash of ‘29. Again… today the CAPE ratio goes at 38.19. The S&P — argues Mr. Shiller — is presently more expensive than in 96% of all previous quarters, 141 years running. But might today’s valuations outdo even their 2000 records? Even More Insane Than 2000 Mr. Fred Hickey, editor of The High-Tech Strategist, argues they do. But the Federal Reserve’s false fireworks blind the vision: This market is insanely overpriced. The price-to-sales ratio for the S&P 500 is at 3x. That’s 30% above the peak of 2000 which was crazy. Market cap-to-GDP is at record highs, too. Basically, every indicator other than the P/E ratio is at a record high. The only reason the P/E ratio is slightly below the 2000 record is because of all the financial engineering that’s done to try to pump up the earnings. As insane as the 2000 bubble was, this is more insane - and it’s broader. It’s a direct result of the Federal Reserve and the other central banks pumping enormous amounts of money into the system. Recommended Link [The “dirty little secret” the Fed is afraid to tell you]( [Read more here...]( In this special report, I’ll tell you exactly how Jerome Powell, Joe Biden, and Janet Yellen plan to go behind your back to “fix” the debt. Their secret scheme could cost you nearly everything you own. Or it could make you wealthier than you ever dreamed possible. It all depends on what you decide to do today. [Here's What You Need To Do]( In addition: This market has become terribly narrow which is another big risk. The record highs are driven mostly by five stocks: Apple, Microsoft, Amazon, Google and Facebook. Their combined total valuation is $9 trillion, and people continue to pile into this small group of names. This trend has been accelerated by the movement of passive investing where everybody just piles into the same ETFs. The market cap of the S&P 500 is $36 trillion, and those five companies are now 25% of the index. So when people put money into the ETFs, they essentially buy more of these big tech stocks. It’s a self-perpetuating phenomenon until it ends — and when it ends, the market is going to collapse because the valuations don’t make sense. Look at Apple: Only a couple of years ago, people were getting excited about Apple hitting $1 trillion. Now its market cap is $2.5 trillion, and the stock trades at 33x peak earnings. That’s absolute insanity! Insanity, we must agree, and absolute. No Problem, Don’t Worry Yet Wall Street’s drummers insist today’s obscene valuations are justified in full. That is because today’s obscene interest rates — obscenely low interest rates — warrant them. Stripped to bolts and nuts, the argument runs this way: Stock prices merely represent the current value of future cash flows. Lower borrowing costs — lower interest rates — raise earnings. So long as rates remain frozen at low settings, today’s valuations are swell. Yet analyst Charlie Bilello says have another guess. The theory finds little excuse in the facts… Mr. Bilello has interrogated the data stretching to 1881. He finds: If low interest rates were the primary driver of higher valuations, we should see the highest valuations in the lowest interest rate periods. But this is not the case. Instead we find the highest average CAPE ratios [when interest rates were between 4.5% to 6%]. This occurred during the dot-com bubble in the late 1990s and early 2000s. Meantime, today’s interest rate... paralleling yields on the 10-year Treasury note... pegs along at 1.29%. More, please: The full data set shows a correlation of -0.24, meaning that there is a slight historical tendency for lower interest rates to be associated with higher valuations (and vice verse). But it’s not nearly as predictive as many suggest. There have been a number of periods where interest rates and valuations have been low (1934-35, 1938, 1940-1954) and other periods where interest rates and valuations have been high (1995-2000). There is no precise formula that can give you the appropriate valuation at a given interest rate. Recommended Link [Wall Street Legend Warns: Get in now!]( [Read more here...]( With market manias like Gamestop, AMC, and Bitcoin making its mark on 2021, Chris Rowe, America’s #1 Wall Street Insider, has issued a new urgent warning about an event he believes could impact portfolios all over the nation by December 31st. [See His Warning Here]( This Time Is Always Different Yet the wish is the father of the thought. Wall Street wishes today’s slim interest rates authorize today’s obese valuations. And so the thought has its father… in the wish. But each stock market delirium runs to different themes, different narratives, all lovely, all logical — and all false. They are all bound together by one common feature: The fool belief that this time is different. “Stocks have reached a permanently high plateau,” it was argued in 1929. “Markets are perfectly efficient,” it was said in the 1960s. “Earnings do not matter,” it was claimed in 1999. “Low interest rates justify high valuations,” it is blabbed in 2021. Each previous narrative came to grief, wrecked upon reality’s hard rocks. We have every suspicion the present narrative will end upon the identical rocks. Time to Buy Your Umbrella We do not know when the great undoing will occur. Nor do we pretend to know. We have forecast too many false tempests, too many false tornadoes, too many false typhoons. Yet we are most alarmed by extended stretches of fair weather. That is when guards come down. And when guards come down, ours goes up. It is presently up. It is a terrible pity no one purchases an umbrella when it is most available, when blue skies stretch to the horizon. Come the inevitable downpour, most are caught in the open, unprepared. Perhaps this is the time to purchase your umbrella. Many are available. And they are on sale... Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: Gold is an umbrella that can help save you from a financial downpour. And like an umbrella on sale in a desert, gold is currently cheap. Gold is REAL money. That’s why we strongly recommend that you own physical gold, as the dollar loses its value. We also recommend you get yours from [Hard Assets Alliance.]( (We actually own a share of it, in the interest of full disclosure). Here are some key facts to know about the Hard Assets Alliance and their precious metals service: - They ONLY deal in high quality bullion - They ONLY deal with the best storage and security companies... like Brinks and Loomis - They offer automatic gold and silver savings accounts - They offer gold and silver IRA accounts - They offer corporate accounts for business - They offer Estate and Trusts for holding gold and silver You get the idea. For anyone who wants to invest in precious metals… and own REAL money... [Hard Assets Alliance is the place to go.]( [Go here to open an account with the Hard Assets Alliance today.]( It’s totally FREE to get started. --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Brian Maher][Brian Maher]( is the Daily Reckoning's Managing Editor. Before signing on to Agora Financial, he was an independent researcher and writer who covered economics, politics and international affairs. His work has appeared in the Asia Times and other news outlets around the world. He holds a Master's degree in Defense & Strategic Studies. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. 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