“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years,” go the sage words of Warren Buffett. At present, this advice is especially important. For asset prices are expensive.
Stocks are near record valuations. Buying even the best companies today could result in holding stocks that are underwater for a decade – or more. These are the risks when prices have been pushed to their limits.
We’ve gone over the absurdity of current valuations so many times we’ve lost count. No matter how you slice and dice it – be it the Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio or the Buffett indicator – overall stock prices are a complete and total rip off. This simple fact is being largely ignored at the moment.
On top of that, treasury yields – which move inverse to price – are skidding along the bottom of a 30-plus year credit cycle. When yields finally turn, they could rise for the next 20 years. Conversely, asset prices will deflate as borrowing costs increase. Continue reading
