How to Cash In On the Economic Sweet Spot

Posted on March 27, 2015 by MN Gordon

By all accounts, the U.S. stock market is expensive.  Not only is it hitting new nominal highs, its valuations are also off the charts.  How can one tell?

Fortunately, there are several metrics to guide us.  The Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio, for instance, is currently 27.5.  That’s 65 percent higher than the CAPE’s long-term historical average.

What’s more, there have only been two occasions over the last 100 years that saw the CAPE at a higher valuation than today.  One was during the late 1920s…right before the stock market crash.  The other was the late 1990s…just prior to the popping of the internet bubble.

The Buffett indicator, which is a ratio of the total market capitalization over gross domestic product, also shows that stocks are significantly overvalued.  The ratio currently stands at about 125 percent.  A fairly valued market is a ratio somewhere between 75 and 90 percent.  Anything above 115 percent is considered significantly over valued. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | Leave a comment

What Comes After the Boom

Posted on March 24, 2015 by MN Gordon

Last week Fed Chair Janet Yellen opted to keep the Fed’s zero interest rate policy in place.  Wall Street cheered the news and bid stock prices up to near record levels.  After more than six years, and over $3 trillion of direct asset purchases, what could the Fed really do?

Sure they could have begun the difficult task of walking credit markets back from their policies of mad insanity.  But that would destroy something the Fed’s worked very hard to create.  In short, it would explode a financial H-bomb and crash the perilous stock market edifice it has constructed.

This real possibility has the Fed parsing its words out like Bill Clinton at a Congressional impeachment hearing.  “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient,” said Yellen.  Huh?  So they may raise rates soon…but not too soon?

By all accounts, this dither drabble is categorically worthless.  What’s more, it’s ludicrous that in the year 2015, in an era of indoor plumbing and tablet communications, the financial system rests upon the mixed utterances of a frail bureaucrat with a hair helmet. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | Leave a comment

China’s Economy is Doomed

Posted on March 20, 2015 by MN Gordon

Sometime early last summer, Hui Ka Yan, chairman of Evergrande Real Estate in China, displayed his brilliant deal making abilities.  He took time off from developing and selling residential real estate buildings to sell China’s most popular soccer team to fellow billionaire, and chairman of Alibaba Group, Jack Ma.

“By accident I got him drunk,” recounted Yan, of how the deal went down with Ma.  “I told him my Evergrande soccer team is planning to issue shares and raise money to support strategic development, will you join?  He said I will.  We finished it in 15 minutes.”

Surely, such stellar business dealings have been fundamental in Yan accumulating a net worth of $6.4 billion.  Likewise, for Ma this $192 million soccer team purchase may have been nothing more than an act of philanthropy.  Ma’s net worth – $22.5 billion – dwarfs Yan’s.

One of the great marvels of life is the direction money flows.  From whose hand is it given?  To whose hands is it received? Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , , , | Leave a comment

Not in a Million Years

Posted on March 17, 2015 by MN Gordon

Storylines serve a valuable purpose.  They round out the incongruences and give meaning to things in a way people can quickly comprehend.  This is especially true when it comes to the economy.

The popular narrative of the day is that the U.S. economy is moderately improving while the world’s other major economies – Japan, China, and Europe – are bittering over like a cold cup of coffee.  But is this positively fact or is it mere fiction?  Have the raconteurs missed the plot?

Stock market investors can’t make up their mind.  They want to believe the story.  But they have their doubts.  One day the DOW runs up 200 points.  The next day it gives it all back…and then some.

Anxiety over what the Fed will do with the federal funds rate is of particular interest these days.  Will they raise rates?  Will they hold them at zero?  Perhaps later this week we’ll find out more.

The notion that the U.S. economy is strengthening is the storyline that will prompt the Fed to raise rates sooner than later. Continue reading →

Posted in Inflation, MN Gordon | Tagged , , , , , | Leave a comment