Saturday, May 07, 2011


..."Take those fat profit margins. They're near record highs. Now, unless you believe that the stock market fairy has somehow suspended the past 100 years of American corporate history, those profits – earnings – are unsustainably high and will most likely fall within the next few years.

When they do, those bullish P/E ratios will stop looking so wonderfully green and start flashing a cautionary yellow." Christian Science Monitor Don't be fooled...AGAIN!

Dividend yields historically are a very good measure of valuing the stock market, currently we are in one of the most SCANT dividend yield moments in SPX history at 1.75%, most market BOTTOMS were formed with 6% yields and TOPS at 3% !......we can argue that treasury yields are very low here, but that is not a price based on a FREE MARKET SYSTEM with the FED monetizing debt.  It used to take 40 years to appraoch a prior Secular bulls cycle highs for earnings....this time it only took 2 years?????????????????? buying near cycle HIGHS in earnings ends in tears.

FINALLY early in 2001 much more money was flowing into stock funds vs bond funds, but that has switched back aagin with near $30 B vs $3B last month.....rallies come with lithe volume and high selectivity....the cyclical bull market is aging, but not shown dead but TA just yet, some believe we have enterred a NEW ERA and that justifies staying LONG STOCKS.....I say we have never dealt with the prior bust, we have now built a new speculative bubble which will burst and cause tons of can't sweep problems under the rug, nor pile on new fresh debt to cover up the old debt and print money and call that prosperity.

What is happening is the FED policies return ZIPPO to savers and reward risk takers but that is also creating huge inbalances and inflation in commodities, food and energy in particular.

We are over 2 years into recovery and the unemployment rate is 9%, this is an historical worst. Housing the victim has not recovered, and wont for many years. SPX profits are suspect because of financial firms accounting change from mark to market to mark to fantasy.....if the current SPX 500 companies were measured in 2007 $'s and accounting standards......we would see a MUCH DIFFERENT PICTURE.

As with silver, price dropping from $48 to $34 in a week about a 30% DROP! That isn't a NORMAL correction, that could signal change of trend, end of speculative bull....unless you think the $ rally is over after just a 2% rally or all of this is just manipulation, if so that makes it even harder for anyone to profit except those doing the hokey pokey.

A similar comeupins would drag the SPX 500 down below 1000.....of course that isn't going to happen anytime soon...

Final thoughts

We are also near PEAK earnings, these 2 combined don't offer much hope of amazing longer term returns in coming months. Maybe NO signals for Bear, maybe not for many months, but easy money has been made, there are little signs that there is sustainability in hiring and NO signs of housing stability (bubbles pop and return to origins...for that that would be near 2003 valuations....that a fur piece below current depressed pricing in most areas)

SURE, you can paper and inflate over some problems, and give illusion of prosperity (that's a word hardly appropriate here?), 2.5 years into OFFICIAL recovery you don't have 9% unemployment and historical HIGHS in Govt transfer payments for people needing govt assistance....this seems a rather one sided recovery leaving out the majority affected and helping the majority who caused it.

In the meantime, the USA grows weaker economically, and the 3rd world is set to topple the USA in GDP just years away...and all we will have left is a mountain of paper debt, lower living standards and a military.


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