Friday, November 6, 2009

Stocks Remain Overvalued Along with Most Other Financial Assets

Please click on this graph for more detail. It shows to related measures of long-term stock market value as of 9/17/09 based on estimated replacement cost of the assets of companies comprising "the market".
Stock market veterans will automatically correlate this with the Dow or S&P 500.
The eye notes that at the so-called secular bottom of the market averages this winter, valuation was only average. The eye also cannot fail to note that descents from high valuations and rises from undervaluations have been long-term events, though of course with choppiness.
This ratio does not predict any short-term stock price movements.
However, my favorite unloved metric is dividend yield of the average stock--which is said to be below 2% for the S&P 500 average stock (?market cap weighted) vs. that of the 5-10 year Treasury note.
Stocks currently provide inadequate current income and are overvalued. That suggests that risk is high. This is so in my view especially with the attempt of stocks today to rally despite another dismal unemployment report out of BLS.
Unfortunately, gold and silver are momentum plays now; bond yields are "low" (whatever that really means); cash is trash; and Big Finance rules the roost for the nonce along with Big Government. Business is playing defense.

So should most investors.
Copyright (C) Long Lake LLC 2009

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