Trade Alert – Ron Paul, Peter Schiff and a stock market bubble
Don’t forget this week’s Live Q&A Chat at 2pm EST at http://tradingwithcody.com/chat.
I’m buying a second tranche of P January $24 puts today. Would like to buy one more tranche in the next week or so, but we’ll see what pitches cometh. I’m also covering about 1/10th of my SPY short exposure by covering a bit of SPY common that I shorted recently.
With the Fed and the banks and the Treasury and the high-frequency trading and ongoing fraud settlements by the big banks like JP Morgan and who knows what other kinds of ongoing fraud and market manipulations are going on under the hood, why on Earth are stocks up in a straight line over the last few years and at new all-time highs? It’s because we have entered new stock market bubble territory courtesy of zero percent interest rates and all the other policies that are driving people into stocks around the world.
You’ve heard me call Robert Marcin the single best value investor I know on my TV show and many times in my columns. Today over on his Scutify feed, he highlighted just how big this stock market bubble has blown once again.
“One indicator I like is the Value Line 3-5 year median stock appreciation potential chart. Currently its 30%. This is bad. It has ranged from 20%-200% over the past 50 years. 30% means market top. Occasionally, the average stock valuation can deviate significantly from the mega-cap weighted S&P500. This happened in 2000 and 2007. Right now, the average stock is 17.5 x’s above normal profit margins, so appreciation potential is modest for most stocks on a long term basis. This is a rifle shot market, IMHO.”
Is this bubble about to pop and does it have to just because it’s showing signs that reflect the top in 2000 and 2007? Here in 2013, I frankly don’t know how far into what I predicted in 2009-2012 was the stock markets indeed heading into “The Biggest stock market bubble of all time“. And it’s a shame that this is how we are forced to try to secure a future for ourselves and our families in this system. But it is what it is, and so the question remains — when will the music stop?
Back in 2009, in an interview with Ron Paul and Peter Schiff on the same show with me Fox, I proposed that their timing was off as to their call on when this latest stock market bubble would pop. My theory was at the time and still is, that with every policy maker in both parties dedicated to keeping corporate profits and stock market prices at all-time highs, that for a while we’ll have to keep dancing to the music to steal a TBTF banker quote from before the 2007 bubble popped. Couple that with a global political and policy effort that is also dedicated to keeping corporate profits and stock market prices at all-time highs and the new accelerating developments in the “Currency Wars” that developed countries are fighting, and who knows when this bubble will finally pop this time.
I do think we’re due for a contrarian-esque ‘Flip-it’ kind of sell-the-news reaction to whenever this stupid budget/debt/obamacare negotiation between these two parties who run our country today is finally negotiated to a temporary settlement. Maybe a 5-10% stock market correction to freak everybody out and to draw some almost-dead bears back into their shorts only to take the markets to all-time new highs early next year before finally starting a popping of the bubble for real.
We’ve done a rather remarkable job of setting ourselves up to ride this stock market bubble as its inflated and I continue to suggest reducing overall net long exposure as the markets continue to bop around these all-time highs. My favorite stocks into the new year include First Solar, Apple, Xone and Cree, which we added to the portfolio just a few weeks ago and which we are already up huge on, but which I also think has more highs ahead.
Anyway, in general, does anybody truly believe that stocks are cheap? That the prices you’re paying in general for earnings is historically compelling other than from a “well, the bubble’s still gonna inflate bigger” kind of logic? Let me know in the comments below or come join Marcin and me and other traders discussing all of this on Scutify today.
