by Mish

That title, by Thomas H. Kee Jr., a former Morgan Stanley broker and founder of Stock Traders Daily, says quite a bit about market sentiment.

Let’s Investigate.

Central bank capital infusions dating back to 2013 are exactly what caused this asset bubble, and the liquidity injections have not stopped. This bubble will burst, but probably not today, and the recent selling in FAANG stocks does not appear to be a precursor to an impending market crash.
Looking at the stocks as a group, their influence on the market is tangible, but they have very different relative valuation metrics. For example, Facebook has an immediate and relatively exceptional valuation while Amazon is at the other end, and has virtually no value at these prices.
In between, Apple lacks immediate value, while Netflix is fairly valued, and Google will likely demonstrate an oddity in earnings growth in calendar 2017 that will not be resolved until 2018, distorting its immediate fair value.

Bubble Mentality

I congratulate Kee for having the fourth-best-performing strategy in the world in 2016, according to HedgeCo.

At the same time, I find it interesting to note that Kee knows full well that stocks are in a liquidity bubble that will end, and he is willing to buy the alleged dip in this very real bubble.

I also find it amusing as to what allegedly constitutes a “crash” these days.

Google

Kee labels Google’s valuation as “excessive”.  I certainly agree, but here an amusing alternate P/E evaluation as provided on Nasdaq.Com, anecdotes in blue are mine.

Reflections on Bubble Peaks

  1. At bubble peaks, most believe there is a “new paradigm” not a bubble.
  2. The bubble believers think they can escape the bubble, but they cannot.
  3. When bubbles burst, even most bears get sucked in, buying stocks too early or getting annihilated in short squeezes due to emotion or leverage.
  4. At market bottoms, few like stocks.

Slow Torture

Demographics will make the next crash, assuming there is a crash, much worse.  But I expect something far worse than a crash: Slow torture.

Imagine a market where stocks decline 15% year-over-year, then rise 5%, drop 15%, rise 6%, drop 5%, rise 8% then drop another 12%.

With constant Fed intervention coupled with a Boomer need to cash out for retirement, and millennials sitting the whole thing out, such a slow torture scenario should not be far-fetched, even if you believe it unlikely.

Mike “Mish” Shedlock

China Seeks Baby Boom Ponzi Scheme

China now encourages childbearing to keep the economy humming and to stave off a demographic decline. Will a new baby boom do the trick?

Time to Buy US Treasury Bonds? Gold? Equities?

As we head into 2017, how should one be positioned? Let’s explore that idea with a trio of contrarian indicators.

Draghi-In-Wonderland: ECB Bond-Buying Announcement

There were wild fluctuations today in European bonds as the ECB announced it would Hold Interest rates at Zero but Taper Bond Purchases.

Baby Bust: US Fertility Rate Unexpectedly Drops to Lowest on Record

Economists figured the recovery would bring about increased confidence and a rise in the birth rate.

China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans

Here is an interesting email from reader “Kevin” regarding the crashing loan-shark market in China.

Rich Dad’s Demographic Crash Thesis vs. Mish’s “Pain Trade” Thesis

Author and real estate mogul Robert Kiyosaki, better known as “Rich Dad“, is predicting a stock market crash starting in 2016.

France vs. Sydney Australia Property: What Will $600k to $1M Buy?

Here’s an article that came my way from reader Robert who lives in Australia.

Stock Market “Crash” Unlikely: It’s the Debt, Stupid

Many people have been predicting another stock market “crash”. I have not been in that camp for reasons I will explain below.

Stock Buybacks Fueling the Stock Market? By How Much?

Here’s the question of the day: are corporate stock buybacks fueling the stock market?