Reliable Market Valuation
Gauge Tops Extremes of 1929 and 2000 Bubbles
By Victor
Sperandeo with the Curmudgeon
Democracy and Rule of Law at Risk in the U.S.:
“The Democratic Party has become "the
party of war, censorship, corruption, big pharma, big tech, big tech, big ag
and big money," said former Independent U.S. Presidential candidate Robert
F. Kennedy, Jr. That quote
basically says all you need to know about the Democratic party from one of the
former great family names of that party in the 1960’s.
Yet the Republican party is no better. They
want disruptive change, and if violence is necessary, so be it. Republican Charlie Dent voicing concern about
Trump’s inner circle, told GB News: “We'd see more of what we saw
before. Never-ending drama, chaos, disruption for disruption’s sake.
The president of the Heritage Foundation,
Kevin Roberts, recently said the U.S. is “in the process of the second American
Revolution, which will remain bloodless if the left allows it to
be.” It should be noted that the Heritage Foundation is America’s most powerful
and influential right-wing think tank.
However, the real threat to U.S. democracy is widespread
corruption in Congress and the Supreme Court. In an election purporting to be about the
survival of the “American Way of Life”, a miasma of transactional cash is the
real threat to democracy — one harming us all. David Sirota, recently wrote in Rolling Stone:
“In
just a few months, the U.S. Supreme Court’s billionaire–coddled justices made
it legal for politicians to accept gifts from beneficiaries of government
favors; Donald Trump promised to enrich fossil fuel industry donors in exchange
for $1 billion in campaign donations, while his running mate J.D. Vance begged
a tech billionaire to bankroll their campaign; moguls funneling cash to
Democrats demanded the firing of the antitrust regulator scrutinizing their
businesses; both parties held corporate–sponsored conventions that prominently
featured billionaires and CEOs as keynote speakers; and spending by Super PACs
and other shadowy groups crossed the $1 billion mark.”
U.S. Elections - Uncertainty and Distrust?
The November U.S. election results are impossible to
speculate on and “uncertainty” is a far too mild characterization.
Better to use the concept “distrust,” which could lead to violence.
Worse is that the main political parties may not
accept the election outcomes. A recent ABC News/Ipsos survey [1.]found differing opinions
about each Presidential candidate’s willingness to accept the results.
·
Just 29% of respondents think
Trump is prepared to accept the outcome while 67% say he’s unprepared to do so.
·
68% of respondents think
Harris is prepared to accept the results of the election while 29% say she is
unprepared.
·
81% say they are ready to
accept the outcome of the election while 17% say they are unprepared.
Note 1. This survey
was conducted Aug. 23-27 among 2,496 adults. It has a margin of error of 2
percentage points.
On August 30th, Myra Adam wrote in The Hill:
“If
Trump loses, expect a 2020 post-election replay with much ranting, raving and
contrived evidence. Team Trump will launch accusations of a corrupt, stolen
election, cheating, judicial weaponization, illegal voters, foreign
interference and rigged voting machines, resulting in legal challenges perhaps
all the way to the Supreme Court.”
Sidebar -International Tensions Abound:
Victor thinks the UK may be in worse shape than the
U.S. while the Euro-zone is on the cusp of falling into recession or
depression and/or war.
Also, the possibility of China invading Taiwan to
reclaim it as an integral part of the mainland is a huge geopolitical risk. And
the ongoing wars in Ukraine and the Middle East, which continue to
escalate.
On Saturday, Israel recovered the bodies of six hostages
(including American Hersh Goldberg-Polin) which had been killed by their Hamas
captors in Gaza. An Israeli official told Bloomberg News their remains bore
signs of execution by shooting. American-Israeli Joel
Chasnoff corroborated that during his Sunday “Inside
Israel” podcast.
The killings prompted Histradut
- the country’s largest labor union - to call for a strike to pressure Prime
Minister Benjamin Netanyahu to make a deal with Hamas for a cease-fire. All public institutions, including Ben Gurion
international airport in Tel Aviv, will be closed on Monday.
The slain hostages were mourned in the U.S., where President
Biden voiced outrage at Hamas and promised, in a statement, to keep “working
around the clock for a deal to secure the release of the remaining
hostages.”
-->Don’t hold your breath for that to happen!
“Those who murder hostages do not want a deal,” Netanyahu
said in a statement.
U.S. Economy is in “Never Never
Land:”
The best economist to follow at this time is the
pre-eminent Lacy Hunt, PhD, whose
views are recapped in a new interview
with “Thoughtful Money.” Among other worry signs, Lacy says that
Americans have a negative savings rate, while both Presidential candidates
fiscal proposals will significantly increase U.S. budget deficits and the
national debt.
Hunt also noted that consumer confidence and full-time
employment have been declining, firms are reducing the number of hours in the
workweek and the BLS overstated new jobs created by 818,000 this year.
All this evidence suggests the U.S. economy is much
weaker than most analysts believe and that flawed BLS job reports can’t be
trusted.
Hence, the U.S. economy is in “Never Never Land” as we can’t assess where it really is now
or where it’s headed.
For example, we have pointed out many times how the
Birth Death Model (BDM) and the BLS seasonal adjustments have distorted
economic activity. This has now blossomed into an unknown abyss.
Market Comments:
The U.S. equity markets topped several months ago,
with the S&P 500 making a high on July 16th and the NDX 100 on
July 10th. Last week, the Dow Jones Industrial Average and the
Invesco Exchange Traded TR S&P 500 Equal Weighted ETF (RSP) made all time
new highs.
YTD Graph of the RSP:
Victor suggests the end of the month of August marked a great
deal of window dressing (to make stock market portfolios more appealing to
investors). He has recently stressed
that it’s time to be on the sidelines, holding only gold and T-bills.
Chart of the Week:
Shown below is John Hussman’s most reliable gauge of
market valuation, based on its correlation with actual subsequent 10–12-year
S&P 500 total returns in market cycles across all of history. MarketCap/GVA is the ratio of market
capitalization of U.S. nonfinancial companies to their gross-valued added,
including our estimate of foreign revenues. The current level exceeds both the
1929 and 2000 market extremes.
Chart Courtesy of Hussman Strategic Advisors
Hussman explains, “Clearly, more than a decade of
zero-interest monetary policy, coupled with the recent exuberance surrounding
mega-cap technology stocks, has deferred the full-cycle consequences of extreme
valuations. Still, the deferral of consequences is not the same as the absence
of consequences.”
………………………………………………………………………………………………….
End Quote:
Perhaps this quote will make clarify the notion of
risk:
“People are supposed to fear the unknown, but
ignorance is bliss when knowledge is so damn frightening.” — Laurell K.
Hamilton, in The Laughing Corpse. She is an American fantasy and romance writer
who has authored over 40 novels.
………………………………………………………………………………………….
Be well, stay calm, success and good luck. Till next time….
The
Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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