Guest Post by Anthony Sanders
Lethal Taper: The Buffett Valuation Indicator Flashing Red (Are Stocks And Housing Too “Frothy”?)
Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett, the Oracle of Omaha.
Here is a chart of the market cap to nominal GDP, aka the Buffett Valuation Indicator. Note that we are currently in the second highest spike since 1952.
Here is the Buffett Valuation Indicator since 2000 versus the Wilshire 5000 Total Market Full Cap Index. Note that they both peak in 2007, then decline.
In fact, both the Buffett Valuation Indicator (BVI) and Wilshire 5000 index are higher than their peaks in 2007.
But what about house prices? Like the BVI, they peaked in 2007 (if I use the FHFA Purchase Only House Price Index). But while BVI is now higher than in 2007, house prices are not. But they are rapidly increasing.
Of course, the Federal Reserve’s massive intrusion into capital markets certainly helped float the Buffett Valuation Indicator to frothy heights.
The question is whether these frothy stock and house prices can withstand the withdrawal of the unprecedented Fed stimulus.
Doctor, Doctor (Yellen), give me the news, have we got a bad case of … asset bubbles?
I’ve gotta’ ask, HOW can they taper when US.gov hasn’t quit spending?
Riddle me this Batman.
I don’t understand what this whole charade is about, proving to non-buying China that we’re still good?
That an entity spending twice more than it can possibly take in (without directly increasing costs, self-destructive cycle that is), actually warrants 2% lending rates?
That the “full faith and credit” of an utterly bankrupted system is still in play?
Monday morning funnies, thanks!
man janet yellen has got some sexy arm hair there. I wonder if the curtains match the rug.