I saw leaves falling from the trees today. Are we getting close to a stock market correction?
The market is WAY overvalued.
From Dave Rosenberg today:
The trailing price-earnings ratio on operating EPS is 26.5x. At the October 2007 highs, it was 18.8x. In addition, when the S&P 500 is trading north of a 26x P/E multiple on trailing operating earnings, history shows that at these high valuation levels, the market declines in the coming year 60% of the time.
The trailing price-earnings ratio on reported EPS is 184.2x. At the October 2007 highs, it was 23.4x.
Insider selling has never been higher.
From Most Recent Insider Selling/Buying Ratio Hits 95x on ZeroHedge:
…the most recent data indicates a ratio of 95x of insider selling $35 million to insiders buy of a whopping $367,720. If anyone has more definitive data, please advise, however a ratio of nearly 100x sellers to buyers is pretty conclusive of who is selling to the robots…
Unemployment is still rising.
How can there be a jobless recovery when the consumer is 70-72% of the economy?
Credit is still collapsing.
From US credit shrinks at Great Depression rate prompting fears of double-dip recession by Ambrose Evans-Pritchard:
Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.
Bans are coming on high frequency and flash trading.
Large investment houses used super fast connections and a touch of fraud to drive this rally at breakneck speed. Looks like that advantage is about to end. From So Much For High Frequency Trading by Barry Ritholtz:
Flash trading is more like having access to private info from the sellers, knowing what they will accept, stepping in front of legitimate buyers, and then flipping the house to those buyers while capturing 0.001% of the transaction. No benefit to the seller, to the neighborhood or to anyone else — all at a small cost to the buyer.
China will not decouple.
If you have 25 minutes, I highly encourage you to watch the video Outsourcing Unemployment. There is no way China is going to develop a consumer based economy in time to decouple from the American recession. It is a Potemkin Village.
If I were long in any stocks now, I’d be selling.
Great video! But I wonder, how does this jive with your next post about not buying stuff from China anymore? Just because they pollute? This is true of all third world countries while they grow.
I’m not avoiding all China goods, just their agriculture products.
I think the imminent decline is coming soon to an index near you, but don’t know if it will start to roll in October or early next year.
No Hindenburg Omen yet, but that often shows up a bit after the descent starts. Once we get the confirmed omen I plan to be VERY short again.
“Not buying from China” may occur sooner than we thought, because its currency is pegged to the American Dollar. The Dollar has soared against the EURO due to debt problems and now China has a weakening export advantage in both Europe and the USA. There market is tanking, we still have credit contraction (and will), and “traders” may have a harder time masking and manipulating a more illiquid downtrednign market. I still like India, and Chinese growth sector stocks, and Brazil. For small cap research you may have to use MicroCapReports if your brokerage does not solicit them.