Stock Market Big Picture

Extreme Optimism in Stocks

Prechter is again ringing the bell for the market top at the end of 2023!! Watch the market forcast for 2024, evidenced by many eye opening charts once again from Robert Prechter:

A Stock Market Top For the Ages (Called 2022 top)

Robert Prechter gave a rare, live presentation — “A Stock Market Top for the Ages” — at the annual New Orleans Investment Conference in December 2021.

In just 20 minutes, Prechter shows 28 charts — everything from penny stocks to dollar volume in IPOs to SPACs — to give you a clear, bird’s-eye view of today’s markets.

Unbelievable” is the word he uses to describe several of these charts.

Eye Opening Charts in 2023

Stock Market Excessive valuation in 2023:

Stock Valuations

What we have here on the X axis is the bond yield/stock yield ratio for the S&P 400 companies. Sounds fancy, but all it means is that the further you go out to the right, the less companies are paying in dividends compared to what they are paying on their IOUs on their bonds. On the Y axis we have stock prices relative to book value. Book value is roughly equivalent to liquidation value, in other words, if you went and sold all the assets on the open market. When stocks get expensive, prices tend to rise relative to book value, and dividends tend to fall relative to the cost of borrowing. Why does that happen? At such times, people don’t really care about dividends because they think they are going to get rich on capital gains. So dividend payout falls, and stocks get more expensive.

The small square boxes indicate year-end figures. The large box is a general area that has contained values for the stock market for most of the years of the 20th century. We had a few outliers: 1928 and August 1987, which preceded crashes in the stock market. And of course stocks were really cheap in the early ’30s and again in 1941. If you are really astute, you have noticed something about this chart, which is that I’ve left off some of the data. It ends in 1990. What happened in the past two decades? Now I’m going to show you same chart but with the data from the last two decades on it. The March 2000 reading we call Pluto. Real estate wasn’t so bad; I think it only got to about Neptune. But the stock market reached Pluto in March of 2000 in terms of the bond yield/stock yield ratio and the price multiple of the underlying values of companies. And how are we doing now?

Before the 2008 crash, cash was hated:


Fast Forward to 2021, we have an all time low record at 2% cash only:

In 2023, we have all time low in cash holdings:

Cash holdings all time low

Everybody who can buy has already bought!

Here is a brief look at the crash that may follow these bubble levels (this is an old chart but conveys the big picture):

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Tragicomic Story of Stocks

Here is the story of irrational exuberance in stocks in a few frames:
Fully invested and totally confident!

But the market top sets in suddenly!

Investors buy the dips

But supports do not hold

FED comes to the rescue

But printing money is not the same as producing

Economic collapse wipes us out