Today's Market
by Dr Invest

Dejavu, here we are, repeating the mantra, "Everything is OK, everything is OK, the economy is taking-off, the economy is strong and vibrant!"  Now a month ago, we were reassured by analysts and the Federal Reserve that we had the strongest of economies and were well on the way to recovery, only to loose most of the year's gains in stocks. A month ago, even the most positive analysts admitted that the S&P 500 at 2,000 was an indication that stocks were OVERPRICED. So with an abrupt decline in the stock market in October and now a rapid rise in stock prices and the S&P 500 now moving near 2,000 again, where are the clamoring voices warning that stocks are now OVERPRICED.

I'm hoping you are understanding what I am saying. Not a whole lot has changed in a month. The stock market blipped down and then back up. If we continue getting daily rises of over 1% in the indexes, we will soon break all-time highs for the stock indexes, yet again. Finally, in my logic, if stocks were over-valued a month ago and they return to the same heights as last month, then are stocks not still overvalued?

So let's be clear, stocks are still overvalued. Second, copper prices are not moving with the market... copper prices are deflated, petroleum is deflated, gold & silver is deflated.... but the stock market is growing? This isn't the way an economy moves.

So what is going wrong here? Bob Pisani wrote: The market internals do not reflect great strength. We are barely above break-even on the advance/decline line. Because the economic environment is so poor in Europe, the U.S. stock market is the only game in town. You are not the only one speculating in this market. There are desperate European investors, who are in declining economies; and they are coming into the U.S. market for the same reason you have moved your money from cash or bonds into STOCKS. 

So what happens in a competitive race to buy stocks.... they go up higher and higher, until stocks are so overvalued, that no one is interested in buying them. Stocks have been overvalued and overbought. With these new investors seeking gains, stocks may well continue to rise; not because of increasing VALUE, but because of increasing PRICE.  For example: You might pay anywhere from .99 cents to $1.25 for bottled water. But when the price of bottle water rises to $25.00, I will likely go look for a water fountain or bring my own water from home. 

Value is different than PRICE. The value of a stock is what a person would reasonably pay for the growth of a company. Let's say that a company, after expenses, returns $20 million this year, and if it continues on its current path of growth, next year it will return $30 million, and the next year $45 million etc. Then you would value the growth of its stock at what it will reasonably return if the company continues on a path of future growth. But if our company returned $30 million and someone offered to pay a PRICE for the stock at a $60 million valuation, I might not see how that company could possibly grow that much over the next year. I would be reluctant to buy-in and would see that stock as OVERVALUED. 

Real GDP has been under 2% a year since 2008, yet stock indexes have grown 140%. Divide 140% by 5 years and you get 25% annually. Is it possible that stocks have really grown 25% annually in a non-vibrant economy. In vibrant periods of growth, we have seen about at 12% annual average growth in the stock market. So, 12 times 5 years equals, 60%. Whether you see the growth as 140% or 120%, that rate of growth in a economically sick market can only be described as miraculous. Something is wrong, something doesn't smell right, look right, or act right. Regardless the opportunities for profits, what you are seeing is a sucker's game. 

A CNBC correspondent named TRADER went after Peter Schiff, telling him that he needed to admit that he was wrong about gold and needed to apologize. However your feel about this confrontation and attack against Schiff, in a few months, Schiff could be proven more right than wrong about gold. I am not particularly a GOLD BUG, but pushing into six years of remarkable growth in stocks just doesn't seem possible or likely. 

My warning is to just be real and realistic. If something doesn't seem right, it probably isn't.

(Note: the above information is not to be used in anyway as investment advice and is for entertainment purposes only)