STOCK
VALUATION AS A % OF GDP
Here's a bit
of scary food-for-thought from Ned Davis Research as reported by John Hussman,
PhD, Hussman Funds, in his weekly market comment for 22 October at (http://www.hussmanfunds.com/)Stock market capitalization as a share of GDP
Historical average: 60%
Before the 73-74 collapse: 80%
Before the 1929 crash: 86%
Today: 105%
The missing piece of information is the value at the 2000 top. I found the answer at The Big Picture By Barry Ritholtz. Price as a %-of GDP was 180% so the fact that it is now 105% is not an indication of imminent collapse; but it is cause for concern.
There are bigger
worries. As the chart below shows, the
value of the Market Capitalization divided by GDP has been falling since
2001. What is really scary is that in
past market bottoms, the ratio has been in the range of 20-40%. The optimistic end of that range would put
the S&P 500 value below 600 at the bottom of the next cycle. Pardon me while I swoon a little. (My personal prediction is 850 as a low, but
I certainly don’t know when/or if that will happen.)
from The Big Picture By
Barry Ritholtz - July 24th, 2012,
http://www.ritholtz.com/blog/2012/07/market-capitalization-as-a-percentage-of-gdp-2/
MARKET
RECAP
Tuesday the S&P 500 fell
1.4%, to 1413 (rounded) and VIX ROSE 13% to 18.80.
NTSM
The
NTSM analysis remained HOLD Tuesday…
…but
another day like today will probably send it over to the sell side. (I was surprised it didn’t today.)
It
was close today and I was tempted to say “close enough” and sell out. I didn’t, because I don’t really know what
will happen and neither do the pundits.
I heard several on CNBC calling for a major crash and an equal number
screaming “Buy!”
It
does appear that a correction is underway, but the VIX is not confirming it
yet. Since the S&P 500 is now only
less than 3% above the 200-dMA, I am going to wait for the NTSM system to actually signal a sell rather than jumping the gun on a close call.
That, to an extent, would be reacting to emotion. This system is about discipline. As always, I hope I am right because I hate
being wrong. I am also painfully aware that just because this system has worked in the past, it may not work tomorrow.
MY INVESTED POSITION
Based on the BUY signal, 6
July, I moved back into the market on 9 July (after the weekend) at S&P 500
1352.
I currently have a 50%
stock allocation overall. For my age,
that is what many advisors recommend as a fully invested position, however, I
am normally much more aggressive. I have
less invested in stocks now because there’s a lot of risk.
