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Warren Buffet’s Favorite Stock Market Metric Is Signaling Huge Downside Ahead
Warren Buffet’s Favorite Stock Market Metric Is Signaling Huge Downside Ahead
Today – Apple became the first public company worth over $1 trillion dollars. . .
Thanks to very low interest rates – the company’s piling on debt and buying their own shares back – shrinking the float.
And because of a worldwide rush into mutual funds and exchange traded funds (ETF’s) – there’s crazy demand for Apple shares.
The king of ‘buy and hold’ investing and a Champion of equities – Warren Buffet – must a have grin on his face from ear to ear. Because Apple’s surge just netted him a huge profit for his company – Berkshire Hathaway – of over $2.6 billion.
Many, now, may be thinking that they should buy Apple and other such stocks – right?
Well, not exactly.
Because according to this favorite Buffet metric – the market looks extremely overvalued and the future looks scary.
The Market Cap-to-GDP metric is a long-term value indicator. And it’s become popular recently thanks to Warren Buffet.
During an interview in 2001 with Fortune – he claimed that this indicator is “probably the best single measure of where valuations stand at any given moment.”
And what his favorite indicator’s showing us today is that stocks are more over-valued than they’ve ever been. . .
So – what is the Market Cap to GDP – aka the ‘Buffet Indicator’?
It’s easy. Just calculate the total market value of all stocks outstanding and divide it by the nations GDP.
When the ratio is greater than 100% – it means that stocks are considered overvalued and have historically less upside going forward.
And when the ratio is less than 100% – it means the opposite. That stocks are considered undervalued and historically have more upside.
I look at it this way: when the ‘Buffet Indicator” is more than 100%, the stock market is negatively asymmetric (high risk, low reward). And when it’s less than 100%, the stock market is positively asymmetric (low risk, high reward).
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Noted Short Seller Marc Cohodes Comments On The Recent Events At Home Capital
Noted Short Seller Marc Cohodes Comments On The Recent Events At Home Capital
The past two months have been a roller coaster ride for Home Capital shareholders culminating in the announcement of Berkshire Hathaway’s investment in the company this week. But the deal raises at least as many questions as it answers, not least of which is whose interests are being served? There are many professed facts about the company and the events of the last two months that just don’t add up. We think shareholders and the public are still a long way from discovering the truth of what has transpired at the company. Given the evident intervention in the Home Capital drama by various arms of the Canadian government, there must be something vital to the economy at stake here. It seems to us that a deep dive into the Home Capital story is in order.
It all starts with Gerry
The most salient fact to know about Home Capital is that it is a veritable extension of the person who ran it for almost 30 years, Gerald Soloway. Soloway and fellow Home Capital board member John Marsh gained control of a public shell company in 1986 and merged the then tiny Home Savings of St. Catharines into the shell. From this humble start, Soloway grew Home into the 9th largest bank in Canada, and was by all accounts, a domineering presence within the company (so domineering, in fact, that he was viewed internally as still running the company even after handing the CEO reins to Martin Reid.) In a very real way, the culture of the company reflects the values and character of Soloway himself. So far so good, a Canadian success story, right? The fly in the ointment is that Soloway is a serial, convicted fraudster, going back even before the start of the Home Capital story, and it appears that many of the business practices of the company reflect his penchant for cutting corners.
…click on the above link to read the rest of the article…
Warren Buffett is Everything That’s Wrong With America
Warren Buffett is Everything That’s Wrong With America
I think I’ve never understood the American – and international – fascination with money, with gathering wealth as the no. 1 priority in one’s life. What looks even stranger to me is the idolization of people who have a lot of money. Like these people are per definition smarter or better than others. It seems obvious that most of them are probably just more ruthless, that they have less scruples, and that their conscience is less likely to get in the way of their money and power goals.
America may idolize no-one more than Warren Buffett, the man who has propelled his fund, Berkshire Hathaway, into riches once deemed unimaginable. For most people, Buffett symbolizes what is great about American society and its economic system. For me, he’s the symbol of everything that’s going wrong.
Last week, Buffett announced a plan to merge a number of ‘food’ companies in a deal he set up with Brazilian 3G Capital. For some reason, they all have German names (I’m not sure why that is or what it means, if anything): Heinz, Kraft, Oscar Mayer. Reuters last week summed up a few of the ‘foods’ involved:
His move on Wednesday to inject Velveeta cheese, Jell-O, Lunchables, Oscar Mayer wieners, and Kool-Aid into his portfolio, stuffs an already amply supplied larder. The additions came from the acquisition of Kraft Foods Group Inc by H.J. Heinz Co, which is controlled by 3G Capital and Buffett’s Berkshire Hathaway. His larder already included everything from Burger King’s Triple Whopper burgers, Coca-Cola soft drinks and Tim Horton donuts to See’s Candies and Dairy Queen icecream Blizzards, as well as such Heinz brands as Tomato Ketchup, Ore-Ida fries, bagel bites and T.G.I. Friday’s mozzarella sticks.
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