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Warren Buffet’s Favorite Stock Market Metric Is Signaling Huge Downside Ahead

August 4, 2018

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).

…click on the above link to read the rest of the article…

China’s Plunge Protection Team Arrives: Urges Companies To Boost Stocks, “Avoid Selling”

February 12, 2018

China’s Plunge Protection Team Arrives: Urges Companies To Boost Stocks, “Avoid Selling”

Over the weekend, we along with Bank of America and probably most carbon-based traders wondered if any central bank or government official would step up on Monday and intervene in the markets, either verbally or directly. The answer emerged overnight, when China officially urged controlling investors in listed companies to boost their holdings and told some mutual funds to limit equity selling this week, Bloomberg reported,  citing sources.

The directive from the Chinese Plunge Protection Team was sent out over the weekend, when the China Securities Regulatory Commission (CSRC) and other regulators “advised and encouraged” some major stockholders to purchase more shares in the mainland-listed firms they invest in. The regulators also called on some mutual funds to avoid being net sellers of equities as well.

The Shanghai Stock Exchange said on Friday that it has issued warnings and limited intraday trading to prevent large equity sales that affected the market’s stability. Meanwhile, the China Securities Investment Services Center — a body serving smaller investors that’s managed by the CSRC — said major shareholders can boost investor confidence by purchasing stocks, Shanghai Securities News reported on Monday.

Additionally, the CSRC, which is also known as the “National Team” once it begins manipulating markets, told Chinese brokerages to provide trading summaries from last week to the regulator as well as trading plans and previews for this week.

To some, the intervention was only a matter of time: Chinese shares on the mainland plunged the most in two years amid last week’s global market turbulence, fueling speculation the government would step in to calm trading, as it did repeatedly during past selloffs in 2005 and 2006 as well as ahead of the 2007 Party Congress.

…click on the above link to read the rest of the article…

Mutual Funds, ETFs at Risk of a Run Warns Stockman

February 13, 2016

Mutual Funds, ETFs at Risk of a Run Warns Stockman

In one of his starkest warnings yet, Former White House Budget Director (Office of Management and Budget, OMB), David Stockman has warned that banks and the global financial system remain vulnerable and there is likely to be another global financial crisis which will be worse than the first involving “a run on mutual funds and ETFs.”

stockman

Stockman warns in a Bloomberg interview that Deutsche Bank

“has a $2 trillion balance sheet and they have a net tangible equity of $66 billion. So that is 3% – “they are leveraged 30 to 1 in terms of net tangible equity.”

“What is whirling around in that $2 trillion nobody knows but I do think that the banks have unloaded the worst of their stuff and today it is in mutual funds and ETFs, today it is in non bank financial institutions, like all these companies that have come up over night to make auto loans by selling junk bonds as a form of capital.”

This is reminiscent of the first financial crisis and the financial collapse wrought on the world with the subprime mortgage fraud as beautifully illustrated in the must see movie ‘The Big Short’.

Regarding how ‘mom and pop’ investors and pension owners are vulnerable, Stockman says

“The dangers of a run are far more serious now than it was with banks then. Back then, main street banks did not have to mark to market most of their assets and there never was a run on mainstreet banks, it was only on a few hedge funds  … 

This time you are going to have a run of $5 trillion or $6 trillion of mutual funds. This time you are going to have a run on the ETFs. There were only $1 trillion of ETFs in existence in 2008. There is over $3 trillion now and they are an accelerator mechanism.“

…click on the above link to read the rest of the article…

Unmanageable Money, Part 2: Hedge Funds Keep Losing — And Closing — And Why It Matters

January 3, 2016

Unmanageable Money, Part 2: Hedge Funds Keep Losing — And Closing — And Why It Matters

How do you make money in a world where history is meaningless? The answer, for a growing number of big fund managers, is that you don’t.

Hedge funds, generally the most aggressive species of money manager, do a lot of “black box” trading in which bets are placed on previously-identified patterns and relationships on the assumption that those patterns will repeat in the future.

But with governments randomly buying stocks and bonds and bailing out/subsidizing everything is sight, old relationships are distorted and strategies that worked in the past begin to fail, as do the money managers who rely on them. A few recent examples:

Whitebox Closes Its Mutual Funds Ahead Of January Liquidation

(Value Walk) – Ending its foray into mutual funds, Whitebox Advisors LLC, said it has shuttered all three of its three mutual funds after poor results. According to Amara Kaiyalethe, a spokeswoman, the three mutual funds, which collectively held over $300 million, were closed on December 17th, and will be liquidated January 19th. She said the decision to close the mutual funds was related to performance and the concentration risk investors that remained in the funds faced as redemptions accelerated.

The Whitebox Tactical Opportunities Fund is the biggest among the three mutual funds, which less than two years ago managed over $1 billion, but tumbled by over 21% this year. The fund has suffered a rush of investors heading towards the exits. The fund managed about $240 million at the time it was closed.

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Hedge Fund Lutetium Plans to Liquidate, Return Investor Cash

(Bloomberg) – Lutetium Capital LLC, a hedge-fund firm that invests in distressed securities, is liquidating its two credit funds and returning all of the money it was managing to investors by next month, according to co-founder Michael Carley.

…click on the above link to read the rest of the article…

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