Valuation Levels

Taking last Friday's US large cap market close and using current and projected next twelve month's earnings, the justification for a well above average P/E ratio rests on no negative impacts to the key inputs of earnings, growth of earnings, and an appropriate discount rate. If, however, an exogenous event were to occur with the global economy limping along at just above stall speed, what are the odds that such an impact were to occur - specifically to earnings and its growth rate? And, therefore, shouldn't such a risk give one pause to the justification of an above average valuation level for equities?

Last Friday's Bloomberg radio appearance is available to listen to on my "Beyond The Sound Bite" media blog.

Bloomberg radio

Tomorrow's appearance on Bloomberg radio will cover my recent travels and events (8 events over a 6 week span) plus the key dynamic impacting the global economy and markets: an excess supply of just about everything and an insufficient demand to meet that supply.

To listen, "click here."

Key US Stock Market Levels

To subscribers of my newsletter who received on Monday an equity exposure reduction before the market opened, this is a quick follow up message re key market price points.

The first price point for the S&P 500 is 1867, its closing low reached on August 25. This number is significant primarily in the minds of the more bullish among us: a stock market correction (10 to 20%) is all that the markets are going through AND a nice and neat test at or around that 1860 level would be healthy. Cleanse the system of those who dare to question the wisdom of traditional equity analysis and all will be well. From that level one could - and I would argue should - assume a bounce back rally will ensue, thereby buttressing the bull market correction belief.

The second, and far more significant, price level for the S&P 500 is 1704, for at that price point the S&P 500 will have experienced a 20% decline, which puts it in the wheelhouse of an "official" bear market. This number matters more - and subscribers to this newsletter learned in this week's report - because at that price point the probabilities jump nearly fivefold (from 15% to 73%) that a US recession will occur sometime in the near future.

Hard to believe? Certainly, considering the GDP numbers of last week and the Fed's strong view that rates must rise - not just for this year but well into next and the year after (a fact also provided in this week's report).

Conclusion

In next week's report, I will elaborate on the prudent investment strategy adopted thus far. Until then, the above price points will provide some guidance on what seems like the hard-to-comprehend stock market action of late. It's really not all that hard. And not that incomprehensible - if you know where and what to look for.


Note: For Non Subscribers

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To read my most recent quote in the Financial Times and to listen to my recent Bloomberg radio segment, click here.

Recent Media Quotes and Appearances

My two most recent media quotes (Financial Times) and appearance (Bloomberg radio) can be found on my media blog "Beyond The Sound Bite."

Media Appearances and Twitter Posts

Recent media appearances can be found on my "media blog."

Recent Twitter posts can be found "here."

Recent Media Appearances

How nice! "Yahoo! Finance" picked up my Tuesday Wall Street Journal "News Hub" appearance.

This interview, along with my most recent Bloomberg radio appearance, can be also found on my "media blog."

The question is, "Is anyone listening?"

The "If...Then" Bomb

If the global economy were to turned down due to some unforeseen exogenous event, what could possibly be the governmental response given the fact interest rates are at 0%, central banks balance sheets are at unprecedented levels, and there is no political will for fiscal debt? In light of the fact that stocks are at valuation levels that leave little to no room for error, shouldn't a prudent investor feel some degree of concern?

To view my most recent media appearance which included what I call the "If...Then" bomb, "click here."

Recent Media Appearances

Last Tuesday's media appearances - WSJ.com, Bloomberg radio, and Business News Network - are posted.

To listen and view them, "click here."

Nick Colas on Bitcoin

Recently, I had the pleasure of interviewing Nick as part of NYSSA's newly created video series re his upcoming NYSSA presentation on Bitcoin.

To learn more and view the interview, "click here."