Massive Wave of Speculative Fever

Here is what is happening ...

Due to the low/zero interest rate policies, plus the current decline of the US dollar, cash is flooding into stocks/commodities (and even into real estate again, in places like China).

There is a massive wave of speculative fever, of irrational exuberance, driving up stocks/commodities to highly-absurd and unsustainable levels, i.e., we have major bubbles again.

These markets are now detached from underlying economic reality. You can draw your own conclusions. If you are brave, short stocks/commodities.

Big Correction Coming ~ Get Out of this Market !!

No, I have not changed my mind. Indeed, the ongoing irrational exuberance and increased volatility of the market are almost sure signs of a major correction.

Oh, and that 3.5% growth in GDP in Q3 is a farcical myth. All of it is due the the stimulus package. There is no organic growth. Indeed, we are still seeing lay-offs.

So where did the so-called growth come from? The 3.5% represents an increase of $113 billion in GDP from Q2. Reduced inventory accounted for $30 billion, such that production/sales were $83 billion higher. But consumer spending accounted for $76 billion and residential sales $18 billion, which exceeds the increase in final sales. And most of that consumer spending boost came from the "cash for clunkers" program July/August. The housing boost came from the $8,000 first-time home buyer credit.

Apart from government stimulus programs, there is nothing to drive organic economic growth. There is chronic lack of capital. We have a massive jobs crisis. Loans are going bad. Residential foreclosures continue unabated. Banks are not lending. Consumers are paying down debt in favor of savings. Businesses are curtailing debt, conserving cash, and cutting capital spending.

So what's with the stock market? It's driven by lunatics. Some naively think there is an economic recovery underway. Speculators and momentum players are totally ignoring fundamentals. Prices are driven up, and the sheep get sucked in to a massive sucker rally that is about to unwind. As the market stalls out (already happening) and continues its inevitably-steep decline from these ludicrous heights, the momo players will sell, causing a cascading decline, as the sheep get sheered.

Don't be a sheep.
Get out of this market and stay out
until the P/E Ratio on the S&P 500
is back to some semblance of normalcy,
which is as much as 30% lower from here.

Stock Bubble - Irrational Exuberance Redux

The stock market is acting as if the economy was growing by leaps and bounds, and as if corporate profits were 100% higher than what they are. This is utterly absurd.

This week, US Fed Chairman Bernanke said the recession is "technically over" ... whatever that means. US Treasury said it was removing some crisis-related programs and shifting "from rescuing the economy to repairing and rebuilding" its foundation.

The stock market cheered, just as in 1999 and 2007 before those "bubbles" burst.

However, Treasury Dept issued a report spelling out major concerns on the economy (http://www.ustreas.gov/ ... click "Recent News 9/14/09), as follows:

• Financial market recovery is partial/fragile, at best in its early stages. Housing market is still under pressure ... Significant parts of the financial system remain impaired ... Unemployment remains elevated ... Output has fallen significantly ... Foreclosures continue to rise ... Credit to households and businesses remain constrained.
• Credit losses are still increasing and bank failures, which lag economic cycles, are still on the rise. New shocks can still have out-sized effects ... The financial system is still fragile, and improvements are still largely dependent on the support of extraordinary policies.
• In residential real estate, deterioration in the housing market has slowed, but it has not established a firm bottom, foreclosures continue to rise across all classes of mortgages. Adjustment is far from complete. There is still a substantial overhang of vacant and unsold homes ... a very large proportion of home owners now have mortgage debt that is greater than the value of their homes.
• Restructuring for commercial real estate has only recently begun.
• Many banks have relatively high exposures to commercial real estate loans, where credit problems are still growing, and other troubled investments. New debt instruments backed by consumer loans, known as ABS, has improved with the support of TALF. But there has been little issuance of ABS that is not supported by TALF.

We repeat:
Stocks are seriously overvalued
... by as much as 40%.

SELL ALL STOCKS !!

Let me say it again, we have irrational exuberance gone mad.

The valuations of stocks is utterly absurd, with the PE ratio of the S&P 500 now around 20 -- the highest level since 2004. The market level of stocks is simply not sustainable at these levels.

Business profits are not there, and will not recover until well into next year, and not even then unless consumers regain their spending. This certainly is impossible in the current environment.

You should take advantage of this insanity and take all your money off the table.

Sell all stocks!

UPDATE:
Markets down 2% as of 1:30-am Eastern.
Much much farther to fall.

Please get out of this market. The run is over.