“Sober up you drunkards!”
Exuberance sweeps the markets as investors hope/pray for a soft landing...
Joel Bowman, checking in today from Buenos Aires, Argentina...
“Stock prices can give you nausea,” Dan Denning wrote in a note to BPR members yesterday, “and a deep sense of foreboding. That’s the feeling I got today...”
We’ll get back to Dan’s harbinger in a second. First, let’s check in briefly with the markets...
After some choppy price action during the week, all three major indices ended slightly higher Friday, with the Dow Jones Industrial Average up 0.1%, the S&P 500 higher 0.25% and the Nasdaq 0.95% in the green.
The Dow, S&P and Nasdaq closed the week up 1.8%, 2.5% and 4.3%, respectively while, year to date, they’re up 2.5%, 6% and... wait for it, 11%!
Part of the Nasdaq’s shiny happy rally came thanks to news of Tesla’s “record revenue and solid earnings.” Elon’s baby jumped 11% after reporting Thursday. Stocks like Microsoft, Nvidia, Amazon and Alphabet (Google) also recovered some of last quarter’s losses, helping to float the index.
Last Call!
Meanwhile, gold is enjoying a bright year too... the Midas Metal is up ~$100 so far in 2023. The spot price was last seen lurking at around $1,930/oz.
Oil is holding steady just below $80/barrel (WTI). Bitcoin, the Big Dog of the crypto world, was right on $23k last we checked. It’s up almost 40% for the year. Wowsers!
All eyes will be on next week’s Fed meeting, where investors are hoping/praying Jerome Powell will deliver their soft landing, having whipped inflation and generally set the world to right. We’ll just see about that...
“I expect Powell to throw cold water on that narrative next week,” writes Dan. “Sober up you drunkards!”
Regarding where we go from here, it’s easy to get suckered into bear market rallies (as many investors were at least twice last year). And there are surely gains to be made along the way, from luck or skill is a matter of opinion. Over time, however, the market typically rewards a more prudent approach…
Here’s Dan, with some sobering words of wisdom from his frozen bolt hole up in Laramie, WY. This excerpt comes from his research note to members last night...
There are five main macro-valuation metrics we follow to get a snapshot of whether stocks are cheap or expensive. Here they are:
Market capitalization-to-GDP ratio. This peaked at 200% in August of 2021. It declined to 138.4% in October of 2022. It’s back to 154% now. The historic median is 87%. A return to that level from here implies a $15-$20 trillion loss in the value of all publicly traded companies in the US.
Yale Professor Robert Shiller’s Cyclically Adjusted Price Earnings Ratio. The recent peak here was 38.58 in November 2021. The all-time high was 44.18 in December of 2020. The current level is 29.57, or just below the 32.56 level in August of 1929. Shiller’s ratio is meant to smooth out the P/E ratio over ten years to give you a better read on whether stocks are cheap or expensive relative to earnings. They’re expensive.
Price-to-Sales ratio on the S&P 500. It’s currently estimated at 2.37 based on January earnings released so far. That’s down from the all-time high of 3.04 in December of 2021. But it’s above the median of 1.54. And it’s well above the all-time low of 0.80 in March of 2009.
Margin Debt on the NYSE. Margin debt is down 35% from its peak of $935 billion in October of 2021. The latest figures from December of 2022 have it at ‘just’ $606 billion. The preferred method of speculation appears to have moved to options with zero days to expiration (0 DTE). Call option buying volume on O DTE has exploded this year. The subject is beyond the scope of today’s letter. But I have a feeling when it turns to put buying with O DTE, the price action could get ugly fast.
Dow/Gold Ratio. This is Bill Bonner’s core observation and the bedrock of Investment Director Tom Dyson’s strategy. It’s the most basic and fundamental ratio between real money (gold) and financial fantasy. The current Dow/Gold ratio is 17.6.
That’s a lot to take in, I know. But don’t get bogged down in parsing year–over-year or month-over-month changes in consumer price inflation or core personal consumption expenditures. Keep your eye on liquidity, like the Fed is. And keep in mind that despite all the bullish price action so far this year, all it’s really done is returned stocks to historically expensive on a valuation basis.
People are people. Sometimes behavior trumps valuations and liquidity. And often, that behavior is irrationally exuberant.
If you’re not already receiving all of Dan Denning and Tom Dyson’s investment research, you’re leaving a lot on the table...
Twice a week they provide BPR members with macro analysis (Dan) and actionable investment strategies (Tom) to help you weather the brewing economic storm. While the S&P 500 fell 18.1% in 2022, Tom’s average closed position was up 8.9%. Then there’s the BPR Trade of the Decade, up ~118% since it was recommended back in 2021.
Remember, there’s no rule that says you HAVE to be a sitting duck, losing purchasing power to inflation and waiting for the next leg down in the markets. Find a membership plan that works for you and join Bonner Private Research today, here...
And now for Bill Bonner’s missives from the past week...
And that’ll do for another Weekend Wrap-up, dear reader. We’ll be back tomorrow with an irreverent installment of your regular Sunday Session. If you know someone you think might enjoy these pages, feel free to share our work with them.
Until tomorrow...
Cheers,
Joel Bowman
Hello, I have been trying to contact the Bonner Private Research team via email, but I havent gotten any replies. Any ideas? Seems this is an issue across the newsletter industry.
Do you notify when subscription ends so we can than sign up or does just it role over if you don’t send notification