Stock Market Bubble?

[jwoodie]

I am wondering about the sustainability of the new record for the DJIA. This represents an average p/e ratio of 15.5, which translates to a cost of raising capital of 6.5%. Since the current prime rate is only 3.25%, the market does not seem to be overvalued at this time. However, if interest rates return to "normal" levels, the market may be negatively affected. In this event, will investors abandon equities and return to debt instruments? If not, where will all the money go?

 

[Sallow]

I am wondering about the sustainability of the new record for the DJIA. This represents an average p/e ratio of 15.5, which translates to a cost of raising capital of 6.5%. Since the current prime rate is only 3.25%, the market does not seem to be overvalued at this time. However, if interest rates return to "normal" levels, the market may be negatively affected. In this event, will investors abandon equities and return to debt instruments? If not, where will all the money go?

I personally don't think so.

Technology is going to look very attractive for a couple of reasons.

First there is ALOT of money sitting around doing nothing.

Second, there are new huge companies coming on line. Look out for Wells Fargo, they are buying every little company on the street.

Third, because of this, there is going to be increased traffic with companies that provide financial services to this new guys. And..no one has been upgrading anything, for almost a decade.

Look for massive spending on infrastructure at these companies.

 

[boedicca]

^^^ Doesn't understand how the Fed is printing money and what will happen when that stops.

 

[Mad Scientist]

As long as Federal Reserve print money, Stock Market is fly!

Federal Reserve and Insider Banks buy all mortgaged Real Estate in US with $85 Billion in Taxpayer Dollars every month since last September, about $400 Billion so far.

When Federal Reserve stop print money, Dollar Crash. Fed own most American Property and Americans become Debt Slaves to Banks who will usher in Total Communist Banker Control!

It will be Paradise!

 

[william the wie]

^^^ Doesn't understand how the Fed is printing money and what will happen when that stops.

It's not just the Fed. Money is pouring in from the EU and Far East. Sallow is right too. Computer memory chips are still returning the same 41% a year, optical electronics about 2.5% per month to double value/$ every 18 months, additive manufacture and nano-tech are in the same ballpark. Robotics and automation will get a big boost from Obamacare. A 30K DJIA and an election disaster for the Ds in 2014 will likely result from that kicking in 1/1/14.

 

[waltky]

jwoddie wrote: If not, where will all the money go?

Where it always goes...

... in Wall Street's bankers an' trader's pockets.

 

[realinvestment]

Never bet against the Federal Reserve.

 

[NYcarbineer]

The rally is rather narrow. The Dow is about the only index that made an all-time high.

 

[william the wie]

Never bet against the Federal Reserve.

It isn't the Fed fueling this move, try the ECB, BOJ and PBC. Italy and more quietly Spain are debating getting out of the Eurozone, Japan is fighting deflation and China has a $20 trillion + real estate and infrastructure bubble. The US as the best of the worst is getting the safe haven treatment in spades. The advance is not only narrow but low volume to boot.

 

[SteadyMercury]

The rally is rather narrow. The Dow is about the only index that made an all-time high.

I don't think making an all-time high is the definition of a rally. Look at S&P500 or Wilshire5000, this is clearly a broad rally not limited to DJIA stocks.

 

[Truthmatters]

Lets not forget how badly you on the rights predictions have proven out in the past.


Why would anyone believe in what you say wen your track record is SOOOO bad?

 

[blackcherry]

2013 .
The year that the shit hit the fan when the refuge of last resort finally literally disintegrated .
Dow down to 6-7000 in two years or under ? I have effectively bet my every thing i own on it .And I have not -- and will not -- lose even one minute worrying that I could be wrong .
it is more certain than the sun rising tomorrow .imo

 

[JimmieD]

I am wondering about the sustainability of the new record for the DJIA. This represents an average p/e ratio of 15.5, which translates to a cost of raising capital of 6.5%. Since the current prime rate is only 3.25%, the market does not seem to be overvalued at this time. However, if interest rates return to "normal" levels, the market may be negatively affected. In this event, will investors abandon equities and return to debt instruments? If not, where will all the money go?

According to all the asset pricing models I know, a rise in the risk free interest rate will always have a negative impact on asset prices. Intuitively it makes sense. For example, if I can get a risk free return of 5%, why would I ever by a bond yielding anything less?

And there is no way to tell for sure when the risk free rate will rise since this event is a policy decision made by central banks.

 

[Mr Natural]

There's an old saying:

"When interest rates are low, stocks will grow. When interest rates are high, stocks will die."

 

[Rozman]

I wonder if Obama and his little Democrat henchman have a plan to artificially prop up the stock market.Then when it crashes and we all know it will and since we all have our IRA and 401 k plans
tied to it we will be more then willing to hand over our accounts to the government.In return we
will be guaranteed a fixed monthly allowance down the road.

 

[Truthmatters]

^^^ Doesn't understand how the Fed is printing money and what will happen when that stops.

look above


this person has no idea about the finacial world except what Lush Limpballs tells her

 

[Rozman]

heh heh heh
El Rushbo rules!

 

[william the wie]

Cyprus needs to shake out before we can figure out what all of this means. The slow roll EZ bank runs could run the Dow upto 30,000 on low volume and flight capital.

 

[JWBooth]

^^^ Doesn't understand how the Fed is printing money and what will happen when that stops.

look above


this person has no idea about the finacial world except what Lush Limpballs tells her

And yet her level of understanding vastly exceeds that displayed by your drunken, racist, ill informed tripe.

 

[boedicca]

Cyprus needs to shake out before we can figure out what all of this means. The slow roll EZ bank runs could run the Dow upto 30,000 on low volume and flight capital.

Perhaps. Certainly the banksters will pump up equity promotions in order to cash out while dumping overvalued stocks on retail investors (largely invested in 401Ks and IRAs).

But with the economy meandering at such a low growth level with persistent U6 unemployment, more and more people are cashing out their retirement accounts just to live on. Considering how the Obama administration is eying nationalizing them, it's not such a bad move to spend the money now.

That said, equities are the place to be as long as the Fed is committed to QE^Infinity and ZIRP. The Bernanke will keep it up through as much of Obama's term as he can, and at least through the 2014 elections.