Are stocks overvalued?
Here is a metric that is accurate back 150 years - the Shiller Price/Earnings Ratio.
This looks at average prices divided by the previous ten years earnings. It signals massive overbought when the ratio hits 26.6. It is 26.7 now. This is about the same level that it was at just before the market crash in 1929.
So, this week I have shown you that the velocity of money is at its slowest since the Great Depression, and that stocks are as overvalued as they were just before that depression started with a massive stock market crash in October, 1929. The writing is on the wall people.
But what will be the trigger?
Trump was elected promising trade wars. The markets went up on the hopes for more tax cuts and a happy consumer.
The Italian referendum was a bust. The markets went up on the promise of even more ECB stimulus.
This was all good, but in the next 7 days we have a very significant happening.
On December 14, the US Fed will increase interest rates for the second time in 8 years. What if they surprise us and raise them by half a percent?
The last time the US Fed raised rates, markets moved lower by 11%.
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