Stock Market? Time to Sell...

It's been a long time since the editorial board here at mewetree.blogspot.com opined on stock market issues. This is primarily because the board has what is called a "liquidity issue"...it has no liquidity to invest, so this issue has not been front and centre for a long time.

That changes today.

The Shiller's P/E ratio is at 37. 

This measure tracks the historic price to earnings ratio of the S&P 500 stock exchange. Normal is 16. See here...

https://www.multpl.com/shiller-pe

Buying equities which paid a pittance as a dividend and which therefore had very high P/E ratios was rational in a world of super low interest rates, given that an investor could not do better with bonds. Rates are not low anymore. 

This P/E ratio of 37 is screaming that there will be a pull-back soon, as investors can get an equal or better return on bonds than they can on equities for a given level of risk. It's just math.

Inverted, then Not.

The interest rate curves were inverted for over two years, meaning that long term yields were lower than short term yields. This happens when smart money gets out of equities and into long term bonds in expectation of a market decline. 

A recession and stock market pull-back follows after the inversion ends and the relationship between long and short term yields returns to normal. They returned to normal this month. No one knows when the bad things will happen, but this indicator is 100% accurate. The stock market has never been higher. The good times will end, as they always do.

Buffett Buffet.

Warren Buffet has over $277 Billion in cash or easily convertible assets. This is a massive amount of money. He would not have this much cash on the sidelines if he thought there was any good place to put it. If he is moving out of the market, you should be too. That cash will be deployed to take advantage of opportunities once prices have declined.

New President.

Except for Clinton and Trump, the first year of a new President's term in office has seen markets downturns ever since JFK. We don't know who will win next Tuesday, but we do know it will not be Biden - there will be a "new" President. 

If it is Trump, the market pull-back noted above could be delayed, but it will happen - the market fell almost 5% in Trump's second year in office.  

If you are in the stock market, time to think about redeploying to safer assets.

We seek safe harbour!

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