*Claus Vogt: The RED Light Is Flashing!*
**
*Liquidity indicators and leading economic indicators have deteriorated
quickly since March. At the same time sentiment indicators reached levels
usually seen at stock market highs. All three are the main components of my
forecasting model. *
Now my model is presenting an *even clearer* message that the next recession
and a bear market are in the offing. And we should expect a test of the
March 2009 lows.
Moreover, I have massive doubts that these lows will hold, because ...
*The Stock Market Has Become **Fatally Expensive*
Forget about Wall Street's misleading songs about cheap valuations. These
analysts constantly use dubious figures, like estimated operating earnings,
to come up with such evaluations. If you want history to be on your side,
stick to time-honored valuation metrics such as 12-months trailing GAAP
earnings or yearly dividend yields.
The latter are especially fitting because they cannot be manipulated
whatsoever. The money distributed to share holders as dividends has to be
real!
Just look at the long-term, S&P 500 chart below ...
*The middle panel shows the price/earnings ratio using 12-months trailing
GAAP earnings. As you can see the market is at a relatively high 17.59. This
is near the upper boundary of 18 to 20. *
**
*And the only time this boundary was drastically exceeded was during the stock
market bubble years, and in 2008 when earnings went negative for the first
time in U.S. history.*
**
Dividend yields as shown in the bottom panel are at 2.06 percent and
convey the same message: The stock market is expensive. Stock market
historyholds another insight for us ...
The market moves in long-term cycles from undervaluation to overvaluation
and back again. After the bubble burst in 2000, the market never reached
levels historically associated with undervaluation. Not at the depths in
2002 — not in March 2009.
*Therefore, I fully expect the secular bear market that began with the
bursting of the stock market bubble in 2000 to push valuations down to
historically undervalued levels. That is single-digit P/E ratios and
dividend yields around 6 percent or more. *
**
*And it could happen within the next 18 months, driving the indexes below
their March 2009 lows.
*
*Safe Harbor Statement:*
*Some forward looking statements on projections, estimates, expectations &
outlook are included to enable a better comprehension of the Company
prospects. Actual results may, however, differ materially from those stated
on account of factors such as changes in government regulations, tax
regimes, economic developments within India and the countries within which
the Company conducts its business, exchange rate and interest rate
movements, impact of competing products and their pricing, product demand
and supply constraints.*
**
*Nothing in this article is, or should be construed as, investment advice.**
*
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