Thursday, August 28, 2014

Return To Fair Value...Tidbits

The talking heads in the media love to gush about the recovery and since we are in a consumer society, the state of the housing industry. No one can argue about the rise in home prices from the lows of the 2008 recession except people like myself who see no structural changes within our economy and the financial industry which sent us into the recession. With that stated many times in this blog, to which I feel that the Fed's dilution of the value of the dollar has caused our stock market to be excessive to the tune of 40% overvalued. I'd like to introduce to you, dear reader, to a highly paid consultant, Wellershoff & Partners.
New Study
In this report by the Swiss firm, Wellershoff predicted that the US market will have a 30% or more correction within the next five years. They based their findings on a concept of correlation between the price of equities to their earnings(P/E). They looked at the history of the US stock market and they found an inverse movement associated with rising prices. In science they say for every action there is a reaction and this is basically what they are saying. When the market gets to pricey, the weight sinks it. Wellershoff says market valuation is the point of concern.
Case & Shiller
you heard of them because their housing index is used by everyone to reflect sales and prices in the housing market. Keep in mind that the purchase of a home is the biggest expense by a consumer. Shiller also consults about the economy and one of his main components is the CAPE which is centered around the P/E which Wellershoff used as a focal point in his study. Shiller says the CAPE reading of 25.69 is 61% higher than its historical normal of 15.95 and 55% higher than its historical mean of 16.55. These guys are way above me, but our indicators are on the same wave length.
One More Aspect
Wellershoff also adds there is another correlation that between developed and emerging markets. The higher the confidence level, the harder the fall.
Doubting Thomas Tidbits
We all read that the Fed will stop buying treasuries in October, but the question is this, who will make up the vacuum of the Fed to buy treasuries that help to keep interest rates low?
The Philadelphia Manufacturing Survey for August was released with this shocker. Under questions concerning the Affordable Care Act there were these two items that were asked.
How, if at all, are you changing or have changed the following:
Hiring of full time workers? Answer: negative 15.2% which means that percentage of full time workers was reduced by that amount.
Hiring of part time workers? Answer: increased by 16.7% which means more part time people to get around providing medical coverage.
This is why people cannot afford homes let alone live. We exist. We do not live.
End the Fed!