“An Insane Excessive Stock Market Bubble Today,” Current Overvaluation in The Market

The comments below are an edited and abridged synopsis of an article by StreetWise Reports

Crescat Capital representatives discuss the current macroeconomic environment. Portfolio Manager Tavi Costa highlighted the bearish side along with investment opportunities with bullish potential. Chief Investment Officer Kevin Smith presented evidence of an overvalued equity market and noted what that means for the precious metals sector.

“An Insane Excessive Stock Market Bubble Today,” Current Overvaluation in The Market - BullionBuzz - Nick's Top Six
Stock Investments Skyrocketing In A Bull Market

Costa said that one concern is the weakening Chinese economy. The downtrend in China is evidenced by the non-manufacturing Purchasing Managers Index, which is at a level below what it was during the global financial crisis.

As well, banking stocks have been steadily declining. Also affected are domestic companies such as Evergrande Real Estate Group. Costa attributed the current scenario to the CCP’s recent crackdowns on domestic companies.

Also of concern is the 5-year cyclically adjusted earnings yield of the S&P 500, which is near all-time lows. Every time it has been so severely down, the following years have been painful for equity investors. During those five or so subsequent years, the return was about –50% on average.

Costa said there are signs that inflation is going to increase. One indicator is that US governmental debt and the net worth of individuals are increasing in tandem. This suggests fiscal policy targets the bottom 50% of earners (proven in part by the recent 27% increase in food stamps, the biggest in history), and this worsens the inflation situation. Another indicator is supply chain problems.

One of the best opportunities in commodities now, according to Costa, is precious metals. Today, gold and silver companies are the cheapest, even among commodity producers.

Precious metals firms have excellent free cash flow growth and little debt relative to their assets. Their operating expenses are increasing at a slower pace than those of other commodities.

As for gold, Costa said that, following the monthly candle of reversal last month, the price is expected to increase. With respect to silver, the price appears to be breaking out.

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