Skip to comments.The Fed Started The Fire: Buffet Indicator, Shiller CAPE At All-time Highs With Help A Little Help From The Federal Reserve
Posted on 06/12/2021 10:09:20 AM PDT by Browns Ultra Fan
Singer Billy Joel almost got it right in his song “We didn’t start the fire.” The Federal Reserve started the asset bubble fire.
The famous Buffett Indicator is signalling a massive stock market bubble or serious overheating.
Here is your first assignment for class. Plot the Buffett Indicator (Wilshire 5000 Total Market Full Cap Index/GDP *100 against The Federal Reserve Balance sheet). It should look like the following:
How about Robert Shiller’s cyclically-adjusted price-to-earnings (CAPE) ratio? It is climbing rapidly and is above Black Tuesday’s spike in 1929 but still below the peak of the dot.com bubble.
In terms of price-to-book ratio for the S&P 500 index, the P/E ratio is rising rapidly and it just below the dot.com bubble level.
The S&P 500 dividend year is at its lowest point since the dot.com bubble and considerably below Black Tuesday (1929) and Black Monday (1987).
Speaking of Robert Shiller, the Case-Shiller National Home Price Index keeps rising rapidly along with The Federal Reserve’s balance sheet.
What will happen if The Fed stops flooding the markets with liquidity? I don’t think they can stop the fire.
The Federal Reserve Massive Asset Bubble Band.
(Excerpt) Read more at confoundedinterest.net ...
“The S&P 500 dividend year is at its lowest point since the dot.com bubble”
Close to values in the late ‘90’s. Since then the DJIA has gone from 7000 to almost 35,000.
So we got that and this...
With all these trillions flooding the markets is the stock market more likely to go up or down?
A lot will depend on what the fed does. If they seriously jack up the interest rates get ready for a crash. If not the market will kee going up.
So, is Buffet selling and going to cash? In what it’s bound to be an inflationary period?
My guess is that this goes for real estate as well. Low interest rates are also fueling home sales.
The big question is when, and if, the Federal Reserve tightens up as a response to rising inflation. A 1.5% dividend yield doesn't look so great when you can get a bond that pays 10%. Buying a home is a lot less attractive when you're paying 12% on the mortgage.
“Buying a home is a lot less attractive when you’re paying 12% on the mortgage.”
Current rates are 2.0%
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