The Stock Market Is Overvalued Between 48% And 61%

TBI - Doug Short.Com ^ | 6-2-2011 | Doug Short

[RetiredTexasVet]

I think it is fixed by the Fed, Goldman Sachs, and a lot of the other biggies. In a couple of years, all those 401k proceeds are going to be cashed in and you’ll see a drop like no other. The Fed is causing money to be printed, Goldman Sachs and the crew are doing dummy trades to push up prices and commissions, and most of the corporations are being looted of cash by the managers and directors.

[Hoodat]

The sole reason for QE1 and QE2 was to fund government. The stock market had nothing to do with it. If Bernanke sticks to his guns and doesn't offer QE3, then the federal government will be hard pressed to come up with the additional $1.6 trillion it will need to continue functioning at current levels. So even if the debt ceiling is raised, the Treasury won't be able to find enough lenders to cover that amount. Next, we will see interest rates rise rapidly in order to attract the dollars the Fed has been supplying for the past 2½ years.

As for the stock market, it is simply a matter of supply and demand. When stocks are in demand, prices go up. When demand falls, so do prices. Anyone with dollars is looking for some place to put them, and with real estate on the decline and new business ventures being taxed out the wazoo, the stock market becomes a better option. So more people invest, and prices rise.

[Attention Surplus Disorder]

I am, however, detecting early signs that this inverse relationship may be breaking down....so beware of relying on this as a “black box” type of thing. It has worked remarkably, insanely well for 2 years. By the way, there is little or no secret about it, either.

I’m not saying that the relationship will vanish; I am saying it may not be *by far* the most significant driver of stock prices which it has been. I suspect a weakening dollar, when it happens in compressed time periods will be decidedly bullish for equities for the foreseeable future, under almost any circumstances.

[Babu]

No, it’s certainly not a secret for those of us that study the market. But it is what it is. The charts show it. As to whether that inverse relationship has started to break down, who knows? Time will tell. All these kind of relationships seem to eventually break down.

The same inverse relationship exists between the dollar and precious metals, so in effect, the decline in the dollar is driving up the cost of PM’s, though the run to PM’s as a safe haven has exacerbated that rise in the US$ price of PM’s.

[Armed Civilian]

PING