Record low borrowing costs and the soaring stock market have encouraged traders to aggressively use margin to finance their stock purchases, which is exactly what occurred during the Dot-com Bubble and the U.S. housing and credit bubble.
Record low corporate borrowing costs, thanks to the Fed’s QE and the bond bubble, have led to a corporate borrowing binge that has financed approximately $1.9 trillion worth of stock buybacks from Q1-2009 through Q1-2014, which has been a significant driver of the U.S. stock bubble. The last time corporate stock buybacks hit this level was right before the stock market crash of 2008.
In addition, the Fed’s low-interest rate policies have forced millions of otherwise risk averse people into the market to chase yield.
AND, there are several other indicators that seem to point to a severe market correction.
More importantly, Dr. Robert Shiller, 2013 Nobel Prize recipient for economics, and with whom I spoke last year at a business conference, has published his report that indicates that the price/earnings ratio of stock prices has only been higher three times earlier in the market: pre crash of 1929, pre 2002, and pre 2008.
He has expressed that people “exercise caution” regarding market participation and he has stated, regarding the market that, “it looks like a peak.”
If you too express some concerns, especially as you anticipate transitioning from the ‘accumulation’ phase of your life to the ‘preservation/distribution’ phase of your life, then reach out to me.