Troubling Stock Market Indicators

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.