Danger levels in Shares

We speak often of the zero interest rate world we live in forcing people into an over inflated stock market searching for yield, inflating it more.  What people forget is that buying shares should be an investment based on an informed view of the future earnings of that company.  That shares are now at record highs in such a sluggish global economy is a little counterintuitive to say the least.  John Hussman of Hussman Funds believes, in essence, the outlook is so poor and current prices so high (with P/E and price / revenue ratios at historic highs), that we are unlikely to see any real capital gain in shares for 8 years.

“Unless we observe a rather swift improvement in market internals and a further, material easing in credit spreads – neither which would relieve the present overvaluation of the market, but both which would defer our immediate concerns about downside risk – the present moment likely represents the best opportunity to reduce exposure to stock market risk that investors are likely to encounter in the coming 8 years.” 

“The fact that the financial markets feel wonderful right now is precisely because yield-seeking speculation and monetary distortions have raised security prices today to levels where they are likely to stand years from today – with steep roller-coaster rides in the interim.” 

The following graph shows previous instances (vertical lines) where conditions matched the current extremes (hint – have a look at what happened each time afterwards…).  Buying your gold and silver after this happens will be too late…