by Shadow of Truth The Daily Coin:
The stock market is extremely overvalued – it could easily crash through the bottom hit after the Lehman crisis [S&P 500 closed at 676.53 on March 9, 2009] – Alasdair Macleod on Shadow of Truth
It’s getting harder for perma-bulls to make the argument that the U.S. economy is in a state of recovery. It’s getting even harder for them to justify the current stock market valuations. Not only are all of the reliable economic metrics pointing toward the early stages of what could be a deep economic recession, if the trailing twelve month GAAP earnings of the S&P 500 index companies were adjusted by using the GAAP accounting standards that were in place in 1980 – or even 1990 – the current stock market would be the most overvalued in history.
The U.S. stock market is behaving as if it is getting ready to drop like Niagra Falls:
When you see a genuine top, all the old hands say ‘this is absolutely crazy’ but they throw in the towel and buy at the top along with everyone else – that is a genuine bubble…But recently there’s a fairly strong body of expert opinion that is very cautious about the outlook for the market…that’s consistent with the end of the “B” leg of Elliot technical anlaysis, which proceeds a very nasty “C” leg and which could take us to the lows we saw post-Lehman and likely overshoot that low by a reasonable degree. – Alasdair Macleod
The technical analysis cited above by Alasdair Macleod is supported and reinforced by the rapid deterioration in corporate revenues, earnings and credit quality. The banking system in particular has releveraged itself both on and off balance sheet to a level that far exceeds the levels that blew up the financial system in 2008.
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