What You’ll Learn
- Why the markets are overvalued
- What the Buffett Indicator is telling us is that stocks are insanely overvalued right now relative to the growth of the economy.
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How the US Debt is playing a role with stocks being overvalued
I believe the markets are overvalued.
Let me start with some background so that you will understand where I’m coming from.
The Free Market
Wall Street originally began operations in the 18th century as a place for businesses to raise capital in order to expand and grow operations.
But what most investors don’t know is that after a company does its Initial Public Offering (IPO) and raises capital, it has almost zero control over its shares as those shares are now in the public domain and in the hands of investors.
What happens to the future of those shares depends on how investors feel about the future prospects of the company.
In most cases when the company is doing well on Main Street then its shares in the public domain usually go up, as investors feel good about the company’s prospects and buy them.
The law of supply and demand kicks in and since there is usually a fixed amount of shares outstanding, demand or lack of demand, plays a vital roll.Â
So investing for most people is a direct result of emotion or how they “FEEL†about a certain company or its products or services.
Thus when we invest in a stock our success or failure is determined firstly by how well management runs the firm and secondly on how our fellow investors react to how well management does.
Going in, we understand this phenomenon and this is the cornerstone of capitalism.
This is what’s called the free market.
The Bad Behavior of Global Banks and The Side Effects of Zero Interest Rates
Back in 2007 I noticed that companies were extremely overvalued and positioned my friends and family mostly in a cash position.
I also did the same thing in 1989 and 2000 prior to what I believed were recessions, which soon showed up.
Luck or skill (you decide), I was right in doing so because in 2008 all hell broke loose and from the highs in 2007 to the lows of 2009 the stock market went down -59%.
The markets should have been allowed to go down further as the banks and financial institutions or “Den of Thievesâ€, which caused the mess through their corruption, should have been allowed to fail.
