Salient to Investors:

David Weidner writes:

Five years into a slow paced economic recovery is good reason to be buying stocks, because rapidly growing economies usually goes belly up as quickly as they rise.

The stock market always leads the economy but a 155% rise in the Dow since 2009 and 31% rise in the past 18 months is worrying because markets cannot sustain such overvaluation without a significant change in the economy, which doesn’t support the buying.

No one is really buying – retail investors withdrew $921 million from US stock mutual funds last week and $451 million the week before. Gallup said overall stock holdings by households peaked at 67% in 2002, but fell to 54% by 2011. Pew Research Center says stock ownership is just 45%.

There are not enough ETFs to really move the needle – it is the wealthiest Americans –  5% of Americans own 82% of directly owned, publicly traded stocks – and the pro traders.

BEA report that corporate profits declined 9.8% in Q1, the largest drop since Q4 2008, and 3% during the past four quarters.

Doug Short says the market is overvalued by 51% to 85% on PE ratios and the Q ratio.  Goldman Sachs said that profit margins dropped from 10% to 8.7% of GNP in just one quarter.

There are no alternative to stocks as the the real consequence of QE seems to be inflation in the stock market. Dealogic said junk bond issuance last year hit a record $366 billion, more than twice the level reached in the years before the 2008 financial crisis. Housing continues to be a game open to cash-rich buyers (31% of sales were all-cash in Q1; gold is off 30% from its 3-year high; and oil has added 20% in the past year.

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