Salient to Investors:

Doug Short writes:

  • US stock indexes are significantly overvalued, a serious concern in a more normal market environment of business cycle, Fed policy, interest rates and inflation.
  • CAPE is at 24.9 and the year-over-year inflation rate is 1.18%. The inflation range that has supported the highest CAPE valuations is 1.4% to 3%.
  • Prior to the tech bubble, the CAPE ratio went above 30 only in August and September of 1929 when the annual inflation rate was estimated at 1.17% and 0% respectively.
  • Many analysts assume Fed intervention, especially its Zero Interest Rate Policy, will keep yields low for a prolonged period, thus continuing to promote a risk-on skew to investment strategies despite weak fundamentals.

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