Taps Coogan – June 25th, 2021

Enjoy The Sounding Line? Click here to subscribe.

Robert Kessler, Founder, and CEO of Kessler Investment Advisors, recently spoke with WealthTrack’s Consuelo Mack to issue an unambiguous warning that the stock market is overvalued.

 

Some excerpts from Mr. Kessler:

“History tells us that at the end of these markets, we actually know what kind of things to look for to know if it is in fact the end. It’s very difficult to have a bull market starting at the high end of a (price to earnings) multiple. Most bull markets start from an almost single digit multiple. In… 2008, when the market finally hit its bottom, we were at a multiple of 12 times earnings, not the greatest but not bad. We’re at 30 today. The only times we’ve been at 30 were times that were just prior to very long term problems in the market… 30 times earning means 30 years at that earnings rate to get your money back. That’s a heck of a long time… Each one of these major drops in the market… starts around 30… That’s where we are…”

“Usually when the public is at about 38%, meaning they’ve taken about 38% of their financial resources and put them into the stock market, that is about as far as it can go. 38% seems to be the top every single time. We don’t have an exception to this. In 2008, 2007 we were at 38%… the problem with that is who do they sell too?”

“Not to be silly… but one of the things you get when you get to the top of the market is you get a lot of crazy things going on in the market. This has gotten to the point where we have enough things out there, SPAC, cryptocurrencies, and useless pieces of paper…, most of these things begin to exist when you get to the numbers we are talking about…”

“I am not talking doom and gloom. I am simply saying…, Ray Dalio…, one of his most classic things is… “cash is trash…” For all of those people who are listening and you’ve got two months of savings and then you’ve got nothing, cash is not trash. Ray Dalio can talk like that… but the point is that having money going into this next period of time is very valuable…”

Mr. Kessler goes on to explain that because of his concerns about the equity markets, he is very bullish on long dated treasury securities, despite their low yields, echoing the thinking of David Rosenberg, and Dr. Lacy Hunt.

It’s worth noting, however, that the treasury market has so far been spared the task of funding the actual federal deficit due to a confluence of temporary factors. Those factors may be waning soon.

People have been warning that this market is overvalued for years and years. In the meantime, it’s just gotten more overvalued. Equities are very well correlated to central bank balance sheets and the Fed is still ‘printing’ $120 billion a month. With inflation at 5%, presumably they will take their foot off of the accelerator at some point but who knows when and for how long.

Would you like to be notified when we publish a new article on The Sounding Line? Click here to subscribe for free.