Monday, March 10, 2014

Elevated Valuation Metrics (excerpt)

The Fed released its quarterly Flow of Funds report last Thursday. It showed that the market value of all equities traded in the US soared to a record $34.7 trillion at the end of last year, up a whopping $20.9 trillion since the start of the bull market during Q1-2009. Total stock market capitalization as a ratio of nominal GDP rose to 1.25 at the end of last year, exceeding the previous 2007 peak of 1.12 and the highest since Q3-2000. The price-to-sales ratio of the S&P 500 rose to 1.54 at the end of last year to the highest reading since Q1-2002.

Tobin’s Q is another valuation metric that can be calculated using data in the Flow of Funds report. It is the ratio of the market value of equities to the net worth at market value of nonfinancial corporations. I adjust it by dividing it by the average ratio since the start of the data. It was 1.44 at the end of last year, the highest since Q2-2001.

Today's Morning Briefing: Hillary’s Department. (1) Natural gas and diplomacy. (2) Putin helping to resolve a debate in US. (3) Thank goodness for Texas and N. Dakota. (4) Fisher’s irrationally exuberant ghosts. (5) Fed data show elevated valuation multiples. (6) Janet may soon start singing Britney’s “Oops” song. (7) YRI Earned Income Proxy at another record high. (8) Real hourly wage rate at record high. (9) Long-term unemployment remains high. (10) Yellen & Dudley continue to accentuate the negatives. (11) Monetary policy likely to remain ultra-easy and bullish for stocks. (More for subscribers.)

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