Thursday, April 3, 2014

END OF DAY

It's beginning to sound like an old Bernanke tune in Europe as the ECB played down deflation fears today and dealt the old ready-to-act-if-you-need-us card. Instead of rain these officials and those in Japan pray nightly for a little inflation. The bank left its interest rate at a record-low of 0.25% and left a window open for some Bernanke-like big buys of financial assets if need be.

The DJIA closed at 16,572.55, down just a fraction. The S&P 500 dropped off 2.13 points to close at 1,888.77 and the Nasdaq closed down almost 39 points at 4,237.71.

Where oh where have all the buyers and sellers gone. No, we're not talking equities, we're talking US home sales. According to an AP wire story, home prices are up nearly 14% over last year but sellers are not selling and buyers remain few owing to higher home prices and higher rates. Meanwhile, rents continue to rise with concerns growing that 2014 will be the fifth straight year rents are up. Again, according the the AP, 50% of renters now pay more than one-third of their pay for shelter.

Note that the S&P 500 closed today at 1,888.77. Now this is not about highs and lows, just observations. About a month ago, on 3/6/14 in fact, the index closed at 1,877. There is something called the Tobin Q ratio, created by the late James Tobin, a Yale economists, to gauge the value of  corporate assets versus their replacement cost. 

No big deal here, just this: The Tobin Q on 3/6/14 was indicating that at 1,877 the market was overvalued by 76%.  Only two times in the past has the market been more overvalued, in the late 1920s and the late 1990s.

Now one indicator does not a market overvalued make. But it's worth watching.

No comments: