The Buffett Indicator

[BLADEMDA]

---

Members don't see this ad.

 

[BLADEMDA]

the current market cap/GDP ratio of nearly 125 percent,resulting from paltry GDP growth (less than 3 percent), could be problematic if you subscribe to Buffett's mantra. The ratio is now the highest it has been (it was even a little higher in 2015) since the market went over a cliff in 2000, when the ratio had actually been 151 percent.

As stated in his essay, "For investors to gain wealth at a rate that exceeds the growth of U.S. business, the percentage relationship line on the chart must keep going up and up."

If the ratio gets too high, Buffett says you're "playing with fire."


http://www.cnbc.com/2016/11/28/buffetts-best-measure-of-valuation-is-flashing-danger-for-stocks.html

 

[BLADEMDA]

Emerging markets vs. Japan net equity fund flows ($ billions)

 

[BLADEMDA]

"There comes a point where the weak yen and the (Japanese government 10-year bond yield) pegged to zero that starts to make Japanese equities look attractive," Lee Ferridge, head of macro strategy, North America, at State Street Global Markets, said last week. If he were to look at any country's stocks outside the United States, he said, "it would be the Nikkei."

http://www.cnbc.com/2016/11/28/japan-investing-strategists-like-stock-market-better-than-the-us.html

 

[deleted171991]

It makes perfect sense. Long term, no (stock) market can grow faster than its underlying fundamentals (i.e. the economy). All bubbles burst, sooner or later.

However, that should not be a reason for staying out of the market (it rarely works better than staying in the market long-term), but for diversification.

 

[pgg]

Are you going to change your asset allocation because of this?

 

[lobelsteve]

 

[BLADEMDA]

Are you going to change your asset allocation because of this?

Due to my recent sale to an AMC I have cash sitting around ready to invest. So, the short answer is "yes" my asset allocation is not where I want it in terms of domestic equity allocation. The Buffett indicator seems to say now isn't the best time to increase equity exposure. Buffett himself is sitting on a lot of cash waiting to invest it.