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IPFS News Link • Economy - Economics USA

Some thoughts on the 'longest bull market ever'

• Simon Black - Sovereign Man

Well, it happened. Yesterday the US stock market broke the all-time record for the longest bull market ever.

This means that the US stock market has been generally rising for nearly a decade straight… or even more specifically, that the market has gone 3,453 days without a 20% correction.

That's a pretty big milestone. And there's no end in sight. So it's possible this market continues marching higher for the foreseeable future.

But if you step back and really look at the big picture, there are a lot of things that might make a rational person scratch his/her head.

For example– the Russell 2000 index (which is comprised of smaller companies whose shares are listed on various US stock exchanges) is currently right at its all-time high.

Yet simultanously, according to the Wall Street Journal, a full SIXTY PERCENT of corporate debt issued by companies in the Russell 2000 is rated as JUNK.

How is that even possible– a junk debt rating coupled with an all-time high? It's as if investors are saying, "Well, there's very little chance these companies will be able to pay their debts… but screw it, I'll pay a record high price to buy the stock anyhow."

It just doesn't make any sense.

Looking at the larger companies in the Land of the Free (which make up the S&P 500 index), the current 'CAPE ratio' is now the second highest on record.

'CAPE' stands for 'cyclically-adjusted price/earnings ratio'. Essentially it refers to how much investors are willing to pay for shares of a company, relative to the company's long-term average earnings.

And right now investors are willing to pay 33x long-term average earnings for the typical company in the S&P 500.

The median CAPE ratio based on data that goes back to the 1800s is about 15.6.

So at 33, investors are literally paying more than TWICE as much for every dollar of a company's long-term average earnings than they have throughout all of US market history.

And it's only been higher ONE other time– just before the 2000 stock market crash (when the dot-com bubble burst).


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