Michael Pento says “it is clear stock prices are still extremely overvalued by virtually every metric.” Here’s more:
These lofty valuations sit atop negative earnings growth and a faltering economy. The Atlanta Fed’s GDP model currently shows first-quarter 2015 economic growth will come in at a paltry 0.2 percent annualized rate. And S&P Capital IQ predicts first-quarter earnings will fall 2.9 percent, while also projecting second-quarter earnings growth will contract 1.8 percent.
So how can stock prices remain at record high valuations; given the fact such levels seem egregiously ridiculous within the context of no growth? The answer is simply that central banks have given investors no other alternatives. Banks pay you zip on your deposits and sovereign debt offers little return — even when going out 10 years on the yield curve.
Central banks have forced investors to play musical chairs with their money; but this dangerous game has millions of players and just a handful of chairs. When the music finally stops investors will find that bids for stocks have become very rare.
Pento warns that a US recession (Q1 growth was essentially zero; Q2 could be as bad or worse) and rising interest rates could easily pop the bubble. Missed earnings aren’t helping, either.
Pento’s warning could be premature however. If April and May look anything like January, February, and March, then the Fed probably won’t be raising rates in June like it keeps promising (threatening?) to do.
I’ve had my finger hovering over the SELL! button for what seems like ever now, but there still seems to be room left for this bubble to expand.