For those of you who watched the markets this week you saw that we again are experiencing a roller coaster from hell as traders are bringing the markets up to a point and then are crashing them down again. This has been the pattern since December 2014 when the S&P 500 (NYSEARCA:SPY) was trading around where it is today. But again this is what everyone seems to be ignoring.
What the chart above is telling us is that the Price to Sales ratio of the S&P 500 Index is at 2.22 and that is the highest in the 52 years represented in the chart above. To give you a little historical perspective, during the Dot Com boom and bust in 2001 the price to sales of the S&P 500 Index was 1.65 and the S&P 500 Index fell -45% and in 2007 the Price to Sales of the S&P 500 Index was 1.85 and the S&P 500 Index fell -59% so we are now at 2.22 so it basically comes down to mathematics.
1.65 = -45% loss
1.85 = -59% loss
2.22 = since 2.22 is 20% higher than 1.85 then what is coming is even more scary
This is also proof that Janet Yellen and the FED gang are not being truthful with us as they say the economy is doing great. Thus Wall Street is being told to be bullish by the FED even though revenue growth is non-existent. President Obama will be the first president in history who did not achieve at least one year of 3% GDP growth during his 8 years, that's the first time
The reason the markets have recovered at all since the last crash is because the governments of the world have kept interest rates at zero for those 8 years and unfortunately have now gone negative in many countries. In 2014 when the S&P 500 was trading where it is now the yield that an investor could get on a German 10 Year was about 1.44% and today that same bond is yielding 0.03% (98% drop) while the Japanese 10 year is yielding -0.15% and the Swiss 10 year is yielding -0.45%. So basically things are so insane in the world today that an investor in Switzerland who invests $100,000 in a Swiss 10 year is paying the Swiss Government rent or $450 a year to hold their money for them. So over 10 years that $100,000 will yield a $-4,500 to that investor and insanely investors are lining up to buy these. If interest rates were to ever rise back to 2% in Switzerland that same investor will probably lose tens of thousands in principal as well. Here in the USA the 10 year is now yielding 1.65% as investors from all over the world are flocking to buy our 10 year and 30 year as these instruments are some of the few globally that are paying positive interest and are still considered safe. But by them flocking in they are raising the price of these instruments and are lowering the yield and thus at some point in the future our 10 year will also yield negative results.
Janet Yellen and gang are talking about raising rates but they are not being truthful for if the FED did raise rate this weak economy could not sustain it and we would immediately dip into a serious recession, which would cause investors to flock to the 10 year even faster and force the US to negative rates even faster. The only reason that I can come up with that would have the FED raise rates is simply because it wants to crash the markets, because Main Street is really not doing well as the Price to Sales ratio clearly shows. Thus the FED and the markets are stuck and those who are fully invested now will probably get creamed if just one negative catalyst like Donald Trump becoming President were to happen, as he will sure cause instability and rock the government institutions.
So going forward what is an investor to do? Well in my case I am sitting patiently in a ton of cash and am waiting for the inevitable to happen. I have no choice in the matter as the math is very solid and true and the reality on Main Street is as clear as the nose on your face. Well in order to not end up writing you a book here I have put all my conclusions in an article of Seeking Alpha for those who want to see the devil in the details as Ross Perot is fond of saying.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.