Dear Reader,
Good morning! Happy Thursday.
In my first video of 2025, I want to start the year with a broad overview on where we are in the stock market right now.
We want to take stock of the battlefield, if you will – of conditions as they are, so we can get an idea of the kinds of risks we want to take, or how defensive we should be playing it.
You already know with my personal money I don’t like long bonds – I am putting my money in short-term treasuries – T-bills, etc., ideally under a year.
I wouldn’t go out more than five years and my personal preference is a year or two, tops.
And the stock market?
Well, it’s historically expensive right now…
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The “Buffett Indicator” Predicts 62% Stock Market Crash
Warren Buffett just froze all buybacks and sold more stocks than at any time in Berkshire Hathaway’s history.
That’s because the last time the “Buffett Indicator” flashed this red was in 2000 – right before the market crashed 50%.
Take these 4 steps to protect your retirement here.
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I was going over some metrics the past few days.
And a lot of metrics are reaching or already among the highest levels ever recorded.
Obviously, that has a lot to do with AI hype that has driven many investors to double down on equities.
The P/E ratio hasn’t been this high since 2000.
The capital asset pricing model ratio is right where it was in 2000.
The dividend yield is as low as it was right around 2000.
The price-to-sales is where it was right around 2000.
The price to book is right close to where it was in 2000.
The Q ratio, Tobin’s Q ratio, is close to where it was in 2000.
All these metrics just right there where we saw them before the dot-com crash of 2000.
And finally, household equity allocation – it is higher than it has ever been.
More regular investors than ever, 51.8%, are invested in the stock market.
Now, these are all super bearish signals.
They are not good.
Of course, in the short term the hype could continue.
But in the long term this is really not the place we want to be taking aggressive, crazy risks.
I know that here at Behind the Markets we’re only a small percentage of the newsletters and advisors you listen to out there.
So when you are listening to the other folks I just urge you to be super careful.
Think of investing like you’re a batter.
You don’t have to swing at every pitch.
Just really try to swing at the pitches that come right in the middle of the strike zone.
Just take the best ones – the ones you feel like, gosh, I’d be stupid if I missed this.
Those are the kinds of moves we want to be making in a market like this.
This is a very high market.
Investors typically see underperformance in the years following a run like we’ve had.
You could see that it’s just kind of gangbusters here. We are at a dangerous time.
That’s why we’ve been selling lots of stocks.
We did very well in 2024 in our model portfolios!
But again, I know for most of you I only handle part of the recommendations you’re getting out there.
Just be careful, please.
No matter what metric you look at, we’re in the most overvalued market we’ve seen since 2000.
Careful is the watchword as we enter 2025.
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