Economist and president of a research firm that bears his name, Andrew Smithers (not related to the Smithers of Mr. Burns fame) is saying our on-fire stock market is set to burn itself out. The S&P 500 Index is overvalued by 40%, he believes, and we can expect a plunge thanks to central bankers restraining themselves on the securities purchases that have pushed the markets up so far so fast. Also, banks are going to need to sell more shares to raise capital and pump up their balance sheets.
If the S&P 500 were to take a 40% dive today, it would fall to 647.76 (based on the Friday close), below the low it recorded in March.
How likely is a decline? Well, Mr. Smithers claims that equity markets have been exposed based on the effects of quantitative easing – the process by which governments pump cash into an economy.
In the United States, "queasing" has resulted in asset purchases that have doubled the size of the Fed's balance sheet since the beginning of the financial crisis – and it's now at $2.1 trillion. The Bank of England has spent $286 billion in the last seven months for the same reason.
So, if Smithers is right, we could find ourselves in a disconcerting spot. Until then, all we can do is brace ourselves.










Reader Comments (Page 1 of 1)
10-26-2009 @ 9:43AM
Duke said...
I agree that stocks are overvalued. The investors that want us to part with our money so they can can get richer are looking at getting rich through rose colored glasses. They are so used to money coming in and profits being made, that they are in denial that this is a deep and long recession. There are no jobs, factories have closed for good and moved to China, Mexico, Taiwan, Pakistan, India, Indonesia. and other countries where the workers make a dollar a day. Even with this profit potential, Americans will not, and literally can not spend money. They have no jobs to infuse the extra money into the economy for the investors to profit off. There will be no more bailouts except for a hand full of corporations that have paid big dollars back in the hey day of our economy, to politicians. The Wall Street tycoon wannabe's had better ralize there is no profits in them thar hills. The economy is a bust and will be for a very long time. There is no world war on the horizon to pull this country out of this recession. This recession will last as long as the Great Depression and longer becasue there is no domestic industrial base on to which the economy relied on and was rooted in. Cottage industries now will take a long time to become mega corporations that make huge profits. So invesing in those startups is a risk, since there are not many paying customers, since there are no jobs. Products made by many retailers are made in those countries that pay their workers a dollar a day. Investing in the Pacific basin, oil companies, and pharmeceuticals which all gouge the public, are the only entities that will make huge enough profits to glean some capital, to go into the investors bank accounts. It is a dog eat dog world out ther now for the investor. Their greed can't be fed since the rest of us are out of work and are under employed. Get us to it.
10-26-2009 @ 9:59AM
Mike said...
ASSET BUBBLE...pure and simple. The correction will come. Only question is, how many have bought into the media drivel, and will be crushed as a result.
10-26-2009 @ 10:15AM
lpi2007 said...
The stock is way overvalued, the usa thought people would pick up the fact that the depression is over, we have a long long way to go. Louisville Paranormal Investigations clips will be on the Maury show on Wednesday, watch for our clip and check out our site.
10-26-2009 @ 11:23AM
ronandlane said...
"Free Market Capitalism". I call it a system built on lies and theft for the benefit of the few. Capitalism is basically a very corrupt system and should be abolished. A Democratic Socialistic society that ultimately includes everyone instead of including only the lucky and corrupt few cannot last forever and will probably die a much deserved death. This cannot go on and must not go on.
10-26-2009 @ 12:07PM
ANGIE said...
YES, they are inflated numbers. This is the same thing that got us into the GREAT RECESSION. False numbers
inflated numbers and governed by greed. Sounds just like the old deceptive practice(s). tHEY NEED TO BE STOPPED - WHERE IS THE 'JUSTICE' DEPARTMENT ?!
10-26-2009 @ 12:20PM
azphoenixwolf said...
Let's see: Billions in TARP loans not being repaid on schedule, 100 Banks insolvent and the FDIC billions in the red (they're the ones who insure our bank accounts - sleep well tonight), Freddie Mae and Freddie Mac with 1 Trillion in bad loans, the FHA ready to go into meltdown, the Commercial Real Estate sector getting ready for meltdown, thousands of snailmail jobs lost at the postoffice, print media jobs, and outsourced jobs that are NEVER coming back (realize this is a permanent DEPRESSION for them), Viet Nam I (Iraq war of lies- remember the campaign promise to end the war there - at the Capital address on that issue we would be leaving a permanent force of 50K), Viet Nam II (Afganistan - we just sent 12K more troops there and there are requests for more), and Viet Nam III (Pakistan - we've just got our toes wet for now sending billions and billions in "aid" and Terminator style bombing drones - oops, I guess they forgot to program Asimov's laws of robotic nonviolence in them, I guess they must not have read the book), many pension funds down 30%, 40%, 50% from the stock debacle, tax revenue down 17% which will result in more state and city layoffs. More like black roots, not green shoots. We are becoming an Obama banana republic. The two political parties are just vultures feeding on different sides of the economic corpus. Joining them are cash for bankers, health care, oil industry,
10-26-2009 @ 2:59PM
fred said...
Yes, The market is overvalued but with both the Federal Reserve and the Treasury in the picture the correction will not happen until the real recovery takes place sometime in late 2010 or 2011. Remember as long as you can print money and purchase stocks as they are doing today they can control all aspects of the market. The dollars rise and fall is being manipulated by the treasury. Just look at the market on days like today when the dollar rises and falls. Add to that the corporate under repoerting of the analysts and you have a market that rose like the one we had between July and October of 2009.
10-26-2009 @ 3:26PM
Freedland said...
Whether the stock market is over or undervalued is a subjective analysis. My question is, "Where were these geniuses when the market was 3500 points lower? Were they advising their clients to buy stocks or are they fearful that having been wrong about the current rally, they need another chance to redeem themselves.
Why not check their record since last March when the market hit bottom. These same gurus are claiming the market is now overvalued after a huge rally but most did not consider equities when they were at the lows.
It does not take a genius to understand that their is more risk in the market after a 3500 point rally than predicting market gains after the stock market meltdown.
10-26-2009 @ 3:46PM
lazyhal3 said...
If anything, this market is UNDERVALUED.
Rarely have stocks been so cheap when compared to other financial assets. High-quality companies in the S&P pay better dividends than the yields on long-term treasuries.
10-26-2009 @ 4:00PM
mosuro said...
And WHO made the money during the stock market crash/depression in '29.......one guess..THE KENNEDYS
10-26-2009 @ 4:12PM
MyKisa said...
....going...down?
10-26-2009 @ 11:01PM
Sheldon L said...
Yes, there are segments of the market that are overvalued, but by 40% -- I don't think so.
Lower labor costs, energy costs, interest rates and easier year to year comparisons are helping. Greatly reduced inventories and latent business demand for delayed technology purchases will stimulate some business.
Also the market valuation is not based on today's financials, but those projected out 6 to 12 months.
I do not expect a major pull back until the fed raises interest rates. Until then the market may just dribble along without major conviction.
Also markets are not made by those sitting on the sidelines. They are made by the participants, be they buyers, sellers or even short sellers.