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posted on 28 April 2017

The Last Time

Written by , Clarity Financial

Simon Black made a very interesting observation a week ago Friday:

“A few days ago Charles Schwab, the investment brokerage firm, announced that the number of new brokerage accounts soared 44% during the first quarter of 2017.

More specifically, Schwab stated that individual investors are opening up stock trading accounts at the fastest pace the company has seen in 17 years."


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Hmm…remember what happened 17 years ago?

“Investors are once again clamoring to buy expensive, popular stocks at price levels never before seen in the history of the stock market.

  • At 26.44, the S&P 500’s Price/Earnings ratio is the highest EVER, except for two occasions: the 2008 crash, and the 2000 crash.

  • At 28.93, the “Shiller P/E ratio", which looks at company valuations over a longer-term, 10-year period and adjusts for inflation, is at the highest level EVER, except for two occasions: the 2000 crash, and the 1929 crash.

  • Price to sales ratios are near the highest levels in at least 50 years.

  • Price to book ratios haven’t been at this level since the 2008 crash.

  • And the stock market cap to GDP ratio is the highest since the 2000 crash."

While such a data point doesn’t mean the markets are set to crash tomorrow, it is certainly worth considering the “risk" being undertaken to achieve potentially very limited “rewards" from current levels.

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