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18May2015 Market Close: Again, New Highs Set By DOW And SP500 As Some Believe Stocks Are Disconnected From Reality

Written by Gary

Surprise, surprise, this market never fails to surprise me. Again, new historical highs set later again today by the DOW (18325.54) and the SP500 (2131.78) on low volume, lowest in 18 sessions. Crude has slipped fractionally as the U.S. Dollar melted up.

Are stocks disconnected from reality?

Todays S&P 500 Chart

The Market in Perspective

Here are the headlines moving the markets.

The Last Two Times This Happened, Stocks Crashed

Are stocks disconnected from reality? Probably, according to Tobin's Q, a rather elegant way to assess equity valuations developed by the late Nobel Prize-winning Yale economist James Tobin. Put simply, Tobin's Q compares the total value of stock prices with the value of underlying assets such as plants, inventory, and equipment (i.e. replacement costs). Add up the value of the equity, then buy all the assets, and see if you have some cash left over. If you do, stocks were overvalued.

We've looked at this on a number of occasions, most recently in January when we noted that the Q ratio was near peaks observed over most of history's bull markets, and as Bloomberg reports, stocks are now more overvalued than at any time in history with the exception of the tech bubble and the 1929 highs.

Via Bloomberg:

If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you'd have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality.

The concept is embodied in a measure known as the Q ratio developed by James Tobin, a Nobel Prize-winning economist at Yale University who died in 2002. According to Tobin's Q, equities in the U.S. are valued about 10 percent above the cost of replacing their underlying assets -- higher than any time other than the Internet bubble and the 1929 peak.

Here's a look at the ch ...

Drug Deal to Generate Tax Benefits

Endo International agreed to buy Par Pharmaceutical from private-equity firm TPG for about $8 billion in cash and stock.

Oil down as firmer dollar, ample supplies offset Mideast turmoil

NEW YORK (Reuters) - Oil slipped on Monday as a rallying dollar and concerns of growing oversupply weighed on the market after Saudi Arabia reported its highest crude exports in nearly a decade.

Dead Nation Walking

Submitted by James Howard Kunstler via,

Many people seem to think that America has lost its sense of purpose. They overlook the obvious: that we are striving to become the Bulgaria of the western hemisphere. At least we already have enough vampires to qualify.

You don't have to seek further than the USA's sub-soviet-quality passenger railroad system, which produced the spectacular Philadelphia derailment last week that killed eight people and injured dozens more. Six days later, we're still waiting for some explanation as to why the train was going 100 miles-per-hour on a historically dangerous curve within the city limits.

The otherwise excellent David Stockman posted a misguided blog last week that contained all the boilerplate arguments denouncing passenger rail: that it's addicted to government subsidies and that a "free market" would put it out of its misery because Americans prefer to drive and fly from one place to another.

One reason Americans prefer to drive — say, from Albany, NY, to Boston — is that there is only one train a day, it never leaves on time or arrives on time, and it takes twice as long as a car trip for no reason that makes any sense. Of course, this is exactly the kind of journey ( slightly less than 200 miles) that doesn't make sense to fly, either, given all the dreary business of getting to-and-from the airports, not to mention the expense of a short-hop plane ticket.

I take the popular (and gorgeous!) Hudson River Amtrak train between Albany and New York several times a year because bringing a car into Manhattan is an enormous pain in the ass. This train may have the highest ridership in the country, but it's still a Third World experience. The heat or the AC is often out of ...

Supreme Court Adds Protections for 401(k)s

Overseers of 401(k) retirement plans have an ongoing duty to ensure investments are prudent, the Supreme Court said Monday in a ruling that adds protections for the worker savings programs.

Greece Jitters Lift Gold to Three-Month High

Gold prices rose to their highest level in three months as doubts about Greece's ability to pay its debts spurred investors to seek safety in the precious metal.

Greece says must strike debt deal in May as money runs low

ATHENS (Reuters) - Greece needs to strike a deal with its creditors by the end of the month to stay afloat, the government said on Monday, as investors ditched Greek bonds in a sign of growing concern about possible bankruptcy.

Why The Little Liesman Econ Achievers "Just Love Keynes"

Curious about the economic fate of the US? Here it is:

Q. Steve Liesman: Who is your favorite economist?

A. Nat'l Economics Challenge participant #1: Keynes. I just love Keynes.

A. Nat'l Economics Challenge participant #2: I do too, because he spends a lot of money.

* * *

And proud we are of all of them.

Wall St. Ticks Upward as Investors Consider Deal News

Shares of the parent company of Ann Taylor and Loft were higher after it agreed to be aquired.

Euro's Surge Tramples Parity Predictions

Investors are rethinking their expectations for the euro just a few weeks after the common currency seemed headed inexorably down toward parity with the dollar.

Apple gets partial win on appeal in Samsung patent case

NEW YORK/SAN FRANCISCO (Reuters) - Apple Inc was handed a mixed ruling by a U.S. appeals court in the latest twist in a blockbuster intellectual property battle with Samsung Electronics Co Ltd , as a prior patent infringement verdict was upheld but a trademark finding that the iPhone's appearance could be protected was thrown out.

Human Stock Pickers Gain Against Indexes

So far this year, U.S. stock mutual funds that are actively managed have outperformed the overall market and rivals who aim to clone its performance.

Altera's Price of Refusing Intel

Altera has strong reasons to return to deal talks with Intel.

Old Navy Thrives After a Style-Conscious Rebirth

Once a butt of jokes, the low-end retailer has become Gap Inc.'s crown jewel under its leader, the former H&M executive Stefan Larsson, seated above.

Financial Execs Urge Fed To Rein In "Over-Exuberance... Hangover Will Be Difficult To Cope With"

In a stunningly honest turn of events - though likely self-preserving - a number of senior financial services executives are reportedly urged authorities around the world to bolster their crisis-busting arsenals amid fears that ultra-low interest rates have increased the risks of financial instability. As The FT reports, the heads of companies including HSBC, UBS and BlackRock will on Monday release a joint statement demanding policy-makers "address emerging market inefficiencies in the financial system, such as over-exuberance within asset classes." Policy-makers must "lean against something that is making people feel good but is actually going to give them a hangover they will find difficult to cope with."

Following warnings from The Fed's Janet Yellen that stock valuations are "quite high," and numerous more dire forecasts from the BIS (the central banker's central bank), The FT reports, the heads of companies including HSBC, UBS and BlackRock will on Monday release a joint statement backing the use of macroprudential tools, but warn that rules, if too narrowly applied, could push risks into the more thinly regulated realm of shadow banks...

The statement from finance chiefs including Douglas Flint, HSBC chairman, Anshu Jain, Deutsche Bank co-chief executive, Michel Liès, head of Swiss Re, and Larry Fink, chairman and chief executive of BlackRock, is being co- ...

China's Improving Property Scene Still a Drag

Property prices may be rising in China's biggest cities, but huge swaths of the country are mired in unsold inventory.

The San Francisco Fed Just Gave A Green Light For A June Rate Hike

Back on March 3, it was none other than a Federal Reserve bank, that of Atlanta, which as we first reported shocked the world or at least those permabullish, consensus-chasing, Wall Street weathermen-cum- economists who assume that a world with $200 trillion in debt will grow at the same CAGR as a world without 4 times global GDP in leverage, when it urgently warned that the Q1 consensus GDP estimate was very wrong.

The Atlanta Fed turned out to be spot on, with its 0.1% forecast relative to the 0.2% first estimate print by the BEA, and in fact, following subsequent revisions which now anticipate Q1 GDP to crash to -1.2%, will show Atlanta Fed, which has Q2 GDP at 0.7%, to have been optimistic.

Perhaps because it was unhappy with the Atlanta Fed hogging all the economic spotlight in 2015, none other than Janet Yellen's own Fed, San Francisco's, moments ago came out with a paper authored by that inimitiable economist Glenn Rudebusch, which seeks to resolve "The Puzzle of Weak First-Quarter GDP Growth" and blames it all on, drumroll, seasonal adjustments, or rather not enough:

The official estimate of real GDP growth for the first three months of 2015 was shockingly weak. However, such estimates in the past appear to have underst ...

Classic Coke Spot Adds to Mystery of 'Mad Men' Finale

The 1971 "Hilltop" ad appears after a scene of Don Draper meditating at a hillside retreat. What does it mean?

Atlanta Fed 2 - 0 Wall Street Optimists: Q2 GDP Expectations Crash

Who could have predicted this? Wall Street's consensus crowd of perennial optimists have taken the machete out to Q2 GDP growth expectations (just as they had to when Q1 showed them all for the worse weather forecasters ever). The tumble in Q2 expectations brings Wall Street once again, closer to where The Atlanta Fed's GDPNow model forecast is... a mere 0.7% growth... and drags total 2015 growth well below trend.

Atlanta Fed wins in Q1...

And Wall Street Consensus looks like it is losing once again...

This has dragged 2015 expectations down to just 2.5% GDP growth overall...

It appears Keynesian hockeysticks are as real as unicorns.

h/t @Not_Jim_Cramer

Kijiji, a Flop in the U.S., Rules Online Classifieds in Canada

The eBay-owned website, whose name means "village" in Swahili, attracts three times as many users in Canada as Craigslist, which dominates in the United States.

The Euro: What Is Next?

Written by Abhishek Roy, GEI Associate

The Euro has been declining for an extended period of time now, however, many experts have concluded very different things as to what its path may lead to in the next few months, as well as years. As of today, the Euro is equivalent to $1.14, which is astoundingly less than the exchange rate of merely a year ago, which was approximately $1.37 to the Euro. The current inflation rate is 1.5%.

Read more ...

Why Central Banks HATE Cash and Will Begin to Tax It Shortly

Cash is a MAJOR problem for the Central Banks

The reason for this concerns the actual structure of the financial system. As I've outlined previously, that structure is as follows:

1) The total currency (actual cash in the form of bills and coins) in the US financial system is a little over $1.36 trillion.

2) When you include digital money sitting in short-term accounts and long-term accounts then you're talking about roughly $10 trillion in "money" in the financial system.

3) In contrast, the money in the US stock market (equity shares in publicly traded companies) is over $20 trillion in size.

4) The US bond market (money that has been lent to corporations, municipal Governments, State Governments, and the Federal Government) is almost twice this at $38 trillion.

5) Total Credit Market Instruments (mortgages, collateralized debt obligations, junk bonds, commercial paper and other digitally-based "money" that is based on debt) is even larger $58.7 trillion.

6) Unregulated over the counter derivatives traded between the big banks and corporations is north of $220 trillion.

When looking over these data points, the first thing that jumps out at the viewer is that the vast bulk of "money" in the system is in the form of digital loans or credit (non-physical debt).

Put another way, actual physical money or cash (as in bills or coins you can hold in yo ...

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