The Buffett Indicator Screaming Sell

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How good is it really?
When does it start?
How low will it go?
How long will it take to get there?
I’ll bet it’s not very good. Have a bad month with a 105 “correction” and SEE! We were forewarned. Yaaaawn… a - roonie

Listening to WEB is not a bad idea in the best of times.

Yes, but his image is that of a buy & holder. So, if the plan is always to eat the losses for as long as they last why have an indicator? What would it matter? Now, if this is a veiled “buy/sell” signal, OK, then I understand. How good and how precise is the indicator.

It is simple the indicator points out how over valued the market has become. That is like visiting sand castles as the tide comes in.

Hi FCorelli - if crystal ball gazing is what you’re after, then Warren Buffett is the last person you should be bothering about

FOMO speculation, OTOH, is great while it lasts :slight_smile:

xkcd flashback

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Yea of little faith in the Temple of Buffett.

There are several critical variables in that measure, as described in Buffett’s own words

  1. Interest rates
  2. Corporate profit growth rate
  3. Speculative trading
  • Interest rates are high now, but on the cusp of dropping, even if not to ‘normal’ levels any time soon
  • Corporate profit growth, particularly among the top drivers of S&P growth, is very strong (barring the likes of Tesla etc.) and not yet expected to taper off.

First, you got a major increase in the rate of profitability. Second, you got an enormous drop in interest rates, which made a dollar of future profit that much more valuable. Both phenomena were real and powerful fuels for a major bull market. And in time the psychological factor I mentioned was added to the equation: Speculative trading exploded, simply because of the market action that people had seen: Buffett’s explanation of the dramatic rise in the Dow between '81 and 98
https://money.cnn.com/magazines/fortune/fortune_archive/2001/12/10/314691/

So, for the Buffett Indicator to be actionable today, interest rates would have to rise further, reducing corporate profit growth, in turn dampening FOMO speculation.

Unless, of course, ‘something wicked this way comes’ :slight_smile:

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Your input is valuable. This is not the above period. Rates will come down between 3 and 5 times over the next two years. But will remain in a new normal that is higher. Or taxes have to go higher. There is a balance between taxes and rates that will be struck.