Registered Investment Adviser Caleb Lawrence
The major averages struggled in early trade entering the final hour with small losses on little real news.
Barclays Bank and its executives find themselves in hot water once again after the UK’s Serious Fraud Office filed criminal charges against Barclays Bank and four former executives, including former CEO John Varley, Roger Jenkins, Richard Boath, and Thomas Kalaris for conspiracy to commit fraud regarding the bank’s 2008 capital raising from Qatar. This isn’t the first-time criminal charges have been brought against the bank and its executives as once again the British demonstrate that they seem to be one of the very few capable of criminally prosecuting bank executives in the modern era.
Taking another look at market valuations provides additional examples showing the markets to be somewhere between tremendously and enormously overvalued. First up is the price-to-earnings or P/E of the S&P 500 in relation to its historical average. The average stock today is trading at 73% above its historical average valuation. Current valuations were exceeded only twice before, just before the Great Depression in 1929, the second time occurred right before the Dot-Com collapse at the beginning of 2000. The Buffett Indicator which measures the relationship between equities value and Gross Domestic Product or GDP is currently at 125% and change, second only to the Dot-Com period. Last but not least we have Tobin’s Q or the relationship between equity value and corporate replacement cost. At 1.05 it more or less matches levels seen just before the Great Depression and is second only to the Dot-Com period.