Jesus, if this is a measurement of the scale of our bubble and it is, that is saying, this
is horrifying.
This is absolutely horrifying.
If this reverts to the mean, we are talking about a modern dark age.
This isn't like 1929 to 32.
This is going to be, this data is absolutely horrific.
This is the informed people on the Titanic getting into the lifeboats like right now.
That is what's going on.
Hi, it's the Gold Silver Show with Mike and Alan again.
Alan, how are you doing?
I'm great, Mike.
Thanks.
How are you?
Great.
So, you've got something on, you know, I've been collecting data on overvaluation and I
just did a, we released the limitless expo that I did a few months ago and I showed the
overvaluation on certain metrics, but you've got a whole bunch more for us, don't you?
Yes, I do.
I've been collecting some charts and articles and facts and figures over the last few
weeks that show just how insanely overvalued the US stock market is.
So I thought we could go through that today.
Great.
You know, I want to encourage everybody to go and watch the overvaluation that I talked
about in the charts at the beginning of the last video that I did, the limitless
expo and connect the dots with this one.
Yes.
I think they go hand in hand.
So, yeah, everyone, check that out.
And then our agenda for today, we're talking primarily about the US stock market and I want
to look at five things, basically valuation levels in a global context.
I want to look at what asset managers are doing.
Are they allocated very heavily to stocks or not so much?
I want to look at companies' earnings, particularly zombie companies and see how many of them
are more or less, are they growing or shrinking over time?
They're fine zombie company for us right here, though, so that people don't get
lost.
Sure.
A zombie company is a company that is not earning enough money to pay the interest on
their debt.
So that's just the interest on their debt.
So that's a big problem.
They can't let alone the principle.
So exactly.
Yeah.
So generally that means they're going to have to keep borrowing, borrow against
their assets or go deeper into debt in order to just stay afloat and hope that
things turn around somehow.
So sometimes they turn it around, but many times they don't.
So we're going to look in and see what that trend is like.
Yeah.
Also, I want to look at what corporate insiders are doing, right?
Are the CEOs and other executives, are they buying more shares of their own
stock or are they selling?
What does that look like?
And what is Warren Buffett doing at Berkshire Hathaway?
Arguably the best value investor of all time.
Is he seeing a lot of deals right now or not so much?
So that's what I want to look at.
I think it's a pretty wide variety of things.
Excellent.
Let's do it.
All right.
First of all, we've got the S&P 500 market capitalization as a percentage of world GDP.
So how big is the US economy compared to the rest of the world?
And from the Kobayashi letter here, the S&P 500's market cap to world GDP ratio
officially hits a new all-time high of 46%.
Look how high this is here.
Wow.
Over the last 15 years, this ratio has quadrupled.
So it's even higher than the dot-com bubble peak in the year 2000.
And the market cap of the S&P 500 is over $50 trillion for the first time in history.
And the US stock market cap to GDP ratio has hit an all-time new record high of 205%.
The US stock market has never been bigger.
Never been so overvalued.
Never been bubblier.
It's bubblicious.
You know, like other people would say it's because the economy is super strong.
Everyone's doing well.
Individuals are doing well.
Companies are doing well.
You know, we've got a new administration coming in.
I don't know.
Maybe we can keep that in mind as we go through the presentation and see if it will come up.
The overvaluation of the stock markets is something that I've been worrying about for quite a while now.
And this is the problem with it.
It is you don't know when the bubble is going to burst.
In 2005, 6, and 7, I was going through the exact same thing.
Warning people, warning people, get ready.
Everybody was on the real estate bandwagon back then.
That was the biggest real estate bubble we've ever had.
And I was touring the world with Robert Kiyosaki.
I was presenting all of these charts.
I mean, in my last video, I disclosed that.
Robert's group used to call me the angel of death because I would bring the depressing news to everybody.
And everybody thought that I was wrong.
That this thing will keep on going forever and that they're all going to get rich on leveraged real estate.
And just a couple of years later, you know, when the bubble popped in 2007 and the global financial crisis hit in 2008,
everything fell apart in the real estate sector.
Real estate dropped by about 50 cents.
I mean, 50% gold tripled during that period of time.
So if you had sold a home in the peak and then bought gold and then bought back into real estate down in the trough,
for every home you sold, you would have been able to pick up six.
And most of the people that I was talking to in that audience were broke by 2011.
And I had from 2008 to 2011 was, I mean, it was just absolutely amazing.
So anyway, so this stock market capitalization, this could go on a while longer.
But I do know that it's getting closer and closer and closer to us.
And this is like being strapped to a railroad tracks with an approaching train.
And but we just don't know when, you know, how fast is that train traveling?
So when is it going to get here?
Go ahead. I'm sorry I interrupted.
No, it's no interruption at all.
It's always always great to hear that.
And I totally agree with everything you're saying.
And a lot of these asset classes, they take turns, they revert to the mean.
And so it's just a matter of time.
It's a question of how patient you can be.
And speaking of reverting to the mean, we're going to wonder here
if this is going to revert to the mean.
US stocks are very exceptional, quote, unquote, relative to European equities.
So this is the US versus Europe equities price in US dollar terms.
And US stocks are trading at a 75 year high in relative terms versus European equities.
Do we ever see anything even vaguely resembling mean reversion?
Or is Europe just toast?
I mean, look at this.
This is unbelievable.
This is three and a half standard deviations above the mean.
That's that's such a rare event.
I right. I can't remember three and a half standard deviations.
What the percent probability of that is.
Yeah, over over three standard deviations, I think that's half a percent.
So to either extreme, so total, so a quarter of a percent high,
a quarter of a percent low, I think, and that's three standard deviations,
three and a half, of course, is much further in the further in the tail.
It's much less likely to occur.
So yeah, and if this thing turns around right now, then OK.
But if it keeps going and hits four standard deviations,
I mean, that's that's just insane.
We're talking like almost a one in a million event.
Yeah, it either means that Europe is like gone
or or there's a big crash ahead of us, one or the other.
Yes.
And it's certainly not a normal US stagnates in Europe,
grows and grows and grows.
But we know with their, you know,
they in Europe, their economies are much slower
because they are much more regulated.
They are much more socialistic.
And and and so their economies have been sluggish for a long time.
We're on our economy, except.
This the the last bottom in this
was the global financial crisis of 2008.
And so we've been growing faster than they have ever since then.
If this started back in
nineteen eighty five nineteen ninety
when the Nasdaq boom started, look at that,
it only got up to the red line at the Nasdaq boom.
And that red line actually, you know what, this chart is drawn wrong.
I'm sorry to say that to markets in mayhem.
But you can't when you're talking about that red line is not the average
that needs to go down lower.
You can see that disregard everything after twenty fifteen.
So yeah, even twenty fourteen.
And then imagine everything before that.
I'm pointing the wrong direction.
I've got to turn this around for my camera.
Everything before twenty fourteen,
pick an average there and move that line to where it's it's a mean
when we're not in what I call the bubble century.
And then you've got to drag the first and standard deviation
lines down a bit or the first.
The the the minus, I guess.
Yeah, they would both come down.
That would come down just a tiny bit.
But yes, so.
That that changes the whole scale here.
I have a feeling we are over that three point five percent.
We're probably over four at this point.
So what are what's the percentage chance of a four?
You know, a standard deviation of four.
It's it's probably like one in a hundred thousand.
And it's OK. Rare. Right.
Right. OK. So that says, Jesus.
If if this is a measurement of the scale of our bubble and it is.
That is saying.
This is horrifying.
This is absolutely horrifying.
If this reverts to the mean, we are talking about a modern dark age.
This isn't like 1929 to 32.
This is going to be this data is absolutely horrific.
We should move on.
I think I've said you got anything to say about that.
If if you readjust this for the mean before the bubble century.
You know, you can do this visually.
What do you see in this chart?
Yeah, basically these these standard deviation lines would be below the peak here
because you get 67 percent of the data points between plus or minus one standard deviation.
So we would actually, you know, by definition, by feature of a standard deviation,
we would see a third of the data points above and below those two blue lines.
And we moved them down so everything we're seeing since the bubble century
is so far off the chart.
It's like we have to rewrite what is normal.
And I use the word normal because of a normal distribution.
This is so abnormal.
It's very hard to to quantify it or put it in perspective.
I can see what is going on with this chart that skewed the data a little bit
is just like when we do an index chart.
This started off as a factor of one like an index chart.
It's not starting off with the mean, the average of the swings
before the bubble century started, before everything went crazy.
And that's where it needs to start to give us accurate data.
So this just started at a factor of one when it was actually below the mean
from 1950 to 2008.
I wish this data went back even further.
I'd like to see this data going back 100 years.
So now that you've seen that, would you consider this to be over a deviation of four?
Well, it depends so much on how you calculate it.
But it looks like it's about three and a half.
Obviously, you could calculate it differently to come up with four.
Right. But they're taking a mean that is not a true mean.
The mean is much lower.
That red line should be down closer to the factor of one on there.
Not quite.
That would be a little bit low, I guess.
But the average ratio from 1950 to 2014-2015
is much lower than that red line.
The red line is skewed up.
It looks like at about 3.7 on this chart.
So I would imagine that we're up at four.
Yeah.
So, OK.
Yeah.
Certainly overvalued.
We can definitely agree with that.
Horrifically overvalued.
Yeah.
So I would expect a mean reversion, but we shall see.
So what are the asset managers doing?
Well, asset managers are all in on US stocks.
Asset managers net positioning hit near a record 98%,
meaning they're almost fully invested.
Such extremes have only been seen a couple of times before.
US stock market optimism is through the roof.
What is going to happen next?
So, yeah.
This is kind of a weird chart to wrap your head around.
This is basically the rolling three-year percentile
of net positioning among asset managers.
So basically every data point we see asks the question of,
OK, right now, and I think it's monthly data.
So right now this month, what percentage
of the asset manager's portfolio is invested
in US stocks relative to each month the last three years?
So if it's up at 100%ile,
that means that that monthly allocation is the highest
they've had in the last 36 months, I believe.
So, yeah.
So doesn't necessarily mean they have the same percentage
of their portfolio invested every time it hits 100.
It just means that it's the highest allocation
they've had within the last three years
any time it hits 100.
OK.
You know, I didn't read the side scale there,
the rolling three-year percentile of net positioning.
And this is something that I want to point out.
Everybody needs to go to GGSR 21
and read the chapter three
of the Great Golden Silver Rush of the 21st century.
It's all about how to read charts
and how to see if somebody is skewing your perception.
That changes everything.
I wish this was a percentage of cash to investment.
Just their total position.
What's on their book?
How much cash do they have?
Because if this was at 98%,
that means they would only have 2% cash
if they were measuring it that way.
But they're not.
Still, for the past three years since 2022,
this is an extraordinary position here.
It basically shows that these asset managers
have been allocating more and more and more
to stocks over the last three years.
Right.
And you know what?
Look at how wrong they are most of the time.
2011 was the time to be buying.
It wasn't the time to be not allocated into stocks.
That was the time to go all in, right?
We had had the crisis of 2008 and we hit the bottom.
Look at where they were in 2008.
They were all in when the crash started.
The global financial crisis.
And so they're typically very wrong.
So with it up at 98%,
it says that they are on the wrong side of this trade.
They should be.
If they want to be fully invested,
they should be fully invested in gold and silver.
So, yeah, let's move on
unless you got anything else to say about this chart.
No, no, it just, yeah, they do seem to get it wrong.
And we've got to ask ourselves like,
okay, what, how about the companies themselves?
Are they performing well?
Are they strong?
Are they able to service their debt?
I don't think so.
This is a chart of zombie companies.
As we mentioned at the beginning of the video,
a zombie company is a company that's not earning enough money
or currency to service their debt,
the interest on their debt.
So they have to borrow just to pay their interest.
They can't touch the principal.
You know, they're really hurting for cash flow.
And we can see Mike, do you want to talk about this?
You put it in the book and you had a nice write up there
explaining kind of the peaks and the troughs
and why this takes shape.
Do you want to explain it here?
Okay.
Well, basically, if you look at where it was,
Dan, if you could enlarge that one more time.
So back in the year 2000, we're coming off the Nasdaq bubble.
Everybody is making a lot of profit.
And then we, the bubble popped.
The stock market falls.
The economy gets bad.
The companies are not making as much profit during that,
when the economy takes a big slide and we go into recession,
the companies aren't making as much profit.
And then it peaks in 2003, 2004.
That's where the economy started to recover.
So the reason that this line goes down again is because the
companies become more profitable as the economy grows
and their sales pick up, but they did not pay down their debts.
Allen Greenspan took interest rates down to 1%
and they kept on borrowing.
So when the next crisis hit in 2008,
the economy shrank horribly during the global financial crisis.
And this rises until 2011.
And then the economy bottoms at that point.
So it isn't under the company's control at this point.
They've got long-term debt that they are stuck with.
What they've got to rely on is, you know,
and a whole bunch of companies go bankrupt in those years
right after the crash when the company,
when the economy starts to shrink,
as it did in 2000 through 2003
and as it did through 2008 and 2011,
that's when a whole bunch of companies go out of business.
But even though companies are going out of business
and falling out of the S&P 500,
or this is the S&P 1500,
even though they're falling off of this list,
those companies, there's still more of them,
the companies that are in the S&P 1500,
taking their place as zombie companies and growing.
And so the economy recovers, this line goes down,
Ben Bernanke took interest rates down to a 10th of a percent
on the Fed funds rate.
And so these companies, instead of paying down
some of this debt, just kept on borrowing
and borrowing and borrowing because it's free currency.
And then we go to a place that we've never been before
where, you know, one out of every five companies in the U.S.,
more than one out of every five, is a zombie company, 20%.
Is that, or is that, no, that's 12.
Yeah, 20%, one in five.
20%, yeah, okay.
So yes, and we are just in this danger zone that,
and so this ends in late 2022, right?
When the book was published, yeah.
Okay.
Yeah, so we have an extra two years of data.
Now it's really hard to find this data
because you've got to compile it,
you know, on an individual company basis.
So it's very difficult,
but some other companies have made some estimates.
And so the number of zombie companies in the U.S.
is skyrocketing.
This is from October of this year,
so certainly much more recent.
43% of the Russell 2000 companies are now unprofitable,
the most since the COVID crisis.
So they're talking...
43%, oh my God.
Yeah, now they're talking about the Russell 2000,
whereas what we were just looking at...
So with more companies instead of 1500,
the Russell 2000 incorporates the S&P 1500.
Those companies are in here.
This is 2000 of the publicly listed companies
in the United States.
Wow.
Yeah, and so this is the chart here.
The share of Russell 2000 companies
with negative earnings continues to rise.
And you can see where we're at here.
Okay, so the Russell 2000 must include
some less profitable companies
because this chart...
Okay, it goes back to 1995.
The other chart started in 2000,
and this shows it up at about 16% or so
in the year 2000,
where our chart showed it at 3%, I believe.
So it's including the extra 500 companies are weak companies
compared to the first 1500 or 500
or whatever our last chart showed.
So this isn't an increase from 20% to 45%,
but still this is incredibly alarming.
Yes.
Yeah, it's still...
So this includes a lot more publicly listed companies.
And there's the Wilshire 5000.
It used to include 5000 publicly listed companies,
but it doesn't anymore
because there aren't 5000 publicly listed companies.
They grow, they merge, and now there's about 3,500.
So this is the bulk of that 3,500.
So as you get into these smaller companies,
you get into weaker and weaker companies, it looks like,
because this whole scale is shifted up.
You can see that rollover from 2021 to 2022.
That was in our last chart,
and it ended there in 2022.
So this...
And it's headed up again as of March or April of 24.
So, and here we are much later in the year.
If it was headed up on that trajectory,
it's probably higher now.
So, yeah.
And this is over 40% of companies.
So that's two out of five companies, negative earnings.
I mean, this is just unbelievable.
It is.
I mean, like, how does this resolve?
Either there's massive bailouts or massive bankruptcies.
Well, massive bailouts,
the currency has to come from somewhere.
And a bailout from the government comes out of our pockets.
If it's a bailout by telling bond holders in these companies
that, sorry, you're not going to get paid,
but the company is going to go on surviving.
Or maybe we will swap your bonds for some shares in the company
or something like that to get rid of the debt instantly.
Then it comes out of the investor's pockets,
but either way, it doesn't come out of the company's pocket.
Either the company goes bankrupt and it's gone,
or it relies on basically theft in some other form,
like government bailouts where the taxpayers get the bill
for the next 10 years.
Yeah.
Yep.
Not good.
Not good one way or another.
But this is saying, so this is, how many companies out of?
Well, we're 40, 43% out of 2000.
Right.
Imagine driving down Main Street in your town
and four out of every 10 stores are boarded up.
That is a really, really bad recession.
It's worse than the Great Depression.
That's what this is saying.
Yep.
Hopefully there's a nice way out of it.
Right.
I'm hoping.
One last thing on zombie companies, an article from Fortune.
This is back in June, so it's a little bit old here,
but that's kind of besides the point.
The number of debt-leading zombie companies
soars globally to nearly 7,000.
Okay.
And if you read the article,
they estimate about 2,000 companies in the United States.
So 2,000 companies.
I mean, that's just, that's so many, man.
Yeah.
That's where it says many of these publicly traded firms
won't survive.
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And now, back to the video.
Many of these publicly traded firms won't survive.
They won't survive the next crash.
They won't survive the next big recession.
And I do believe the energy that is stored up
from papering over,
printing our way out of every crisis,
every recession, the 2008 global financial crisis,
the COVID crash, they printed their way out of it.
That is, you know, you've got cracks in the foundation
of something and you just put a little piece of paper
over and paint it, you know?
And the crack is still there.
It's just got a coat of paint on it
so you can't see it any longer.
And the cracks are getting worse.
7,000 companies, that's amazing.
Yeah, that's globally and then 2,000 in the U.S.
So, so many, so, so many.
Right.
So, what are the executives doing?
What are the CEOs and so forth doing?
Are they buying their own stock
because they have conviction in their companies
or are they selling it?
Well, according to Rani Stofferle,
insiders are selling at a degree
never seen before in history.
And these are corporate executives.
History only goes back to 2004.
Yes, it's not a very long history here,
but still an interesting trend.
I used to show the buy-sell ratio charts
back in 2004, five, six, seven
to real estate investors and stuff,
but just showing that there was a,
this was a general just like this is.
This is S&P 500.
I think this is the data that I was showing
back in 2004, five, six,
but it went back much, much further than this.
But yeah, it was bad then.
Those peaks back in the very first red line
on this graph, yeah.
That's what I was showing way back then.
So, yeah, so go on with what you were saying.
I'm sorry I interrupted.
Oh, no worries.
By the way, you got to send me that data set.
I love a good long-term data sets.
But anyways, so the blue line here is the S&P 500 index.
You can see it's been climbing a lot, especially lately.
And the red columns here are the ratio of sellers to buyers.
So among corporate executives,
how many of them are buying their stock
versus selling their stock?
And you can see that we're up at around five and a half,
almost six, meaning that-
Six to one.
Yeah, six to one.
So for every executive that's buying their own stock,
there's six of them who are selling it.
So they're cashing out.
They're taking their gains.
And we haven't seen a ratio that high in 20 years.
Do you remember, Mike, when you looked before 2005,
do you remember how high that ratio got previously?
It's never been this high.
I don't think.
I think Ronnie is right that this is never before seen
in history.
But one of the things I want to point out,
look at the blue line and look at the global financial crisis
of 2008.
That little tiny dip down there.
Look at where we are today.
This whole thing was insane.
Yep.
That's the whole point of the presentation.
Yeah.
This is insane.
This is crazy.
And so these six insiders that are company executives
that own stock in the company selling versus one buying,
this is the informed people on the Titanic getting into the life
boats like right now.
That is what's going on.
Those six have pretty good information on what's going on
in the economy and everything else.
And I think they're looking at these over valuations and they
are heading for the life boats right now.
Because cash, that's your lifeboat.
Cash, gold, silver, crypto, your lifeboat.
Cash is always going to get diluted.
And we have seen the results, the amount of currency that was
created during the COVID crisis.
Some of it went into direct cash payments to the public
and came back to haunt us as raging inflation that wiped out
people's savings and stuff.
And so cash isn't something, I think, on this go around
because the Fed has shown its hand.
The only thing they can do is create a bunch of currency
and drop interest rates and hope that the banks also create
a bunch of currency every time there's a crisis.
So they dilute the currency supply, diminishing your
purchasing power of your dollars, which causes things
like gold and silver to rise to compensate for that loss
of purchasing power of the dollar from the dilution
of their response to a crisis.
So get ready.
Yep.
Exactly.
And so my final question here is what is the arguably best
and most famous value investor of all time doing
with his currency?
Is he buying a ton of stock?
Does he see a lot of attractive opportunities out there?
No.
Berkshire Hathaway's cash position has just hit a record
high of around $300 billion.
This is the Berkshire Hathaway Hathaway's cash
position over time.
And look at its spike here.
They've never held this much cash, not even close.
I mean, they've really doubled it from just a couple
years ago.
Warren Buffett basically sitting on the sidelines, right?
If he saw a lot of attractive opportunities in the
stock market, he would be gobbling them up.
But we know he sold a bunch of Apple stock lately,
a bunch of bank stock, and he's sitting in cash.
So what do you make of this, Mike?
Well, this is one of the most informed people that
there is.
And he is getting ready to scoop up some great deals.
That's the reason he's got cash on the sideline.
He knows that everything is going to be falling.
And he's going to be looking for the most likely survivors
of all of this data.
And I do, again, want to encourage people to go back
and watch the portion of my presentation at Limitless
that has all of the overvaluation charts.
It's a very important couple of those with all of this
information.
Warren Buffett is getting ready for the biggest thing
that has happened in his lifetime.
And how old is he?
89 or something like that.
Right, right.
He sees the things.
He has, right.
And he knows that there's going to be some screaming
deals out there that he can pick up.
Exactly.
Once those zombie companies go bust,
he's going to be there to scoop up all the assets
at a massive discount.
The assets or the companies that do survive,
their stock is going to be incredibly depressed.
He'd probably be buying a surviving company
that's well managed and then having that company
scoop up the assets of the companies that went broke.
Exactly.
Amazing.
Well, Mike, you have been having this conversation
with our audience for years now.
And so I wanted to end with a meme.
You haven't listened to a single word I've said,
have you?
What a weird way to start a conversation.
Excellent.
So I want to remind everybody to like and subscribe.
Thank you very much, Alan.
And we'll see everybody in the next video.