Nope, No Bubble Here

Nope, No Bubble Here

We’ve discussed margin debt records, record terms for auto-loans, the jump in earnings-less-IPOs, the massive surge in junk-debt-issuance, and the spike in penny-stock speculation – which we are told by Janet Yellen are no indication of a bubble in US equities. Given her perspective then we are sure the following two charts will doubly-confirm the lack of any exuberant activity…

While the surge in earnings-less-IPOs has been noted, the IPO market itself has seen a massive increase in issuance in January and February compared to historical patterns…

h/t @StockJockey

The question – why IPO now if you are confident that this market is a secular bull? Why not wait and issue your equity at a higher price (lower cost) at a future date and gain from all the growth and optimism? Unless insiders doubt…

And then there’s this… The US stock-market is the most over-valued since 2002(as Bloomberg’s Rich Yamarone notes)

In 1968 James Tobin created a financial Stock Market Most Overvalued Since 2002 ratio (‘q’) comparing the total value of the prices of stocks with the cost of replacing the underlying assets of those same stocks (corporate net worth). The theory is that when the stock market trades at a discount to the replacement cost of its assets, the market is inexpensive, orcheaper to buy than build. Conversely, when the market trades at a premium to its replacement cost it is considered expensive. This implies that it is cheaper to build than buy. When the ratio is at 1.0, the stock market is valued the same as the asset’s value.

Using the Federal Reserve’s Flow of Funds report, it is possible to create a crude, back-of-the envelope estimate of Tobin’s ‘q.’ During the fourth quarter of 2013 — the most recent available data — the ratio of nonfarm nonfinancial corporate business equities to business net worth (market value) was 1.0663 – higher than the third quarter estimate of 0.99932 and the first reading above 1.0 since the second quarter of 2002.

This suggests that the stock market is overvalued with respect to the value of the assets in those firms. Since 1946, the average quarterly estimate of our Tobin’s ‘q’ version is about 0.71.

But apart from that (and China and Ukraine and Turkey and Europe deflation) BTFATH in the US…

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