Since we last wrote about the famous “Warren Buffett Indicator” in May, our readers have opened and clicked that essay more than almost any other this year!
Why? First, because Warren Buffett’s famous stock market indicator — the total market capitalization of all U.S. stocks relative to the country’s gross domestic product — is one he describes as “the best single measure of where stock valuations stand at any given moment.”
Second, because Buffet’s Indicator shows the alarm bells are ringing ever more loudly today.
Here’s the worrying truth: Buffett’s Indicator stands at 139%. This is close to the record 145% peak seen during the 2000 dot com bubble before the subsequent painful market correction.
A ratio of 1-1 (100%) between stock market value and America’s overall economic output usually means that stocks have nowhere further to go.
Above that level, a crash could be imminent and Buffett believes investors are “playing with fire.”
But consider: the risks to the stock market today could be even greater, primarily because of the massive amounts of money flowing into passive index funds and ETFs in recent years. Not to mention the amount of money tied to automated selling programs that could be triggered in a downturn.
The success of passive investing means a massive amount of capital today is chasing the same stocks that make up the underlying indices and causing dangerous and unsustainable valuations.
The Warren Buffett indicator is a wake-up call to all investors to take decisive action now to diversify thoughtfully and consider their safe haven strategy today.
Especially if you have done well in the recent stock market runup!
MAJORITY OF AMERICANS THINK NORTH KOREA IS AMERICA’S BIGGEST THREAT
News comes at a dizzying pace nowadays. But amid all the daily distractions, the scary scenario underway in the Korean peninsula continues to weigh on Americans’ minds.
According to a new NBC News/SurveyMonkey poll, over 50% of Americans now view North Korea as the most immediate threat to the United States today.
This represents a big shift in sentiment since July, when only 41% of Americans said North Korea was the greatest threat. Secretary of State Rex Tillerson said that the U.S. has “lines of communication” with North Korea, but Trump tweeted afterwards that Tillerson is “wasting his time trying to negotiate with Little Rocket Man.”
Trump has declared that the era of strategic patience is over when it comes to the United States’ stance toward North Korea. Japanese Prime Minister Shinzo Abe and President Trump emphasized their resolve to deal with North Korea through the strength of sanctions and other pressure rather than through direct dialogue.
Sadly, the threat of war with North Korea seems to grow with each passing day.
PREPARE YOUR PORTFOLIO WITH SAFE HAVEN ASSETS
Investors should consider hedging their retirement plans now with gold and opening a Gold IRA before the next financial black swan wipes out their retirement savings.
Goldman Sachs recently reaffirmed the value of gold and says precious metals remain a relevant asset class in any portfolio. Goldman Sachs wrote in a recent report that gold is “the best long-term store of value out of the known elements.”
Where is the smart money going to hedge risks? David Einhorn is keeping gold as a top position because of the high degree of market uncertainty. Ray Dalio’s advice to investors in these challenging times: stay liquid, stay diversified and not be overly exposed to any particular economic outcomes. For Dalio, that means holding a position in gold.
The world’s most elite investors are concerned about the current risk landscape – and they are considering safe-haven strategies to protect their wealth. Shouldn’t you do the same?