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(5/5/12)
I about fell out of my chair earlier this week when former Fed Chairman Alan Greenspan said that the stock
market was very undervalued despite the fact the S&P 500 has rallied 113%
since the March 2009 low. Based on the historical valuation process
known as Tobin's QRatio the market is not even close to be being
undervalued. A chart of the historical QRatio versus the Inflation
Adjusted S&P Composite is shown below with the long term average at 0.73
(black line).
Historically major stock market bottoms, which have preceded the
start of Secular Bull Markets, haven't occurred until the QRatio has dropped
below the 0.40 level (points A). Meanwhile back in March of 2009 the
QRatio only dropped to around 0.64 (point B) which was slightly below the long
term average of 0.73. Thus from a historical perspective Tobin's QRatio
hasn't come close to signaling the start of a new Secular Bull
Market.
Finally if you have been investing in stocks keep a close eye on
them as we are beginning to see some implode. GMCR was a high flier
last Fall but has lost 78% of its value since then.
Amateur Investors
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