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Larry Berman: What does market breadth tell us about when to 'buy the dip'? VIDEO SIGN OUT All my valuation models are still off-the-charts extreme, which means that longer-term, forward-based returns are likely well below average and correction risks are elevated. Economic conditions overall are supported by massive expectations for more stimulus and central bank support. This could, and maybe should, last into 2022, but you can already see that massive stimulus is getting bipartisan pushback. There is also a funding problem. The U.S. Federal Reserve is not buying enough and that can...

Larry Berman: Credit markets not pricing economic risks correctly VIDEO SIGN OUT The continued saga over the central bank printing press is creating a degree of moral hazard never seen before. In the S&P 500, there are about 10 per cent of companies that do not earn enough to cover their interest payments and about 150 that are not investment grade. These are being kept alive by cheap money—and this was all happening before COVID. The numbers are worse today, though implied support from the central bank makes the risks involved with owning weak companies very distorted. High yiel...

Larry Berman: Liquidity-driven market about to have less liquidity VIDEO SIGN OUT With major moves in global equities being influenced by central bank liquidity, the markets may now require fiscal policy to extend recent gains. This phenomenon has a name: the equity risk premium (ERP). Basically, it’s the excess return in stocks relative to the risk-free rate. So there’s an imbalance in fundamental supply and demand of the cost of money. This analysis from the Congressional Budget Office (CBO) was last done in September, well before the latest US$2.8 trillion in additional ...

Larry Berman: Speculation in call volume hits all-time extremes VIDEO SIGN OUT With options expiring this week, we wanted to have a look at the impact it’s having on markets. It’s huge. In the past week we have seen all-time call volume records challenged (viewers can follow the CBOE data here). It seems the new stimulus cheques are finding their way into Tesla Inc. call options and others. Speculators have had a voracious appetite (call it FOMO plus leverage) and they have been using call spreads and other speculative strategies to add huge leverage. This effect gets magnif...

Larry Berman: Valuation for U.S. large caps has never been higher VIDEO SIGN OUT Historically, the last show of the year I do my fearless forecast for the coming year. This year, it is a bleak from a pure valuation perspective. But from a liquidity perspective, it’s up, up, and away. Our first table shows the Street has an average 23.69 multiple on 172.50 gives you an average S&P 500 target of 4085 for yearend 2021. JP Morgan is the high at 4,400 with several at the low of 3,800. The historic average is 16.5 and even if we account for the cheap cost of money and call it a 20x fai...