PARIS – Yesterday, we reported that the U.S. manufacturing sector shrank for the fifth month in a row in December.

We could have added that it is now back to levels last seen in July 2009 – in the immediate aftermath of the global financial crisis.

We could have mentioned, too, that the Baltic Dry Index – which tracks the cost of shipping raw materials by sea – just hit a record low.

We’ve been citing many other fundamental indicators all pointing the same way – toward a weakening global economy.

Why, then, are stocks – which are supposed to look ahead – still telling us that the coast is clear?

An Expensive Market

The Dow fell about 2% last year. And the S&P 500 fell by just under 1%.

Neither was enough to cause alarm. And after a rough start on Monday, the mainstream press reports that prices “stabilized” yesterday.

But according to Nobel prize-winning economist Robert Shiller, U.S. stocks have almost never been so expensive.

His cyclically adjusted price-earnings ratio – or CAPE ratio – looks at the relationship between share prices and the average inflation-adjusted earnings from the previous 10 years.

This controls for – or “smoothes” – year-to-year swings in corporate earnings, which can be highly volatile. As a result, Shiller says, it gives a more accurate picture of what kind of value is on offer.

Right now, the CAPE ratio for the S&P 500 is 25.5. Only three times in the last 135 years has it been higher – in 1929, 2000, and 2007. None of these turned out to be a good time to add to your stock account.


The CAPE ratio is near all-time highs

But wait… The story is a little more complicated.

The Dow and the S&P 500 have been buoyed up by the performance of a few companies that have done very well.

The tech-heavy Nasdaq, too, owes its positive numbers to the so-called FANG stocks – Facebook, Amazon, Netflix, and Google (now called Alphabet).

These four tech darlings have been running wild – reminding us of the dot-com craze of the late 1990s. And all (bar Alphabet) trade at price-to-earnings ratios of more than 100.

But if you look beyond the major indexes, you don’t see stocks running wild… you see them running for cover.

A “Stealth” Bear Market

In fact, it looks as though a “stealth” bear market has already begun.

For example, the median stock in the Russell 3000 – a broad measure of the U.S. stock market – has fallen 20% since hitting its 52-week high.

That should ring some bells. A 20% fall from a 52-week high is a standard definition of a bear market.

What is going on?

Dr. John Hussman of Hussman Funds speaks for us:

I remain convinced that the U.S. financial markets, particularly equities and low-grade debt, are in a late-stage top formation of the third speculative bubble in 15 years.

On the basis of the valuation measures most strongly correlated with subsequent market returns (and that havefully retained that correlation even across recent market cycles), current extremes imply 40-55% market losses over the completion of the current market cycle, with zero nominal and negative real total returns for the S&P 500 on a 10-to-12-year horizon.

These are not worst-case scenarios, but run-of-the-mill expectations.

Now we will speak for ourselves: We recall that in 2000 – the same year we suggested shifting out of U.S. stocks – Warren Buffett looked ahead. And he saw a “Lost Decade” coming for the U.S. stock market.

Stock prices had gotten so high relative to GDP that he reckoned it was unlikely that we would see a positive return over the next 10 years.

He was right. Stocks went up until 2007… and then crashed down again, ending the decade lower than where they began it. Investors lost money.

And now? Hussman continues:

The risk cycle has already turned, and the familiar canaries in the coalmine – market internals and credit spreads – have been deteriorating persistently, in the same way that deteriorating internals and subprime defaults were the first warning signs to emerge in 2007… the consequences of years of distorted capital flows and yield-seeking are already unfolding.

Our proprietary stock market indicator, based on research by former ValueLine analyst Stephen Jones, shows much the same thing: losses for U.S. stock market investors as far as the eye can see.

Unless, that is, you can see further than 10 years ahead.

Until then, our indicator predicts lower U.S. stock prices, as the equity market adjusts to high current prices, over-regulation, a crushing debt load, misallocation of resources, and aging populations.

Will Jones and Hussman be right? Will we be right? Who knows?

But if you check your broker statement in 2025… and find you have only half as much real wealth as you have today… remember: We warned you.

If, on the other hand, you’ve made a lot of money by ignoring us… please forget we said anything.





Investors are willing to pay big multiples for the so-called FANGs…


Facebook (NASDAQ:FB) shares sell for 103 times last year’s earnings.

Amazon (NASDAQ:AMZN) sells for 908 times earnings.

Netflix (NASDAQ:NFLX) sells for 286 times earnings.

And Google – now called Alphabet and the cheapest of the four –(NASDAQ:GOOGL) sells for 31 times earnings.

This compares to an average P/E ratio of 18 for S&P 500 stocks… an average of 30 for Nasdaq stocks… and an average of 190 for the Nasdaq at the height of the dot-com bubble


The race is on to develop a battery that can power the next quantum leap forward in technology.

Lithium-ion (li-ion) is the most widely used form of battery technology in portable electronics and vehicles.

With 6.8 billion cell phones in the world today and an electric vehicle revolution about to begin, this is big business.

Today, the global li-ion battery market is worth roughly $24 billion. By 2020, it’s expected to surpass $76 billion. That’s a 300% increase in just five years.

Strangely, with a market this big and growing so quickly, li-ion technology has not improved much over the last 20 years.

That’s because the design and performance of traditional li-ion batteries is limited by the fact that this is “two dimensional” technology. It’s basically very thin layers of metal sitting in a liquid electrolyte solution.

Li-ion batteries also have a major safety issue: They often overheat and sometimes catch fire. But the race is on to introduce the next generation of battery technology. And the company that does it is going to make a fortune.

Sakti3, which was recently acquired by Dyson, is working on a “solid state” li-ion battery. The batteries are made with solid material rather than liquid, making them safer and less flammable. They also have twice the energy for about one-fifth the manufacturing cost of a standard li-ion battery.

Dyson plans to build a $1-billion factory to make batteries based on Sakti3’s next generation technology. If Dyson can manufacture these batteries in large scale, it would be revolutionary for the industry.

There is also interesting work being done on three-dimensional battery technology.

Prieto Battery has invented a foam-like battery. The “foam” results in significantly more surface space throughout the battery. This means higher power, faster charging, and longer life. It can also be shaped in many different sizes. Even better, the batteries are non-toxic and won’t overheat.

Imprint Energy is also doing interesting work. It is developing a zinc-based battery that is low cost, high capacity, and non-toxic. It is also highly flexible so it can be placed on the body, in clothing, or inside electronics.

Given the size of the li-ion battery market and the need for safer, longer lasting, higher capacity batteries, this sector is primed for disruption.

I’ll be watching it closely for profitable investment opportunities for subscribers to my Exponential Tech Investor advisory.

P.S. In a recent presentation, I explain the strategy I’ve been successfully using for decades to identify next generation tech companies poised to deliver exponential returns. You can watch it free here.

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Today… a skeptical message about yesterday’s Market Insight chart on gold.

But before we get to that, what are you doing to protect your wealth from the bear market Bill sees coming?

Write to Bill and the team at [email protected].

Now back to that gold chart…

A gold price chart is simply an artifact of the manipulation… evidence of a crime in progress. What it clearly is not is an indication of true supply and demand in a free marketplace.

So, when you look at a chart and divine that the price may have bottomed, you’re being bamboozled. What’ll tell you that the price has bottomed is when JPMorgan, HSBC, et al step back from capping every rally and stop periodically and regularly selling off tons and tons in the middle of the night.

If the charts tell you anything about direction, they warn you to sell any nascent rallies and buy the smack downs – which, of course, is the opposite of what you’d normally do in an unrigged market.

Don’t be duped.

– Tom W.

And some sharp-eyed readers spotted a confusing “double negative” in Monday’s Diary.

“Which is why we don’t think the Fed won’t raise rates by much more.” From your French article. Too much wine?

So, will the Feds raise rates or will they not raise rates?

– Paul E.


Are you saying you don’t think the feds will raise by much more?

– Ken V.

Chris comment: Apologies for the mix-up.

The sentence in question should have read: “Which is why we think the Fed won’t raise rates by much more.”