Warren Buffett said this metric signaled the 2001 crash — now it’s sounding the alarm on global markets
Warren Buffett once wrote that investors would have seen the dot-com crash coming from a mile away had they paid attention to what he described in a Fortune article in 2001 as “probably the best single measure of where valuations stand at any given moment.”
Known in investing circles as the “Buffett Indicator,” the measure is simply the total market cap of all U.S. stocks relative to the country’s GDP. When it’s in the 70% to 80% range, it’s time to throw cash at the market. When it moves above 100%, it’s time to lean toward risk-off.
Over the past two decades, global markets have taken big hits on three occasions after the ratio broke into triple digits — In 2000, 2008 and again in 2018.
Meanwhile, drilling down into the market in the U.S., where stocks are holding up strong in the face of the coronavirus pandemic, shows the indicator is up in all-time record territory.
Fox Business/Megan Henney
Millions of Americans at risk of eviction after moratorium expired
The U.S. is teetering on the brink of the most severe housing crisis in decades. That’s according to a report released Friday by the Aspen Institute, which estimates that between 30 million to 40 million Americans are at risk of eviction over the next several months – a result of the coronavirus pandemic and subsequent economic recession.
“Renters experiencing financial hardship due to COVID-19 have exhausted their resources and limited funds just as eviction moratoriums and emergency relief across the United States expire,” the report, which is aggregated from existing research, said. “Without intervention, the housing crisis will result in significant harm to renters and property owners.”
Congress passed the $2.2 trillion CARES Act, which included an eviction freeze that protected about 12 million renters in federally backed properties. But that moratorium expired at the end of July, leaving the fate of some renters up in the air.
State Street Doubts Economy Survives Without Covid Treatment, Or Vaccine
State Street Global Advisors thinks that the economy can only outlast and outwit the new SARS coronavirus for so long. It’s going to take agreed-upon medical treatments greenlit by the FDA, or a vaccine, to put this pandemic to bed.
“It will be challenging to sustain investor confidence through the end of the year unless (there is successful) development of a vaccine or an effective, scalable medical treatment…so that the most vulnerable populations can benefit by the end of 2020 or early 2021,” says State Street Global Advisors global CIO Richard Lacaille. “There will be no complete recovery without a medical solution to Covid-19.”
He defines the recovery stages in three phases, with the first two all backstopped by unprecedented global stimulus from Treasury and central banks everywhere. We are now in phase two. For phase two to be successful, lockdowns have to be lifted, meaning restrictions have to be removed. The longer restrictions remain, the longer doubts remain; and the longer doubts remain, the less likely it is that businesses will rehire and reinvest. Foreign investors in the U.S. would also cash out if this continues.
CNN Business/Mark Thompson
UK crashes into deepest recession of any major economy
UK economic output shrank by 20.4% in the second quarter of 2020, the worst quarterly slump on record, pushing the country into the deepest recession of any major global economy.
This crash in GDP in the April-June period, compared with the first quarter, is the worst since quarterly records began in 1955. Industries most exposed to government lockdown measures to contain the coronavirus pandemic — services, production and construction — saw record drops.
“Today’s figures confirm that hard times are here,” UK finance minister Rishi Sunak said in a statement. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will. But while there are difficult choices to be made ahead, we will get through this, and I can assure people that nobody will be left without hope or opportunity.”
Compared with the end of 2019, UK economic output fell by a cumulative 22.1% in the first six months of 2020, a worse outcome than Germany, France and Italy, and double the 10.6% fall recorded in the United States, the Office for National Statistics said.
Among the remaining G7 economies, the decline in GDP is also expected to be less severe than in Britain. Canada’s statistics agency said it expects second quarter GDP to shrink 12% on the previous quarter, while economists surveyed by Reuters predict a 7.6% quarter-on-quarter contraction in Japan.