With positive economic indicators and stocks reaching five year highs today, investors seem positive about the markets. However, there are plenty of reasons to be pessimistic, and we here at Treetops are fortifying our premium portfolios to prepare for a possibly imminent collapse. Here are five reasons why:
1. Margin levels are rising fast, indicating that much of the recent surge has been fueled by borrowed money. Margin debt is approaching levels last seen in late 2007, when the stock markets were again at record highs, according to reports by Orcam Investment Research.
2. Relative to ten year average earnings, stocks are quite high — Robert Shiller’s ratio of earnings to stock prices is at an alarmingly high 22, while the average is only 15. This indicates that prices are overinflated relative to the strength of corporate earnings, which is another way of saying it’s high time for a correction.
3. Performance compared to international indices has been consistently strong for US markets in the past several years, and reverting to the normal close relation is highly likely in the near future. Given that international markets are substantially underperforming ours, that’s a bad sign.
4. When investor sentiment is this high, it’s often an ironically negative sign. Because what propels upward movement in prices? Hungry buyers. And if everyone’s sitting tightly on their stocks, hoping to strengthen their gains, there won’t be any buyers left to sustain the momentum. This is also known as an overbought market.
5. Stocks last hit these levels in 2001 and 2007… and we know what happened after that. Look for selling pressure as investors attempt to lock in their gains.
So, what are we here at Treetops doing to prepare for the crash? Treetops Premium members have access to a diversified and consistently market-outperforming portfolio of stocks and funds that we believe will continue to show strength even in a forthcoming bear market. Check out the Treetops Premium link in the sidebar to learn more about how you can profit from the coming stock market apocalypse.
Updated May 20, 2013.