The “Buffett Indicator” Goes Parabolic As The Market Enters The Eclipse Zone

Warren Buffett’s favorite market indicator is telling us that stocks are more overvalued right now than they have ever been before in history! That means that a stock market crash is imminent.

The Buffett Indicator is very simple to calculate. You just take the total market value of all stocks in the market and divide it by the Gross Domestic Product. When that ratio is more than 100 percent, stocks are generally considered to be overvalued, and when that ratio is under 100 percent stocks are generally considered to be undervalued.

Now, while it’s not a flawless indicator, it does tend to peak during hot stock markets and bottom during weak markets. And as a general rule, if the indicator falls below 80%-90% or so, it has historically signaled that stocks are cheap. On the other hand, levels significantly higher than 100% can indicate stocks are expensive.

For context, the Buffett indicator peaked at about 136% right before the dot-com bubble burst and reached nearly 110% before the financial crisis began in September of 2008.
Today, the Buffet Indicator is 144%, which is the highest level ever recorded! It’s even higher than the 136% peak we saw during the height of the dot-com bubble in March of 2000.

In his article “Trading Planetary Eclipses” in the publication “Stocks & Commodities,” Hans Nannula (i.e., Al Larson) used a model of cause and effect to relate solar and lunar eclipses to market action.  Larson wrote, “That study showed a significant effect due to solar eclipses, with the effects due to the moon interrupting the energy flow between the sun and the Earth.”

In his book “Trading the Eclipses” Larson wrote that based on his research “fully fifty-one percent of all eclipses move the market” and “of that fifty-one percent, eighteen percent of the eclipses caused major market moves.”  Later in the book Larson noted that “sixty percent of all ‘major’ moves are for greater than fifteen percent.”

US stock markets continue their inexplicable rally despite the economic destruction wrought by the coronavirus-induced shutdown. The S&P500 is only down about 3.5% on the year and the NASDAQ is actually up. As a result, a lot of investors seem to be getting out of safe havens, including gold. However, what investors continue to overlook is that stocks are rising because the Fed is printing money, and injecting that money directly into the markets.  Meanwhile, the dollar is getting pounded and the bond market is also feeling the pressure. The yield on the 30-year appears to be pushing toward 2%. That is still historically low, but keep in mind, not too long ago that yield was below 1%.