IN ONE CHART
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Warren Buffett, chairman and CEO of Berkshire Hathaway, smiles as he plays bridge after the annual shareholders’ meeting.
Warren Buffett once wrote that investors would have seen the dot-com crash from a mile away if they had paid attention to what he described in a 2001 Fortune article as “probably the best single measure of where valuations at any given moment stand. “
Known in investment circles as the “Buffett Indicator,” the measure is simply the total market cap of all U.S. equities relative to the country’s GDP. When it’s in the range of 70% to 80%, it’s time to throw money on the market. If it moves above 100%, it’s time to lay down to risk-off.
Apply that benchmark worldwide, and, as you can see from this chart by Die Welt brand analyst Holger Zschaepitz, a sales signal is flying. In fact, the indicator simply broke through a height of 30 months:
Global stock mkts have hit another milestone. All shares are now worth more than 100% of global GDP for the first time since 2018, according to extensive valuations. For Warren Buffett, a Market Cap to GDP Ratio means> 100% shares in bubble territory. pic.twitter.com/EqPi8A9Tkc
– Holger Zschaepitz (@Schuldensuehner) August 9, 2020
Over the past two decades, global markets have taken big hits on three occasions, after the ratio broke in three digits – In 2000, 2008 and again in 2018.
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Meanwhile, drilling to the U.S. market, where supplies remain strong in the face of the coronavirus pandemic, shows the indicator in the all-time record high.
However, the US stock market remains ahead of profits. At last check, the Dow Jones Industrial Average (DJIA) was up more than 200 points, while both the S&P 500 (SPX) and Nasdaq Composite (COMP) were also firmly in the green in Wednesday’s session.
As for Buffett, he has been much more active lately, having been criticized for his lack of maneuvering during the coronavirus meltdown. Yet Berkshire (BRK), despite refurbishing acquisitions and building its position in Bank of America (BAC), stands at $ 146.6 billion in cash.
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