Pragmatic Capitalism

Practical Views on Money, Finance & Life

Media: Buffett’s Favorite Valuation Indicator & Recession Risk

I was fortunate to have been invited on Yahoo Finance’s Daily Ticker with Lauren Lyster last Friday in New York to discuss the markets, QE, recession risks and Buffett’s favorite valuation indicator and why all of this matters.  It’s only 5 minutes, but we cover a lot of ground.

Here’s a brief summary for those who don’t want to listen to me ramble:

  • The risk of QE is the disequilibrium it creates through the wealth effect and the potential for asset prices to deviate from their underlying fundamentals.
  • But how do we know what that’s occurred?  It’s not easy obviously, but the Buffett valuation metric might help us better understand when this is occurring.
  • The market cap:GNP ratio has only breached the 100% level 3 times.  It occurred in 2007 and during the 97-99 period.  This year was only the 3rd time it has ever breached it.
  • I discussed the Orcam Recession Index briefly and how the worst market downturns tend to occur within a recession.  This has kept me from turning into a cyclical bear through much of the recent rally in stocks.
  • Where is the market going from here in the near-term?  Who knows.  But the market tends to rally about 7% per year so our current 40% annualized trajectory is not the norm….
Click the image below for the full video.

Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC.Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services.He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.
Cullen Roche

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