“Quicksilver Markets” is the provocative title of an Office of Financial Research (OFR) report published March 17.
The report’s author, Ted Berg, in his conclusion warns that “Quicksilver markets can turn from tranquil to turbulent in short order.”
He believes the stock market could crash – again.
So what if Berg is a chartered financial analyst who previously worked at Freeport Investment Management and Lehman Brothers before that. So what if the Office of Financial Research is a research arm of the U.S. Department of the Treasury.
So what if the research peeps at the OFR provide their analysis to the Treasury’s Financial Stability Oversight Council (FSOC), whose own website says, “The Council is charged with identifying risks to the financial stability of the United States; promoting market discipline; and responding to emerging risks to the stability of the United States’ financial system.”
And who cares if Berg’s report starts, “One of the missions of the Office of Financial Research is to analyze asset market valuations and if there are excesses, explore the potential financial stability ramifications of a sharp correction. The author argues that U.S. stock prices today appear high by historical standards.”
The markets don’t care. Investors don’t care. Traders don’t care. The Treasury doesn’t care. The FSOC doesn’t care.
Even the OFR itself makes Berg include this little “we don’t care” heads-up to anyone bored enough to read the short brief: “Views and opinions are those of the author and do not necessarily represent official positions or policy of the OFR or Treasury.”
I’m not going to bore you with the facts the report lays out.
Like how the current market resembles a few periods in the past – like 1929, 2000 and 2007. Like how something called the CAPE ratio (cyclically adjusted price-to-earnings) is approaching two standard deviations above its long-term average, just as it did in September 1929, December 1999 and May 2007.
Here’s what Berg has to say about that: “each of these peaks was followed by a sharp decline in stock prices and adverse consequences for the real economy.”
I’m not going to bore you with the report’s fearmongering over the Q-ratio, which compares the value of nonfinancial equity value with net worth – and how that’s flashing red. Or how the “Buffet Indicator” (as if he knows anything), which compares corporate market values to gross national product, is jacked up to cloudy levels.
No, none of that stuff matters.
What matters is that when it comes to the stock market there are more buyers than sellers.
Until, of course, there comes a few days, weeks or months when there are more sellers than buyers.
Not that that ever happens – well, besides 1929, 2000 and 2008.
- Office of Financial Research: Quicksilver Markets.