Real Estate Bubble Part II

By Michael Pento – Re-Blogged From http://www.PentoPort.com

It shouldn’t be hard to understand that nearly 90 months of ZIRP has regenerated the equity and real estate bubbles that first pushed the global economy off a cliff back in 2007. In fact, the Fed’s unprecedented foray with interest rate manipulation has caused these assets to become far more detached from underlying fundamentals than they were prior to the start of the Great Recession.

The prima facie evidence for the stock market bubble can be found in the near record valuation of the S&P500 in relation to GDP and in its median PE multiple. But perhaps the best metric to illustrate this overvaluation of equities is the current 1.8 Price to Sales ratio of the S&P. This is the highest ratio exhibited outside of the Tech Bubble…and is especially absurd given 5 quarters in a row of falling revenue.

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How To Identify A Classic Bubble

By Michael Pento – Re-Blogged From http://www.Silver-Phoenix500.com

One of the most ironic and fascinating characteristics about an asset bubble is that central banks claim they can’t recognize one until after it bursts. And Wall Street apologists tend to ignore the manifestation of bubbles because the profit stream is just too difficult to surrender.

The excuses for piling money into a particular asset class and sending prices several standard deviations above normal are made to seem rational at the time: Housing prices have never gone down on a national basis and people have to live somewhere, the internet will replace all brick and mortar stores, and perhaps the classic example is that variegated tulips are so rare they should be treated like gold.

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