Globe with Money

What's New?

Three Stock Market Indicators Spell Trouble for Pension Fund Managers

Apr. 24, 2017
by Bob Adelmann

Michael Lombardi is a bear. Canadian-born, Lombardi has been dishing out investment advice for decades. He is getting nervous. And so should pension fund managers trying to make up for lost time.

In his March newsletter, Lombardi looked at the Warren Buffett Indicator:

According to Buffett’s favorite valuation metric, stocks are significantly overvalued.

The market-cap-to-GDP ratio is affectionately referred to as the Warren Buffett Indicator. Back in 2001, Buffett told Fortune magazine that “it is probably the best single measure of where valuations stand at any given moment.”

The Warren Buffett Indicator compares the total price of all publicly traded companies to gross domestic product (GDP). It is a great tool to correlate stocks to valuations. After all, stocks are a reflection of the broader economy, and there should be some sort of link between economic output and earnings. On top of that, this should also be reflected in stocks and their valuations, and help investors decide whether they should buy, sell, or wait.

By all accounts, Warren Buffett is waiting.

A reading of 100% suggests that U.S. stocks are fairly valued. The higher the Warren Buffet Indicator is over 100%, the more overvalued the stock market. The market-cap-to-GDP ratio is currently at 127.1%.

Not content with scaring his scribers with this, Lombardi looked at two other indicators: the CAPE ratio, and the Wilshire 5000/market cap index. The Case-Shiller adjusted price-to-earnings ratio for the S&P 500 Index shows the market to be overpriced by 75 percent. The Wilshire/market cap index? It just touched an all-time high.

And, of course, there’s the master himself. At the end of the third quarter, Berkshire Hathaway reported holding $85 billion in cash. According to Lombardi the only opportunity that Buffett sees, according to his own rules, is Berkshire Hathaway stock!


McAlvany Weekly Commentary provides investors with valuable monetary, economic, geo-political and financial information that cannot be found on Wall Street. Your host David McAlvany presents a solid strategy of wealth preservation for your financial and retirement assets while living in an unstable economy.

Through its client focused, customized approach, MWM is committed to providing independent, well-researched, objective advice, and investment professionalism. At MWM, our client commitment is to preserve capital, manage risk, and grow your assets in an ever-changing global environment.

At International Collectors Associates (ICA), we specialize in the sale of bullion, semi-rare U.S. and European gold coins and secure offshore storage in Switzerland for your precious metals. Our highly trained and experienced advisors strive to help you in customizing solid strategies of wealth preservation for your financial and retirement assets.

McAlvany Financial Group

The McAlvany Financial Group has a contrarian, in-depth approach to its analysis, allowing the company to avoid decisions based on emotion, and thus combine maximum risk mitigation with consistent real growth for its clients’ investments. Integrity, attentiveness, and longevity have characterized the company’s client relationships since 1972.