#4 - Stocks overvalued

#4 - Stocks Overvalued

I always think that the stock market is overvalued, and due a correction.

The current position is no different: I am concerned that the markets are discounting "perfection".  Now, I accept that zero interest rates logically increase the current value of stocks on a dividend-discount approach (which, in turn, I find to be sound).

I also think there is a good deal of logic in the case for investing in dividend-yielding stocks instead of corporate or government bonds which look like accidents waiting to happen.

I also will allow that, in general terms, major economies are recovering.  All of these factors add to the appeal of stocks and do support valuations.

I am still, however, uncomfortable that there seems to be little allowance for all the things that can go awry - whether that is geo-political risks, problems from the increasing conflict levels, contagion from emerging market risks, central bank mis-steps ... and, of course, the inevitable rates-up shock that will arrive sooner or later.

Also, volatility has been at unsustainable low levels, and we are simply over-due for a proper knock in equitiesy

Admittedly, a catalyst for this fall is not easy to spot and I can fully expect that a short-stocks position could be a painful bleed and may well end in capitulation !  Still, it would simply be wrong of me not to make this call.

Call - major equity indices to correct in 2015
Prediction -Dow to fall to 15,000
Trade - short one or more indices
Conviction - High
Feasibility - High