August 11, 2016

On Thursday, the S&P 500 rose 0.5% to a new record high close of 2186. The DOW and the NASDAQ also set new record highs.

Are these markets over-valued? Well, they would appear to be based on earnings and based on assuming  future earnings per share growth in the range of up to 5% and using any kind of traditional required rate of return such as 6% or more. But if interest rates are going to stay near zero percent then maybe the required return on stocks is more like 4%. In that case the S&P 500 is not over-valued. Or maybe earnings for the S&P 500 are going to grow at more like 9% because they are currently in a dip or because of technology and growth. In that case the DOW and S&P 500 are not over-valued. But based on conservative figures I would say, yes, the S&P 500 is over-valued at this time.

But that does not mean that individual stocks on our list like Wells Fargo and Toll Brothers are over-valued. Those stocks have P/E ratios far lower than the average for the S&P 500.

The biggest gainer on my list today was the Bombardier preferred share, up 2.3% to $17.94. That has been a wild ride over the past couple of years. These shares still yield a hefty 8.7% at this price and so still have upside if Bombardier’s outlook and finances improve. But they remain risky.

Melcor was down 1.5% after posting Q2 earnings after the close yesterday. It only traded 1016 shares today. It increasingly seems that owning this stock requires extreme patience. It gets very little interest from the market.

Oil was up today on rumors and hopes that OPEC members will agree to freeze production at their September meeting. It is sad to realise that Alberta is so reliant on riding the coat tails of a price-fixing cartel. That aspect of Alberta’s great economic success is not something to be proud of. Alberta and the oil companies did nothing wrong at all by benefiting from the price-fixing collusion of OPEC for many many years. But it is an uncomfortable aspect of that success. An aspect that few in the oil industry in Alberta would be willing to acknowledge. Or maybe they would acknowledge that OPEC colluded to fix prices at artificially high levels but would argue that this was a good thing. It was indeed a good thing for Alberta. But not for the billions of oil consumers around the world. There is a reason that colluding to fix prices is usually illegal.