David Tepper is no longer a stock market bull…

Tepper is the founder of Appaloosa Management, a hedge fund that has averaged 30% annual returns since 1993. He’s known for nailing several “big picture” calls on the stock market and economy.

Tepper has been a stock market bull for many years, and he’s been dead right. The U.S. stock market has gained 158% since bottoming in 2009 after the financial crisis.

Tepper doesn’t often speak in public. But when he does, investors pay attention. On May 14, 2013, Tepper made extremely bullish comments about the U.S. stock market. Stocks soared to new records soon after, and the media dubbed it “The Tepper Rally.”

But yesterday on CNBC, Tepper changed his stance. For the first time since the last financial crisis, he said, “I can’t really call myself a bull.”

Tepper sees “all kinds of problems” with the U.S. stock market. He’s worried stocks are too expensive. As we explained recently, one important metric shows U.S. stocks are now about 50% more expensive than their historic average.

Tepper is also concerned about weak earnings. Earnings growth for companies in the S&P 500 has slowed for six quarters in a row.

•  Tepper stopped short of saying he was bearish…

However, he did say that “[t]here's a time to make money, and there's a time to not lose money.”

Tepper thinks today is a time to not lose money. His fund trimmed its stock holdings recently by selling positions in two airlines, United Continental (UAL) and American Airlines (AAL), and in search engine giant Google (GOOG).

We agree with Tepper that investors should be extremely cautious about stocks right now. We don’t see much upside to owning the broad market at today’s prices.

We recommend being extremely picky when buying stocks right now. Don’t buy anything that’s expensive or overly exposed to economic weakness.

You can hang on to your stocks that are doing well, but we recommend using trailing stop losses. They’ll allow you to own strong businesses while protecting you from big losses if the stock market crashes.

•  A new study shows more proof that that “everything is expensive”…

Deutsche Bank (DB) just published ominous statistics in its annual “Long Term Asset Return Study.”

The German bank analyzed 15 big markets going back as far as 200 years. It found that global asset prices are near “peak” levels for the last 200 years.

Looking at three of the most important assets (bonds, equities and housing) across 15 DM countries, with data often stretching back two centuries, we are currently close to peak valuation levels relative to history.

Together, stocks, bonds, and housing are now more expensive than they were before the 2008 financial crisis.

Indeed when aggregated, current levels are higher on average across the three asset classes than they were back in 2007/08 and certainly higher than in 2000.

Regular readers know global markets sold off last month. August was the worst month for global stocks in three years.

But even after the big selloff, global stocks are still at “one of the most expensive points in history,” according to Deutsche Bank.

•  Casey readers know we have easy money policies to thank for this…

In 2008, the U.S. economy was in its worst downturn since the Great Depression. To help stimulate the economy, the Federal Reserve made the unprecedented move of lowering its key interest rate to effectively zero. It’s kept rates near zero ever since.

Interest rates are the price of money. By cutting rates to effectively zero, the Fed made it extremely cheap to borrow money. So people and companies borrowed trillions of dollars to buy everything from cars and houses to stocks and bonds.

This has pushed up prices for nearly everything. U.S. stocks are in their third-longest bull market in history…bonds are in a 30-year bull market…and commercial property is 18% more expensive than it was before the 2008 crash.

•  Marc Faber thinks financial markets are at a “tipping point”…

Faber is a famous contrarian investor. He predicted Black Monday before it hit in 1987. He also predicted the Asian financial crisis of 1997-1998. Faber’s knack for calling huge crashes has earned him the nickname “Dr. Doom.”

In a recent interview with Bloomberg TV, Faber explained how easy money policies do not create genuine wealth. True wealth, Faber says, only comes from “a mixture of capital spending, land and labor.”

Easy money has merely created an illusion of prosperity. Faber says that “it's ludicrous to believe that you will create prosperity in a system by printing money.”

The media loves to point to record-breaking stock prices as proof of the economy doing well. But as Faber explains, soaring stock prices don’t help most people.

And the majority of Americans, roughly 50 percent, they don't own any shares anyway. And in other countries, 90 percent of the population do not own any shares. So the printing of money has a very limited impact on creating wealth.

We think Faber’s contrarian thinking is spot on. And we’re excited to hear more of his unique insights at our 2015 Casey Research Summit.

At this year’s Summit, attendees will mingle with a lineup of investing all-stars including Faber, Doug Casey, James Altucher, and Gerald Celente. We hope you’ll join us and these legendary investors to discuss strategies for protecting yourself and profiting in our “Wonderland” economy.

It all takes place October 16-18 at the 5-star Loews Ventana Canyon Resort in Tucson, Arizona.

Click here for more information on the 2015 Casey Research Summit.

•  In today’s mailbag, reader Scott O. asks…

“I enjoyed your article on state pensions. May I please republish it on my website with full credit and links back to Casey Research?”

Absolutely! We’re happy you’re finding our research useful. Please share the Casey Daily Dispatch with your friends, family, and colleagues.

Chart of the Day

We’re officially in an earnings recession…                            

Earnings growth for S&P 500 companies turned negative two quarters ago. Today, we learned that earnings fell another 0.7% last quarter.

An economy enters a recession when its economy shrinks two quarters in a row. By that definition, the U.S. stock market is now in an “earnings recession.”

We noted earlier how earnings growth for companies in the S&P 500 has fallen for six straight quarters. Today’s chart shows that steady decline.

As you can see, earnings growth has been falling since the fourth quarter of 2013. And in the last two quarters, earnings have shrunk. This is a bad sign for the stock market and economy.


Justin Spittler
Delray Beach, Florida
September 11, 2015

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