Don’t mistake my positive explanation of the BLS, ADP, and ISM reports to indicate that I’m bullish on stocks for the long-term. Unlike the typical commentator who claims he/she is expecting a correction in the short term, but is bullish for the long term, I claim that I don’t know where the market is headed in the short term, but I’m very bearish on stocks for the long term. It’s rare to find a prognosticator who is bearish on stocks in the long term. However, based on historical performance, sometimes being bearish on stocks over the next 10 years has proven to be an accurate prediction. As someone who focuses on valuation, even I have questioned this strategy because of the time the market has spent in its mature phase. The S&P 500 is up about 9% since I went bearish in December of 2015. It’s reasonable to wonder how much potential profits you are willing to leave on the table to avoid a 40%-50% correction. My counter point to this argument is that most cycles have corrected earlier than this one. If you get too aggressive, you raise the risk that you’ll catch the 40%-50% decline you’re trying to avoid.

There seems to be a bull market in unique valuation metrics to describe the current bubble. That makes sense because there isn’t much interest in valuations when they are near historical norms. Now that they are stretched, there is demand for these charts to watch in awe how historic this rally has been. The chart below is one more example of a unique valuation metric which screams now is a time to avoid stocks. It shows the number of hours of work needed to buy the S&P 500 using the average hourly earnings. This shows two things. It shows how expensive stocks have gotten and it shows have the average worker hasn’t participated in the expansion. This is why the Rust Belt states voted against the incumbent party in America.

The six charts below review the 1 month rolling asset allocation of global macro hedge funds. The expressions of a long S&P 500, long Nasdaq, and long U.S. dollar position are all in the crowded stage. Some investors who are trying to gain context as to when the cycle will end look towards these sentiment indicators. It’s certainly a valuable tool, but at this point, the market has blown past many of the traditional signals which have worked in the past. The expansion of the central banks’ balance sheets are the principal cause of this.