Overvalued Bull Markets Like Now "Do Not End Well" | New Harbor Financial

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**John Lodra** (1:00)
I direct this comment really to those folks who are buy and hold that have done very well, just holding even a passive index fund in the S&P for decades, right? And you look back on the River Mirror, that's done great. But if you look at what history would tell us is likely to happen for a buy and hold approach from these levels, it's not a good picture.

**Adam Taggart** (1:31)
Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your host, Adam Taggart. Welcoming you back here for another monthly update with the team from New Harbor Financial. I'm joined as usual by lead partners, John Lodra and Mike Preston. Hi boys, how you doing?

**John Lodra** (1:45)
Hello Adam, how are you? Great to be with you this week.

**Mike Preston** (1:48)
Good to be here, Adam, hello.

**Adam Taggart** (1:50)
Hey guys, so you guys join me every week, usually following one of the big interviews for the week, but it was probably what, three or four months ago, we started doing this format, which is just a monthly update, fully dedicated to you guys to share your overall market outlook and share with the audience here what changes, if any, you're making in your portfolio structure. So I've got a number of different topics we want to go through here today. I guess, why don't we just start with the obvious, which is the extreme levels of valuations that we see in this market.
You and many other guests in this channel have been talking about seeing so many signs of sort of increasing, maybe even rampant speculation that really echo a lot of what we all experienced during the dot-com bubble. I had one interview guest on here recently, Chris Irons from Quote the Raven, who described this market as pornographically overvalued. So why don't we talk about right now, how are you guys dealing with these extreme levels of valuations? And again, I know they're terrible timing indicators, but you can't ignore them for the long run. So John, you're nodding here. Why don't we start with you?

**John Lodra** (3:08)
Yeah, Adam, we have been talking about valuations with you for years because they have been in very rare territory for literally years. And we are in the rarest of territories now. But I'll just reiterate what you just said. We have come to realize by show and force, valuations don't matter in the short term. They never do. But they matter tremendously over timeframes that most investors should be mindful of. And I direct this comment really to those folks who are buy and hold that have done very well, just holding even a passive index fund in the S&P for decades. And you look back in the rearview mirror, that's done great. But if you look at what history would tell us is likely to happen for a buy and hold approach from these levels, it's not a good picture. I'll just share a couple of charts. I'm going to give a nod to our friend, John Hussman. I know you've had him on several times, and he has been pretty steadfast in his take on the markets. And he's actually done quite well this year despite his common refrain of obscene valuations. But let me just share, he put a couple of charts in his latest piece, which literally just came out today. We're recording this on September 24th. This is his favorite valuation metric, his favorite because it has the most statistically reliable, amongst all the indicators you look at, predictive ability for the returns over the next 12 years in the S&P. And this is what he calls the non-financial market cap to gross value added. You can see here, we are at literally the highest point in history, higher than we were in 1929, way higher than the tech bubble, way, way higher than we were in 7 before over 60% decline in the market. And here we are, we're beyond the late 21 point. And that doesn't matter till it matters. This is what the history tells us. This is the scatterplot showing that data series along here, versus the actual, not predicted or guesswork, but the actual 10-year nominal returns in the S&P, including dividends. If this relationship holds going forward, it would predict a negative nearly 6% in return. Now, folks would be, I guess, forgiven for saying, Ah, Hassimidi's been a perma bear. He hasn't been, but let's just take that at face value. Even Vanguard, even folks like the Leica Vanguard are painting a pretty bleak picture of the future return scenario. And this is their latest asset class forecast.