, zombie companies now account for close to 15% of The Leuthold 3000, a proxy for the Russell 3000 index. The last time the reading was this high was in the midst of the tech bubble.
When this notion is coupled with exuberant market sentiment, stretched valuations, extreme concentration, and IPO zeal, Yusko's fearful forecast becomes all the more clear. Recently, Bank of America compared today's equity market valuations to those of the past. Which ever way you divvy it up, the conclusion is the same: stocks are overvalued. And here's a look at the level of concentration in the S&P 500. Increasingly, investors have had to rely upon a handful of issues to energize the entire index. If those issues stumble, the entire market is likely to follow.
With all of that to ruminate over, Yusko thinks that the problems in the stock market are just the tip of the iceberg. The way he sees it, the mounting corporate-debt load will serve as the principal factor when the rubber eventually meets the road. In his mind, investors will have to liquidate just about every asset under the sun to meet margin calls when the stock unwind begins. And that will cause an across-the-board meltdown.
"And I think now what's happening is we're going to have another deleveraging," he said. "And so, everything is going to go down. And the stuff that's the most levered, will go down the hardest. And the people who have the most leverage will be forced to sell not what they want to sell, but what they have to sell, which means the most-liquid stuff."Start your day knowing what traders are talking about.
1930s redux elsewhere too . . .
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