Stock Market is Going to Crash

The simple fact is that, no matter what b.s. the analysts are peddling these days, equity is never really worth more than the intrinsic value of the companies they represent and that worth is dependent upon the cash flow generating ability of the firms and the relative riskiness of those cash flows, as well as the alternative uses to which shareholders could put their money. When dollar interest rates rise, the net present value of the dollar cash flows that companies generate falls. Thus, the intrinsic value is lower as interest rates rise. In addition, higher interest rates eventually impact spending (even if most consumers are clueless about the usurious interest rates they often pay for credit card debt). This is particularly the case as many consumers have borrowed close to the edge of their capacity to repay these loans (leaving little wiggle room for higher payments due to rising interest rates). Higher crude oil prices raises the cost of doing business for most companies (more for some than others). The higher cost of doing business puts downward pressure on long term cash flows and intrinsic value. And at some point the higher oil prices will put further pressure on consumer budgets, forcing some reduction in spending on non-energy related products and services. All of these effects are already present and likely to worsen. The U.S. economy is being propped up by the Chinese right now, who are helping to cushion the rise in interest rates, buying lots of our stuff, and generating global demand, in general, for goods and services. The Chinese government continues to buy U.S. treasuries, slowing the rate of increase in inerest rates and helping to keep the real estate bubble from deflating too quickly. Of course, Chinese economic growth is also fueling the rise in oil and other commodity prices. However, none of this means that U.S. firms are looking at sufficient growth in cash flows to justify current valuations, which have become quite optimistic (although in most cases, Google excluded, not speculative terrain, as yet). This is all the more the case if Chinese growth should slow. But even if it doesn't, there is plenty of reason to anticipate that U.S. participation in the China show will diminish over time, thus reducing future cash flows (upon which these stock valuations are based). Add to that the risk of a slowdown in U.S. domestic spending --- debts are too high, particularly in a rising interest rate environment, housing, in some parts of the country (like where I am), are starting to inflate to bubble levels, jobs are leaving the U.S. in large numbers (yet consumers have not yet "got it"), we're spending far too much $$$ on wasteful police state measures and military adventurism with little expectation of a payoff in either cash flow (cheap oil?) or heightened security (probably just the opposite), and I could go on, but the point is that valuations in the stock market are quite probably well above that intrinsic valuation bar. If I'm right, a correction of severe magnitude is in our not too distant future. The summer rally has been fun (it almost always is) but something more than leaves may fall this autumn.