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Buffet’s Favorite Indicator Screams “Sell”!

By John Del Vecchio and Brad Lamensdorf

Buffet’s Favorite Indicator Screams “Sell”! The favorite market indicator of Warren Buffett, the richest investor in the world, has flashed a screaming sell signal. The total market cap of the Wilshire 5000 relative to gross domestic product (GDP), is now at generational highs.

Take a look at the chart below.

Buffet’s Favorite Indicator Screams “Sell”!
Buffet’s Favorite Indicator Screams “Sell”!

The ratio of market value to GDP stands at 144%. That’s over 2.5x where it stood at the depths of the financial crisis in 2008-09! Not only that, it now exceeds the extreme levels of the market back during the Internet Bubble.

We all know how that ended. Trillions of dollars wiped out from investors’ accounts before the market normalized and it was time to buy shares again.

The current levels of market value to GDP are not just high, they are at extremes. 

Market extremes on both ends provide great opportunity for outsized returns with lower risk.

Right now, the risk is to the downside.

Buyer beware!

The Active Alts SentimenTrader Long / Short strategy uses numerous indicators to identify market extremes and adjust exposure accordingly for superior risk-adjusted returns. To learn more, visit www.activealts.com. 


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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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