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Warren Buffett Warns: The stock market is ‘insanely disconnected’ and due for a ‘reckoning

Are investors in “La La Land”… ?
EVERETT/LIONS GATE

The stock market can be somewhat a challenging gamble, lucrative to a few and detrimental to others. Crescat Capital’s chief investment officer Kevin Smith predicts that those who’ve placed “absurdly overvalued” bets are about to get compensated. “Speculation is rampant and being championed by a bold new breed of millennial day traders,” he said. “The mania is based on a widespread hope in Fed money printing. The catalysts for reckoning are numerous as a major cyclical economic downturn has only just begun.”

Smith recently converse on a few letters his father gave him on Berkshire Hathway BRK.A, -0.51% BRK.B, -0.55%. The letters, which were from the shareholders of the aforementioned companies, states that shorting stocks “is worthy of a significant allocation today.” 

Smith used this chart of plunging S&P 500 SPX, -0.56% profit margins to show “how insanely disconnected equity prices are from their underlying fundamentals.” He warned that buy-the-dip investors are “not paying attention and have simply been too eager to call the bottom.”

Smith’s “macro trade of the century” states that there’s never been a better set-up for rotating out of overvalued stocks and into undervalued precious metals.

“Markets driven by euphoria never end well,” he explained in a note to clients this week. “The U.S. stock market today is in la-la land. It is discounting a new expansion phase of the economy at the same time as a major recession has only just begun.”

The expert dented his bank account earlier this year as the stock market plummeted. His financial loss was somewhat recouped when the stocks returned normalcy.

The severe “reckoning” Smith has been warning about hasn’t arrived as of Thursday’s trading session, but the Dow Jones Industrial Average DJIA, -0.80%, S&P 500 and tech-heavy Nasdaq Composite COMP, +0.03% were all under pressure, at last check

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