 Good day fellow investors and welcome to the weekly stock market news with the fundamental twist. Today we're going to discuss whether the market is overvalued or undervalued. We will see what the richest people in America say about it. Then we're going to discuss the Fed's decision to increase interest rates and how that impacts yields and the long-term picture of asset values versus yields. Further, we're going to see how what has been created by the Fed has impacted household wealth. Are the Americans richer? Yes they are but we'll see who is richer and then we'll see at the end how to position oneself in perspective of what the monetary policies are and what will the Fed and what will politicians do to keep the situation as is. They will do whatever it takes to keep the situation as is and you will see why. So let's start. Boston Consulting Group did an annual survey where they query 250 investors with a collective 500 billion billion in assets and you can see here the result more than 65 percent of investors say that the market is overvalued and only 15 percent say that it's undervalued. In the past the results have been much different so if the 250 richest people in the world say that the market is overvalued then as they know the markets as they have a lot of wealth we might think that the market is overvalued. Let's dig deeper. If you look at what happened to the SAP 500 index year to date it's up 19.52 percent that's huge and now my question is do you think that investors that are now investing in the SAP 500 think that next year the SAP 500 will go up 8, 10, 12, 15 percent like it did this year or that they are investing in the market to get their 4 percent return that is expected to arrive from long-term stock investing. So I'm really looking forward to your comments in order to assess market sentiment. Are investors investing because stocks go up and speculating or they are investing in stocks to get the 4 percent long-term return because that return is still better than long-term bond yields. Speaking of yields let's see what the Fed recently did. Janet Yellen announced of course an increased expected increase in interest rates but what's very important here in their announcement is that the stance of monetary policy remains accommodative thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. This is very important to understand the current environment is still strongly accommodative. We haven't seen real tightening and it still pushes the economy forward so without the Fed pushing the economy forward the picture would be completely different. The committee also expects three more rate increases in 2018 slowly increasing the rates if economic conditions evolve in a manner that will warrant gradual increases in federal funds rate so they are going to look at inflation and at what going on in the stock market because a lot of what they do is looking at financial markets to keep stability so they're really going to look at what's going on before acting. Now the logical thing is that when interest rates go up asset values go down however we have to really differentiate between market sentiment that's why I asked whether you think the S&P 500 will go 10 percent next year or just 4 percent or it will be stable or even decline so that's why it's market sentiment short term the market sentiment I talk about a few years when I say short term can prevail but in the long term interest rates are like gravity on asset values that's why also the Fed is very very careful in pushing interest rates higher. Here is the 10 year constant maturity rate it also evolves around sentiment however since the Fed has really started increasing the interest rate also the 10 year constant maturity rate increased from 1.4 in the mid of 2016 till the current 2.4 2.5 the treasuries are the investment with the lowest risk so if you can get 2.4 percent from the treasuries you prefer that than investing in stocks at a similar valuation so stocks always as they are more risky they need higher premium similarly long term bonds and short term bonds but let's see the divergence there we can see that the 10 year treasury constant maturity minus the two year treasure constant maturity has been going lower and lower and you can see that that pattern evolves constantly over time in periods of economic expansion the spread between the 10 year and the two year bond is going lower lower and lower when it hits zero it was the case in the past we'll see if it will be again then you can shortly after expect a recession this means that investors long term investors and those who invest in bonds are chasing are locking in the higher long term yields because they expect those yields to be lower in the future in the long term in the short term of course in the short term of course higher interest rates from the Fed increase the yields of short term bonds the effect isn't that direct on the long term bonds because that is a completely different story and now we are going to look at something else something extremely important and that's the wealth of americans if you look at the household wealth network level it was 36 trillion in 1998 and now it is close to 100 so it almost increased three times in the last 20 years however if you look at the wealth and who is getting richer you can see that the 10 percent of the poorest people are getting poorer 25 percent of the poorest people also the median shows that the average american hasn't really increased his wealth in the last 40 years because the index the median index that shows how it's distributed over the whole population hasn't really grown the median and the mean are different the median looks how it's spread over the population the mean looks at the average and if the rich get richer the average also goes higher but that doesn't mean that the average american is richer and you can see here that the one percent of the population in the bottom right corner really increased their wealth almost three times five percent of the population bottom left corner similarly so this means that the rich are getting richer and that's also the goal of the policy in the united states also in europe and also in japan because as the richer gets richer they hire more people and then also the employment rate goes down and the economy is stable that's how the current political environment works and here you can see how the median is much different from the mean as i said the mean is pushed higher by the rich while the median is unfortunately very very low and stable over the past 40 years now what i want to show you in more in detail the derivation of us net wealth you can see here real estate the first line in the yellow was at 24 trillion now is 27 trillion so increasing of three trillion in the last two years then we have market value of domestic corporation increase of seven trillion in the last two years the total increase in the household network is 10 trillion so real estate and stocks so real estate and stocks paper increases in wealth however that has also been the case in the past so the 50 percent of household wealth increase from 60 000 to 90 000 on average has been mostly to paper money from asset prices this wealth increase gives more confidence to the people they spend more i am happy that my house is worth more so i spend more i tend to over take more depth with the confidence that i have the backing of my paper wealth to protect me that's why the Fed will really do whatever it takes to keep the situation as is and we as investors have to see that from the longer term perspective and invest accordingly so think about taking depth thinking leverage investing in assets that will increase value as the Fed will print much more money in the next recession to keep the rich richer so be rich think as a rich person in this environment i really don't think it will change soon in the next 10 20 years so we should take advantage of it i'm really looking for your comments because this is a very delicate subject thank you for watching and i'll see you in the next video