If everything is going to be “just fine”, why are so many big names in the financial community warning about an imminent meltdown? I don’t think that I have seen so many simultaneous warnings about a market crash since just before the great financial crisis of 2008. And at this point, you would have to be quite blind not to see that stocks are absurdly overvalued and that a correction is going to happen at some point. And when stocks do start crashing, lots of fingers are going to start pointing at President Trump, but it won’t be his fault. The Federal Reserve and other central banks are primarily responsible for creating this bubble, and they should definitely get the blame for what is about to happen to global financial markets.
My regular readers are quite familiar with my thoughts on where the market is headed, so today let me share some thoughts from five highly respected financial experts…
#1 When Altair Asset Management’s chief investment officer Philip Parker was asked if a market crash was coming to Australia, he said that he has “never been more certain of anything in my life”. In fact, he is so sure that the investments that his hedge fund is managing are going to crash that a decision was made to liquidate the fund “and return ‘hundreds of millions’ of dollars to its clients”…
While hardly a novel claim – in the past many have warned that Australia’s housing and stock market are massive asset bubbles (which local banks have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) – so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars to its clients according to the Sydney Morning Herald, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.
“Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday quoted by the SMH.
#2 Seth Klarman leads one of the biggest hedge funds in the United States, and he believes that U.S. investors are greatly underestimating the amount of risk in the market right now…
“When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high,” Klarman wrote. “By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.”
Klarman oversees one of the US’s largest hedge fund firms, with some $30 billion under management. He has a huge following on Wall Street — investors named his book, “Margin of Safety,” their favorite investment book in a recent SumZero survey.
#3 Bill Blain is a strategist at Mint Partners, and he is actually specifically pointing to October 12th as the date when things will start to get “horribly interesting”…
But…. Catch a falling knife, why don’t you… I shall spend the summer wondering just how long the Stock Market games continue. When, not if.
At the moment, my prediction is October 12th. Around that day its going to get horribly interesting..
Why that particular day?
Gut feel and knowing how the Bowl of Petunias felt in Hitchhikers. (“Not again.”)
There are just too many contradictory currents out there. The unsustainability of burgeoning consumer debt, unfeasibly tight credit spreads, the sandcastle foundations of student loans, autos, housing and the CLO market, China, Trump, politics.. worries about what follows Brazil in the EM market, and whatever… The risks of a massive consumer sentiment dump..
#4 David Stockman has also been warning about what may happen this fall. According to Stockman, this current stock market bubble “is the greatest sucker’s rally we have ever seen”…
“The market is insanely valued right now. They were trying to tag, the robo machines and day traders, they were trying to tag 2,400 on the S&P 500. They ended up at 2,399, I think, but the point is that represents about 25 times trailing earnings for 2016. We are at a point in the so-called recovery that has already lasted 96 months. It’s almost the longest one in history. What the market is saying is we have reached the point of full employment forever. There will never be another recession or any kind of economic surprise or upset or dislocation. The market is pricing itself for perfection for all of eternity. This is crazy. . . . I think the market could easily drop to 1,600 or 1,300. It could drop by 40% or even more once the fantasy ends. When the government shows its true colors, that it’s headed for a fiscal bloodbath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all. I mean it’s not going to happen. They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade. It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.“
#5 Last but certainly not least, David Kranzler seems quite certain “that the stock market bubble is getting ready to pop”…
Anyone happen to notice that several market commentators have argued that is a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of Amazon.com Inc (NASDAQ:) is hurtling toward parity with the price of one ounce of . Tesla (NASDAQ:) burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors (NYSE:). Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.
This insanity is the surest sign that the stock market bubble is getting ready to pop. If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.” This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.” There will be millions of people who are permanently damaged financially when the Fed loses control of this market. Or, as legendary “vulture” investor Asher Edelman stated on CNBC, “I don’t want to be in the market because I don’t know when the plug is going to be pulled.”
Could all of these top experts be wrong?
It’s possible, but I wouldn’t bet on it.
Every stock market bubble of this magnitude in U.S. history has ended in a spectacular crash, and this one will not be any different. We can certainly have some good arguments about the exact timing of the next crash, but what everyone should be able to agree on is that a crash is coming.
You only make money in the stock market if you get out at the right time. Many of those that timed things well have made a tremendous amount of money, but most investors will be entirely caught off guard by the market implosion that is rapidly approaching.
As I have explained to my readers repeatedly, markets tend to go down a whole lot faster than they go up, and in the not too distant future we are going to see trillions of dollars of investor wealth wiped out very, very quickly.
Let’s hope that the coming crisis will not be as bad as 2008, but I have a feeling that it is going to be much worse.
We didn’t learn our lessons the last time around, and so now we are going to pay a very high price for our stubbornness.
A stock market crash is coming, and the Democrats and the mainstream media are going to blame Donald Trump for it even though it won’t be his fault. The truth is that we were headed for a major financial crisis no matter who won the election. The Dow Jones Industrial Average is up a staggering 230 percent since the lows of 2009, and no stock market rally in our history has ever reached the 10 year mark without at least a 20 percent downturn. At this point stocks are about as overvalued as they have ever been, and every other time we have seen a bubble of this magnitude a historic stock market crash has always followed. Those that are hoping that this time will somehow be different are simply being delusional.
Since November 7th, the Dow is up by about 3,000 points. That is an extremely impressive rally, and President Trump has been taking a great deal of credit for it.
But perhaps he should not have been so eager to take credit, because what goes up must come down. The following is an excerpt from a recent Vanity Fair article…
According to Douglas Ramsay, chief investment officer of the Leuthold Group, Trump administration officials will come to regret gloating about the market’s performance. That’s because Trump enters the White House during one of the most richly valued stock markets in U.S. history. The last president to come in at such valuations was George W. Bush, and the dot-com bubble burst soon afterward. Bill Clinton began his second term in a more overvalued stock market in 1997, and exited unscathed. But if his timing were different by just a year, he would have been blamed for the early-aughts market crash.
This stock market bubble was not primarily created by Barack Obama, Donald Trump or any other politician. Rather, the Federal Reserve was primarily responsible for creating it by pushing interest rates all the way to the floor during the Obama era and by flooding the financial system with hot money during several stages of quantitative easing.
But now the economy is slowing down. Economic growth on an annual basis was just 0.7 percent during the first quarter, and yet the Federal Reserve is talking about raising interest rates anyway.
The Federal Reserve also raised interest rates in a slowing economy in the late 1930s, and that had the effect of significantly extending the economic problems during that decade.
As I noted in my article entitled “The Federal Reserve Must Go”, there have been 18 recessions or depressions since the Federal Reserve was created in 1913, and now we stand on the precipice of another one.
After this next crisis, hopefully Congress will finally understand that it is time to shut the Federal Reserve down for good, and I am going to do all that I can to make that happen.
Ron Paul is someone that I look up to greatly, and he also agrees that the blame for the coming crisis should be placed on the Federal Reserve instead of on Trump…
“There are some dire predictions that say in the next year, or 18 months, we have something arriving worse than 2008 and 2009, the downturn is much worse,” Paul said in a recent interview with liberty-minded anti-globalist radio host Alex Jones. “They’ll say, ah, it’s all Trump’s fault. No. It wasn’t. 08 and 09 wasn’t Obama’s fault. It was the fault of the Federal Reserve, it was the fault of the Keynesian economic model, the spending too much, the deficit. So, unfortunately, there’s nothing he can do — Trump can’t do it.”
Paul, a medical doctor who took a keen interest in economics throughout his celebrated career as a constitutionalist in Congress, said Trump could “help” the situation by pursuing good policies. “But you can’t avoid the correction, the correction is locked in place, because the deficits are there, the malinvestment, everybody agrees interest rates have been too low too long,” he said in the late January interview. “The only thing he can do is allow the recession to come, get it over with, liquidate the debt. Politically, nobody wants that, so you’re going to see runaway inflation before you see this country wake up.”
Over the past decade, the U.S. economy has grown at an average rate of just 1.33 percent, and there is no possible way to put a positive spin on that.
And now the economy appears to be entering a fresh slowdown. A couple of months ago, banking giant UBS warned about “a sudden slowdown in new credit”…
There’s been a sudden slowdown in new credit extended to businesses over the last year, one that strategists at UBS are calling “drastic” and “highly uncommon outside of economic downturns.”
And since that time, lending has tightened up even more. The following comes from Zero Hedge…
According to the latest Fed data , the all-important C&I loan growth contraction has not only continued, but over the past two months, another 50% has been chopped off, and what in early March was a 4.0% annual growth is now barely positive, down to just 2.0%, and set to turn negative in just a few weeks. This was the lowest growth rate since May 2011, right around the time the Fed was about to launch QE2.
At the same time, total loan growth has likewise continued to decline, and as of the second week of May was down to 3.8%, the weakest overall loan creation in three years.
This is exactly what we would expect to see if we were entering a new recession. Neil Howe, one of the authors of The Fourth Turning, recently warned that “winter is coming” and I have to admit that I agree with him.
So when the stock market finally crashes, how bad could it be?
Well, one analyst that spoke to CNBC said that other historic market crashes have averaged “about 42 percent”…
“If you look at the market historically, we have had, on average, a crash about every eight to 10 years, and essentially the average loss is about 42 percent,” said Kendrick Wakeman, CEO of financial technology and investment analytics firm FinMason.
And as I have explained many times in the past, stocks would have to fall about 40 to 50 percent from current levels just for the stock market to get back to “normal” again. The valuations that we are seeing today are absolutely insane, and there is no possible way that they are sustainable.
When the crash happens, many people will be pointing their fingers at Trump, but it won’t be his fault.
Instead, it will be the Federal Reserve that will be at fault, and hopefully this coming crisis will convince the American people that it is time to end this insidious debt-based central bank for good.
The wolves are circling, and members of Congress from both political parties are now openly talking about impeaching President Trump. On Wednesday, speculation of a looming Trump impeachment sent stocks plunging. The Dow was down 372 points, and the S&P 500 and the Nasdaq both experienced their largest declines in eight months. This downturn was sparked by a New York Times report that said that a memo that FBI Director James Comey wrote in February stated that Trump requested that Comey “end the investigation into former national security adviser Michael Flynn”. Democrats and Republicans are both jumping on this memo as potential evidence of “obstruction of justice”, but as I will explain below, even if everything that Comey is saying is true there is no evidence of obstruction of justice in this case. However, perception is often more important than reality, and at this moment Wall Street and many of Trump’s fellow Republicans in Washington believe that the Trump administration is coming apart at the seams. After the events of this week, it is clearer than ever that it is imperative that we get Trump some friends in Congress in 2018.
Following Trump’s surprise election victory in November, stocks surged as investors anticipated the implementation of a robust pro-business agenda.
But now that the Trump administration is deeply embroiled in controversy, many fear that Trump’s pro-business agenda will never become a reality…
“A week ago, we were talking about the agenda grinding to a halt,” the Republican said. “Now, the train is going down the hill backwards.”
And even before Wednesday’s revelation about Comey’s memo, some top Republican leaders were already disavowing Trump’s agenda. For example, just check out what Bloomberg is reporting about Senate Majority Leader Mitch McConnell…
Earlier Tuesday, Senate Majority Leader Mitch McConnell said he’s prepared to block Trump on many of his proposed budget cuts and won’t support major tax cuts that add to the deficit. Nor would he commit to building Trump’s border wall.
The financial markets had already “priced in” big tax cuts, reduced regulations and a massive increase in infrastructure spending.
If the markets believe that none of those things are going to happen now, that is likely to result in a significant downturn for stocks.
Of course the Democrats are just thrilled by these latest developments. U.S. Representative Jim Himes told MSNBC that the Republican agenda is now “lying in ruins on the floor of this building”…
Speaking earlier on Wednesday, Rep. Jim Himes (D-Conn.), a member of the House intelligence committee, said the Republican legislative agenda “is lying in ruins on the floor of this building.”
“It was tenuous when they got through their so-called health care bill in the House. You can still see blood on the floor here for what it cost them to get that through the House,” Himes told MSNBC’s “Morning Joe” in an interview from the U.S. Capitol.
“Now, you know, things like tax reform , which is, you know, very, very difficult in the best of times — with that cloud, with this cloud, hanging over this building, that legislative agenda is all but gone.”
Previously, I have warned about the “gangster culture” in Washington D.C., and the truth is that the “Deep State” has been out to get Trump since the moment he was elected.
There are thousands upon thousands of laws that apply to the presidency, and the jackals among the establishment have been waiting for Trump to trip up just a little bit so that they can try to take him down for good.
And things are starting to move very quickly now.
Within hours of the revelation about the Comey memo, Democratic Representative Al Green called for Trump to be impeached from the House floor: “This is about what I believe. And this is where I stand. I will not be moved. The president must be impeached.”
It isn’t much of a surprise to see this sort of rush to judgment from the Democrats, but the speed at which Republicans are turning on Trump is more than just a little bit alarming…
-Senator John McCain raised the specter of impeachment when he told the press that the crisis surrounding Trump has reached “Watergate size and scale”.
-McCain’s partner in crime, Senator Lindsey Graham, released a statement that said he “will follow the facts — wherever they may lead”. Graham has always been one of Trump’s biggest critics, and he clearly is ready to move forward with impeachment.
-According to the Hill, U.S. Rep. Justin Amash is saying that if Comey’s memo is true “it would merit impeachment”.
-Commenting on Trump’s troubles, U.S. Rep. Carlos Curbelo (R-Fla.) told reporters that obstruction of justice “has been considered an impeachable offense”.
But what none of them understand is that Trump has not committed any crime.
As a former lawyer with two law degrees (a JD and an LLM), it is my opinion that even if everything in Comey’s memo is true (and that is a big if), it still would not mean that President Trump is guilty of obstruction of justice.
And I am far from alone in this regard. Someone that agrees with me is ultra-liberal George Washington University law professor Jonathan Turley…
A good place to start would be with the federal law, specifically 18 U.S.C. 1503. The criminal code demands more than what Comey reportedly describes in his memo. There are dozens of different variations of obstruction charges ranging from threatening witnesses to influencing jurors. None would fit this case. That leaves the omnibus provision on attempts to interfere with the “due administration of justice.”
However, that still leaves the need to show that the effort was to influence “corruptly” when Trump could say that he did little but express concern for a longtime associate. The term “corruptly” is actually defined differently under the various obstruction provisions, but it often involves a showing that someone acted “with the intent to secure an unlawful benefit for oneself or another.” Encouraging leniency or advocating for an associate is improper but not necessarily seeking an unlawful benefit for him.
Then there is the question of corruptly influencing what? There is no indication of a grand jury proceeding at the time of the Valentine’s Day meeting between Trump and Comey. Obstruction cases generally are built around judicial proceedings — not Oval Office meetings.
You can’t charge someone with a crime just because you don’t like that person.
We are not supposed to be a nation that conducts witch hunts. The law is supposed to be applied equally to all of our citizens, and that includes the president of the United States.
I know that the left and the establishment Republicans that hate Trump would love to use the law as a weapon to remove Trump from office, but the truth is that there is no evidence that Trump has done anything wrong.
And if the law was actually applied objectively in our land, it is quite likely that Barack Obama, Bill Clinton and Hillary Clinton would all be in very hot water about now. The following comes from Mike Adams of Natural News…
Keep in mind that these same discredited media outlets gave Obama a pass when he laundered $1.7 billion in cash and delivered it to Iran on a military cargo plane.
They are the same fake news media that looked the other way when Bill Clinton met with Loretta Lynch on the tarmac in a private meeting to pressure Lynch to back off any potential criminal investigation of Hillary Clinton’s long list of crimes.
They are the same anti-American media that said nothing when Hillary Clinton cheated during the presidential debates by receiving the debate questions in advance from CNN. (She also pre-sold her anticipated presidency by collecting tens of millions of dollars in “donations” and “speaking fees” from foreign interests.)
They are the same media that stood silent when former President Obama weaponized the IRS to suppress the speech of conservative non-profits. Similarly, nobody in the media seems to be alarmed at all that Obama abused the state surveillance apparatus to spy on his political opponents such as Rand Paul.
For much more on the crimes of the Clintons in particular, I would commend a book by Edward Klein entitled “Guilty as Sin: Uncovering New Evidence of Corruption and How Hillary Clinton and the Democrats Derailed the FBI Investigation”. The fact that neither of the Clintons have ever been to prison says a lot about the state of criminal justice in America today.
It is literally going to take a miracle for Trump to survive the next couple of years. If he can do that, we can definitely greatly strengthen his hand by sending hordes of Trump supporters to D.C. during the mid-term elections in 2018.
If the impeachment process moves forward, there are a whole lot of Republicans that would gleefully plunge knives into Trump’s back. So Trump needs to be very careful, because he doesn’t have a lot of true friends in Congress at this point.
This is why we can no longer vote for someone just because they carry the label of “Republican”. What we really need is a conservative revolution in this country, and my hope is that we can start a movement that will turn Washington D.C. completely upside down.
Have you ever wondered how tech companies that have been losing hundreds of millions of dollars year after year can somehow be worth billions of dollars according to the stock market? Because I run a website called “The Economic Collapse“, there are naysayers out there that take glee in mocking me by pointing out how well the stock market has been doing. This week, the Dow is flirting with 21,000 and the Nasdaq crossed the 6,000 threshold for the first time ever. But a lot of the “soaring stocks” that have been fueling this rally have been losing giant mountains of money every single year, and just like the first tech bubble this madness will eventually come to an end in a spectacular fiery crash in which investors will lose trillions of dollars.
Anyone that cannot see that we are in the midst of an absolutely insane stock market bubble simply does not understand economics. Every valuation indicator that you can possibly point to says that we are in a bubble of epic proportions, and history teaches us that all bubbles inevitably come to an end at some point.
Earlier today, I came across an article by Graham Summers in which he persuasively argued that the price to sales ratio indicates that stock prices are far more inflated than they were just prior to the great stock market crash of 2008…
Sales cannot be gimmicked. Either money comes in the door, or it doesn’t. And if a company is caught messing around with its sales numbers, someone is going to jail.
For this reason, Price to Sales is perhaps the single most objective and clear means of measuring stock valuations.
This metric, above all others, you can point to and say, “this is definitively accurate and has not been messed with.”
On that note, as Bill King recently noted, today the S&P 500 is sporting a P/S ratio that is massively higher than it was in 2007 and is only marginally lower than it was during the Tech Bubble (the single largest stock bubble of all time for most measures).
To me, looking at profitability is even more important than looking at sales.
Large tech companies such as Twitter certainly have lots of revenue coming in, but many of them are deeply unprofitable.
In fact, Twitter has never made a yearly profit, and over the past decade it has actually lost more than 2 billion dollars.
But despite all of that, investors absolutely love Twitter stock. As I write this article, Twitter has a market cap of 11.5 billion dollars.
How in the world is that possible?
How can a company that has never made a single penny be worth more than 11 billion dollars?
Twitter is never going to be more popular than it is now. If it can’t make a profit at the peak of its popularity, when will it ever happen?
And guess what? ABC News says that Twitter actually just reported a decline in revenue for the most recent quarter…
Twitter has never turned a profit, and for the first time since going public in 2013, it reported a decline in revenue from the previous year. Its revenue was $548.3 million, down 8 percent.
Net loss was $61.6 million, or 9 cents per share, compared with a loss of $79.7 million, or 12 cents per share, a year earlier.
The only reason why financial black holes such as Twitter can continue to exist is because investors have been willing to pour endless amounts of money into them, but now that bubble is starting to burst.
In his most recent article, Simon Black discussed how Silicon Valley investors are starting to become more cautious because so many of these “unicorns” are now going bust. One of the examples that he cited in his article was a company called Clinkle…
(Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.)
The company went on to burn through just about every penny of its investors’ capital.
There were even photos that surfaced of the 21-year old CEO literally setting bricks of cash on fire.
At the end of the farce, Clinkle never actually managed to build its supposedly ‘world-changing’ product, and the website is now all but defunct.
Most of you may have never even heard of Clinkle, but I bet that you have definitely heard of Netflix.
Netflix has revolutionized how movies are delivered to our homes, and that revolution helped drive movie rental stores to the brink of extinction.
There is just one huge problem. It turns out that Netflix is losing hundreds of millions of dollars…
Netflix might be my favorite example.
The company’s most recent earnings report for the period ending March 31, 2017 shows, yet again, negative Free Cash Flow of MINUS $422 million.
Not only is that a record loss, it’s 62% worse than in Q1/2016, and over twice as bad as Q1/2015.
Netflix just keeps losing more and more money.
But even though Netflix is losing money at a pace that is exceedingly difficult to imagine, investors absolutely love the company.
I just checked, and at this moment Netflix has a market cap of 68.4 billion dollars.
Sometimes I just want to scream because of the absurdity of it all.
Companies that are losing hundreds of millions of dollars a year at the peak of their popularity should not be worth billions of dollars.
Nobody can possibly argue that these enormously inflated stock prices are sustainable. Just like with every other stock market bubble in our history, this one is going to burst too, and I have been warning about this for quite a long time.
But for the moment, the naysayers are having their time to shine. Despite the fact that U.S. consumers are 12 trillion dollars in debt, and despite the fact that corporate debt has doubled since the last financial crisis, and despite the fact that the federal government is 20 trillion dollars in debt, they seem to be convinced that this irrational stock market bubble can keep inflating indefinitely.
Perhaps they can all put their money where their mouth is by pouring all of their savings into Twitter, Netflix and other tech company stocks.
In the end, we will see who was right and who was wrong.
The post-election stock market rally is officially over. After hovering near record highs for the past couple of weeks, U.S. stocks had their worst day in six months on Tuesday. For quite some time it has been clear that the momentum of the post-election rally had been exhausted, and a pullback of this nature was widely anticipated. But even though stocks fell by more than 1 percent during a single trading session for the first time since last September, it is going to take a whole lot more than that to bring stock prices back into balance. In fact, stocks are so overvalued at this point that it would take a total decline of about 40 to 50 percent before key stock valuation measures return to their long-term averages.
So we are still in a giant stock market bubble. All Tuesday did was shave about one percent off of that bubble.
Let’s review some of the numbers from the carnage that we witnessed…
-The Dow was down 237.85 points (1.14 percent)
-The S&P 500 was down 1.2 percent on the day
-The Nasdaq was down 1.8 percent at the closing bell
-Financial stocks were down more than 2.5 percent
-Overall, it was the worst day for banking stocks since the Brexit vote
-Bank of America is now down more than 10 percent since Trump’s speech to Congress
-The Russell 2000 (small-cap stocks) dropped about 2 percent
Some prominent names on Wall Street were warning ahead of time that this was coming. Marko Kolanovic was one of those voices…
Marko Kolanovic has done it again.
Last Thursday, one day ahead of the massive quad-witching where over $1.4 trillion in options expired in relatively tame fashion, the JPM quant warned of “near-term market weakness” and suggested “reducing US equity exposure. And, sure enough, JP Merlin’s Gandalf timed it impeccably yet again. To be sure, the jury is still out on what caused the selloff – lack of votes to repeal Obamacare, fears about Trump’s fiscal policy agenda, the market’s sudden realization that it is at 30 CAPE, or just a technical revulsion – what matters is that once again, like clockwork, Kolanovic called a key inflection point just days in advance.
Of course the mainstream media is telling everyone not to worry. They are insisting that this is just a temporary blip and that a market “correction” is highly unlikely. The following comes from CNN…
Few experts are predicting a correction — which is a 10% pullback from a market high. Even fewer see a bear market, a 20% drop or more, on the horizon.
Hopefully CNN is correct.
But it should be noted that experts such as Kolanovic are warning that more panic selling may be coming in the days ahead…
Furthermore, the modest but rising uptick in realized volatility is starting to cause outflows from volatility-sensitive investors the JPM quant calculated and, as a result, the break in short-term momentum may cause modest equity selling by trend following strategies.
In other words, in the absence of a positive catalyst over the next few days – and with uncertainty ahead of the Thursday Trumpcare vote only growing by the hour we fail to see one emerging – the double whammy of gamma positioning and the CTA momentum “flip” will be the catalyst for the next, extremely overdue, move lower.
It is going to take quite a few more days like today before we can talk about the kind of “financial crisis” that I have been warning about for a long time, but we may have already reached a key turning point.
So much of the post-election stock market rally was based purely on hope, and meanwhile the underlying economic numbers have continued to deteriorate. Corporate earnings are down, it is being projected that U.S. GDP growth will be about one percent during the first quarter, and used vehicle prices are dropping for the first time since the last recession…
In its March report, the National Association of Auto Dealers (NADA) reported an anomaly: dropping used vehicle prices in February, which occurred only for the second time in the past 20 years. It was a big one: Its Used Car Guide’s seasonally adjusted used vehicle price index plunged 3.8% from January, “by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble.”
The index has now dropped eight months in a row and hit the lowest level since September 2010. The index is down 8% year over year, and down 13% from its peak in 2014.
When the Federal Reserve raised rates, that was very bad news for stocks, and if Donald Trump cannot get his Obamacare replacement through Congress that will be more bad news for stocks.
But even if there was no bad news, it is inevitable that stock prices would decline at some point anyway.
It is simply not rational to have price-earnings ratios up around 30. The only other times when price-earnings ratios have become so bloated were right before the stock market crash of 1929, right before the stock market crash of 2000 and right before the stock market crash of 2008.
Whenever it ultimately happens, the truth is that stocks always eventually return to their historical averages. And if a “black swan event” or two are thrown in, that could push stocks well below their historical averages.
Never before has there been this much debt in the world, and not even in 2008 were global financial markets so primed for a crash.
Many people get caught up in trying to predict what month or what day the markets will crash, and if you could predict that accurately you could make a lot of money.
But that is not the point.
What everyone should be able to agree on is that this temporary stock market bubble that has been fueled by reckless intervention from the Federal Reserve is not sustainable and that it is inevitable that stock prices will be a lot lower in the future than they are right now.
We should be thankful that this bubble has lasted much longer than it should have, because what is going to come after this bubble bursts is going to be absolutely horrible.
Markets tend to go down a lot faster than they go up, and when the coming crash finally occurs it is going to make 2008 look like a Sunday picnic.
So whatever you need to do financially, you should think about doing it soon, because the alarm bells on Wall Street are starting to ring.
Current stock market valuations are not sustainable. If there is one thing that I want you to remember from this article, it is that cold, hard fact. In 1929, 2000 and 2008, stock prices soared to absolutely absurd levels just before horrible stock market crashes. What goes up must eventually come down, and the stock market bubble of today will be no exception. In fact, virtually everyone in the financial community acknowledges that stock prices are irrationally high right now. Some are suggesting that there is still time to jump in and make money before the crash comes, while others are recommending a much more cautious approach. But what almost everyone agrees on is the fact that stocks cannot go up like this forever.
On Tuesday, the Dow, the S&P 500 and the Nasdaq all set brand new record highs once again. Overall, U.S. stocks are now up more than 10 percent since the election, and this is probably the greatest post-election stock market rally in our entire history.
But stocks were already tremendously overvalued before the election, and at this point stock prices have reached a level of ridiculousness only matched a couple of times before in the past 100 years.
Only the most extreme optimists will try to tell you that stock prices can stay this disconnected from economic reality indefinitely. We are in the midst of one of the most outrageous stock market bubbles of all time, and as MarketWatch has noted, all stock market bubbles eventually burst…
The U.S. stock market at this level reflects a combination of great demand, great complacency, and great greed. Stocks are clearly in a bubble, and like all bubbles, this one is about to burst.
If corporations were making tremendous amounts of money, rapidly rising stock prices would make logical sense.
But that is not the case at all. Corporate earnings for the fourth quarter of 2016 were actually quite dismal, and this disconnect between Wall Street and economic reality is starting to really bug financial analysts such as Brian Sozzi…
The S&P 500 has gone 89 straight sessions without a 1% decline. Considering that Corporate America didn’t exactly light up on the top and bottom lines during the fourth quarter, such a streak is rather troublesome. Granted, the stock market is a forward-looking mechanism that appears to be trading on hopes that Trump’s unannounced stimulus and tax plans will be lifting economic growth in 2018. Even so, the inability of investors to at least acknowledge persistent struggles among companies and ongoing chaos in Washington is starting to become disturbing.
It is a basic fact of economics that stock prices should accurately reflect current and future earnings.
So if corporate earnings are at the same level they were at in 2011, why has the S&P 500 risen by 87 percent since then? The following comes from Wolf Richter…
The S&P 500 stock index edged up to an all-time high of 2,351 on Friday. Total market capitalization of the companies in the index exceeds $20 trillion. That’s 106% of US GDP, for just 500 companies! At the end of 2011, the S&P 500 index was at 1,257. Over the five-plus years since then, it has ballooned by 87%!
These are superlative numbers, and you’d expect superlative earnings performance from these companies. Turns out, reality is not that cooperative. Instead, net income of the S&P 500 companies is now back where it first had been at the end of 2011.
The cyclically adjusted price-to-earnings ratio was originally created by author Robert Shiller, and it is widely regarded as one of the best measures of the true value of stocks in existence. According to the Guardian, there have only been two times in our entire history when this ratio has been higher. One was just before the stock market crash of 1929, and the other was just before the bursting of the dotcom bubble…
Traditionally, one of the best yardsticks for whether shares are over-valued or under-valued has been the cyclically adjusted price earnings ratio constructed by the economist Robert Shiller. This ratio is currently at about 29 and has only twice been higher: in 1929 ahead of the Wall Street Crash, and in the last frantic months of the dotcom bubble of the late 1990s.
We can definitely wish for the current euphoria on Wall Street to last for as long as possible, but let there be absolutely no doubt that it is going to end at some point.
It would take a market decline of 40 or 50 percent to get the cyclically adjusted price-to-earnings ratio back to a level that makes economic sense. Let us hope that the market does not make such a violent move very rapidly, because that would likely be absolutely crippling for our financial system.
Markets tend to go down a lot faster than they go up, and every other major stock market bubble in U.S. history has ended very badly.
And this bubble is definitely overdue to burst. The bull market that led up to the great crash of 1929 lasted for 2002 days, and this week the current bull market will finally exceed that record.
Trying to pick a specific date for a market crash is typically a fruitless exercise, but market watchers are becoming very concerned about some of the signs that we are now seeing. For example, the “CCT indicator” is currently showing “the lowest bullish energy ever”…
The first factor is the CCT indicator. This indicator is a proprietary internal measurement of the general volume of the New York Stock Exchange. The measurements take into account the institutional participation as a ratio of the overall volume. Also measured is the duration of heavy block buying in rallies.
The sum total of all the measurements now shows the lowest bullish energy ever — even lower than in 2008, just before the market crash.
In other words, this current bull market appears to be completely and utterly exhausted.
The laws of economics cannot be defied forever. Traditionally, commodity prices and stock prices have tended to move in unison. And this makes perfect sense, because commodity prices tend to rise when economic conditions are good, and in such an environment stock prices are typically going to move up.
But now we are in a time when commodity prices and stock prices have become completely disconnected. In order to bring this ratio back into line, the S&P 500 would need to fall by about 1000 points, and such a decline would cause a level of financial chaos that would be absolutely unprecedented.
This current stock market bubble has lasted much longer than many of the experts originally anticipated, but that just means that the eventual crash will likely be that much more devastating.
In the end, you don’t need to know all of the technical details in this article.
But what you do need to know is that current stock market valuations are not sustainable and that a great crash is coming.
It may not happen next week or next month, but it is going to happen. And when it does happen, it is likely to make what happened in 2008 look like a Sunday picnic.
The Dow Jones Industrial Average provides us with some pretty strong evidence that our “stock market boom” has been fueled by debt. On Wednesday, the Dow crossed the 20,000 mark for the first time ever, and this comes at a time when the U.S. national debt is right on the verge of hitting 20 trillion dollars. Is this just a coincidence? As you will see, there has been a very close correlation between the national debt and the Dow Jones Industrial Average for a very long time.
For example, when Ronald Reagan took office in 1991, the U.S. national debt had just hit 994 billion dollars and the Dow was sitting at 951. And as you can see from this chart by Matterhorn.gold via David Stockman, roughly that same ratio has held true throughout subsequent presidential administrations…
During the Clinton years the Dow raced out ahead of the national debt, but an “adjustment” during the Bush years brought things back into line.
The cold hard truth is that we have been living way above our means for decades. Our “prosperity” has been fueled by the greatest debt binge in the history of the world, and we are greatly fooling ourselves if we think otherwise.
We would never have gotten to 20,000 on the Dow if Barack Obama and Congress had not gotten us into an extra 9.3 trillion dollars of debt over the past eight years.
Unfortunately, most people do not understand this, and the mainstream media is treating “Dow 20,000” as if it is some sort of great historical achievement…
The average began tracking the most powerful corporate stocks in 1896, and has served as a broad measure of the market’s health through 22 presidents, 22 recessions, a Great Depression, at least two crashes and innumerable rallies, corrections, bull and bear markets. The blue chip reading finally cracked the 20,000 benchmark for the first time early Wednesday.
During the current bull market, the second longest in history, the Dow has more than tripled since March 2009.
Since Donald Trump’s surprise election victory, the Dow has now climbed by approximately 2150 points.
And it took just 64 calendar days for the Dow to go from 19,000 to 20,000. That is an astounding pace, and financial markets around the rest of the planet are doing very well right now too. In fact, global stocks rose to a 19 month high on Wednesday.
So where do we go from here?
Well, if Donald Trump wants to see Dow 30,000 during his presidency, then history tells us that he needs to take us to 30 trillion dollars in debt.
Of course that would be absolute insanity even if it was somehow possible. Each additional dollar of debt destroys the future of our country just a little bit more, and at some point this colossal bubble is going to burst.
But you can’t tell most of the “financial experts” these things. Most of them simply believe that the “market always goes higher over time”…
The “market always goes higher over time,” Todd Morgan, chairman of Bel Air Investment Advisors. “The lesson here is that through wars, recessions, elections, impeachments, financial crises, and on and on, investing for the long term in high-quality stocks is the key to building wealth. … We are telling our clients that you can’t time the market. Think long term. Stay the course. We expect the market to see Dow 30,000 in my lifetime, and for my grandchildren to see Dow 50,000 in their lifetime.”
My hope is that the market will continue to go up. But nobody can deny that valuations are already at absurdly high levels, and the only way that this party can keep going is to continue to fuel it with more and more debt.
But for the moment, there is a tremendous amount of optimism out there, and most experts expect the Dow to continue to set new highs. In fact, CNBC says that whenever the Dow crosses a new threshold like this it usually means good things for investors…
CNBC looked at market data from the past 30 years and zeroed in on the times when the Dow has crossed levels like 2,000, 3,000, 4,000 … all the way up to the 19,000 level it hit in November. At those times, investors can typically expect traders to push it up even higher, according to data from Kensho. Not only does the Dow go up, but it outperforms the S&P 500 index along the way.
But as USA Today has explained, not all Americans are benefiting from this stock market rally…
The breakthrough came just four trading days into Trump’s presidency, a whirlwind in which the billionaire has reaffirmed his commitment to strengthen the U.S. economy and create more jobs and higher wages for workers. Still, nearly half of Americans have not benefited from the so-called “Trump Rally,” which has generated more than $2.2 trillion in paper gains for the Wilshire 5000 Total Stock Index since Election Day. The reason: only 52% of Americans polled by Gallup last April said they “have money invested in stocks” — the lowest stock ownership rate in the 19 years Gallup has tracked the data and down sharply from 65% in 2007 before the financial crisis.
Hopefully the good times will continue to roll for as long as possible.
But there is no possible way that they can keep going indefinitely.
For decades, our debt has been growing much faster than our GDP has. By definition, this is an unsustainable situation. At some point we will have accumulated so much debt that our financial system will no longer be able to hold up under the strain.
Many were convinced that we would reach that point before the U.S. national debt hit 20 trillion dollars, and yet here we are.
So how much higher can we go before the bubble bursts?
That is a very good question, and I don’t know if anyone has the right answer.
But for President Trump, this is going to present him with quite a dilemma.
Either he can keep the debt party going for as long as possible, or he can try to get us to take some tough financial medicine right now.
If an attempt is made to deal with our debt problems now, we will experience severe economic pain almost immediately.
But if the can keeps being kicked down the road, our long-term prognosis is just going to keep getting worse and worse.
And if we try to delay the inevitable indefinitely, at some point the laws of economics are going to make our hard choices for us.
So let us celebrate “Dow 20,000”, but let us also understand that it is far more likely that we will see “Dow 10,000” again before we ever see “Dow 30,000”.
Will the financial bubble that has been rapidly growing ever since Donald Trump won the election suddenly be popped once he takes office? Could it be possible that we are being set up for a horrible financial crash that he will ultimately be blamed for? Yesterday, I shared my thoughts on the incredible euphoria that we have seen since Donald Trump’s surprise victory on November 8th. The U.S. dollar has been surging, companies are announcing that they are bringing jobs back to the U.S., and we are witnessing perhaps the greatest post-election stock market rally in Wall Street history. In fact, the Dow, the Nasdaq and the S&P 500 all set new all-time record highs again on Thursday. What we are seeing is absolutely unprecedented, and many believe that the good times will continue to roll as we head into 2017.
What has been most surprising to me is how well the stocks of the big Wall Street banks have been doing. It is no secret that those banks poured a tremendous amount of money into Hillary Clinton’s campaign, and Donald Trump had some tough things to say about them leading up to election day.
So you wouldn’t think that it would be particularly good news for those banks that Trump won the election. However, we seem to be living in “Bizarro World” at the moment, and in so many ways things are happening exactly the opposite of what we would expect. Since Trump’s victory, all of the big banking stocks have been skyrocketing…
Financial stocks in particular have been on fire. Citigroup (C) and JPMorgan Chase (JPM) are up about 20% since Donald Trump defeated Hillary Clinton — and that makes them laggards!
Morgan Stanley (MS) has gained more than 25%. So has troubled Wells Fargo (WFC), despite the lingering fallout from its fake account scandal. Bank of America (BAC) is up more than 30%.
And so is Goldman Sachs (GS) — the former employer of both Treasury Secretary nominee Steven Mnuchin and Trump chief strategist Steve Bannon.
But are these stock prices justified by the fundamentals?
Of course not, but during times of euphoria the fundamentals never seem to matter much. Stocks were incredibly overvalued before the election, and now they are ridiculously overvalued.
Earlier today, a CNBC article pointed out that the cyclically-adjusted price to earnings ratio has only been higher than it is today at three points in our history…
“The cyclically adjusted P/E (CAPE), a valuation measure created by economist Robert Shiller now stands over 27 and has been exceeded only in the 1929 mania, the 2000 tech mania and the 2007 housing and stock bubble,” Alan Newman wrote in his Stock Market Crosscurrents letter at the end of November.
Newman said even if the market’s earnings increase by 10 percent under Trump’s policies “we’re still dealing with the same picture, overvaluation on a very grand scale.”
And of course a historic stock market crash immediately followed each of those three bubbles.
So are we being set up for a huge crash in early 2017?
There are some out there that believe that this is purposely being orchestrated. For example, Mike Adams of Natural News believes that the markets “will be deliberately and destructively imploded under President Trump”…
Right now, the U.S. stock market is surging, with the Dow leaping toward 20,000, a number rooted in fiscal insanity and delusional expectations. There are no fundamentals that support a 20,000 Dow, but fundamentals have long since ceased to matter in a financial world hyperventilating on debt fumes while hallucinating about utopian economic models that will soon prove to generate fools instead of real wealth.
Today I’m going on the record with a prediction that I’ll offer with near absolute certainty: The rigged markets that now seem to defy gravity will be deliberately and destructively imploded under President Trump for all the obvious reasons. There will be financial chaos like we’ve never seen before: Investors leaping off tall buildings, banks declaring extended “holidays” that freeze transactions, and California pensioners slitting their wrists after they discover their promised pension funds were just vaporized by incompetent bureaucrats.
On the other hand, there are others that believe that Trump is just walking into a very bad situation and that a crash would be inevitable no matter who was president.
History tells us that there is no possible way that stock prices can stay at this irrational level indefinitely. But for now a wave of optimism is sweeping the nation, and many of those that are caught up in it will get seriously angry with you if you try to inject a dose of reality into the conversation.
But like I said yesterday, let’s hope that the optimists are correct. A survey that was just taken of 600 business executives found that 62 percent of them were optimistic about the U.S. economy over the next 12 months.
Incredibly, that number was sitting at just 38 percent the previous quarter.
For the moment, business leaders seem to be quite thrilled that we have a business executive in the White House.
Hopefully Donald Trump’s business experience will translate well to his new position. And it is certainly my hope that he is as successful as possible.
But even during the campaign Trump talked about how stocks were in a giant bubble, and the euphoria that we have seen since his election victory has just made that bubble even larger.
Throughout U.S. history, every giant financial bubble has always ended very badly, and this time around will not be any exception.
Trump may get the blame for it when it bursts, but the truth is that the conditions for the coming crisis have been building for a very, very long time.