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Why Is Goldman Sachs Warning That The Stock Market Could Decline By 10 Percent Or More?

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Time Is Running OutWhy has Goldman Sachs chosen this moment to publicly declare that stocks are overpriced?  Why has Goldman Sachs suddenly decided to warn all of us that the stock market could decline by 10 percent or more in the coming months?  Goldman Sachs has to know that when they release a report like this that it will move the market.  And that is precisely what happened on Monday.  U.S. stocks dropped precipitously.  So is Goldman Sachs just honestly trying to warn their clients that stocks may have become overvalued at this point, or is another agenda at work here?  To be fair, the truth is that all of the big banks should be warning their clients about the stock market bubble.  Personally, I have stated that the stock market has officially entered “crazytown territory“.  So it would be hard to blame Goldman Sachs for trying to tell the truth.  But Goldman Sachs also had to know that a warning that the stock market could potentially fall by more than 10 percent would rattle nerves on Wall Street.

This report that has just been released by Goldman Sachs has gotten a lot of attention.  In fact, an article about this report was featured at the top of the CNBC website for quite a while on Monday.  Needless to say, news of this report spread on Wall Street like wildfire.  The following is a short excerpt from the CNBC article

A stock market correction is approaching the level of near certainty as Wall Street faces a major paradigm shift in how to achieve price gains, according to a Goldman Sachs analysis.

In a market outlook that garnered significant attention from traders Monday, the firm’s strategists called the S&P 500 valuation “lofty by almost any measure” and attached a 67 percent probability to the chance that the market would fall by 10 percent or more, which is the technical yardstick for a correction.

Of course Goldman Sachs is quite correct to be warning about an imminent stock market correction.  Right now stocks are overvalued according to just about any measure that you could imagine

The current valuation of the S&P 500 is lofty by almost any measure, both for the aggregate market as well as the median stock: (1) The P/E ratio; (2) the current P/E expansion cycle; (3) EV/Sales; (4) EV/EBITDA; (5) Free Cash Flow yield; (6) Price/Book as well as the ROE and P/B relationship; and compared with the levels of (6) inflation; (7) nominal 10-year Treasury yields; and (8) real interest rates. Furthermore, the cyclically-adjusted P/E ratio suggests the S&P 500 is currently 30% overvalued in terms of (9) Operating EPS and (10) about 45% overvalued using As Reported earnings.

There is a lot of technical jargon in the paragraph above, but essentially what it is saying is that stock prices are unusually high right now according to a whole host of key indicators.

And in case you were wondering, stocks did fall dramatically on Monday.  The Dow fell by 179 points, which was the biggest decline of the year by far.

So is Goldman Sachs correct about what could be coming?

Well, the truth is that there are many other analysts that are far more pessimistic than Goldman Sachs is.  For example, David Stockman, the Director of the Office of Management and Budget under President Reagan, believes that the U.S. stock market is heading for “a pretty rude day of awakening”

“This (2014) is the year of the end game. The party is over. We are now just at the point where they are rounding up the Wall Street drunks who are swilling on the fifth consecutive seasonally maladjusted phony recovery. That will become evident in the weeks and months ahead. Then I think the markets are going to have a pretty rude day of awakening.”

For many more forecasts that are similar to this, please see my previous article entitled “Dent, Faber, Celente, Maloney, Rogers – What Do They Say Is Coming In 2014?

There are also some other signs that we are rapidly heading toward a major “turning point” in the financial world in 2014.  One of those signs is the continual decline of Comex gold inventories.  Someone out there (China?) is voraciously gobbling up physical gold.  The following is a short excerpt from a recent article by Steve St. Angelo

After a brief pause in the decline of Comex Gold inventories, it looks like it has continued once again as there were several big withdrawals over the past few days. Not only was there a large removal of gold from the Comex today, the Registered (Dealer) inventories are now at a new record low.

And of course the overall economy continues to get even weaker.  The Baltic Dry Index (a very important indicator of global economic activity) has fallen by more than 40 percent over the past couple of weeks

We noted Friday that the much-heralded Baltic Dry Index has seen the worst start to the year in over 30 years. Today it got worse. At 1,395, the the Baltic Dry index, which reflects the daily charter rate for vessels carrying cargoes such as iron ore, coal and grain, is now down 18% in the last 2 days alone (biggest drop in 6 years), back at 4-month lows. The shipping index has utterly collapsed over 40% in the last 2 weeks.

So does this mean that tough times are just around the corner?


Or perhaps things will stabilize again and this little bubble of false prosperity that we have been enjoying will be extended for a little while longer.

The important thing is to not get too caught up in the short-term numbers.

If you look at our long-term national “balance sheet numbers” and the long-term trends that are systematically destroying our economy, it becomes abundantly clear that a massive economic collapse is on the way.  Our national debt is on pace to more than double during the Obama years, our “too big to fail” banks are now much bigger and much more reckless than they were before the financial crash of 2008, and the middle class in America is steadily shrinking.  In other words, our long-term national “balance sheet numbers” are worse than ever.

We consume far more wealth than we produce, and our entire nation is drowning in a massive ocean of red ink that stretches from sea to shining sea.

This is not sustainable, and it is inevitable that the stock market will catch up with economic reality at some point.

It is just a matter of time.

  • wcmdeaf

    sell short or put options!!

  • MeMadMax

    GS is trying to “goose” the market for their own purposes… This is not the first time they have feigned an attack like this…

  • ben

    I am still convinced that an economic recovery is occurring. The unemployment rate is down to 6.7%. Obama has enriched my life. I have 3 Obama phones. Currently I am a liberal arts major at a community college.

    • MichaelfromTheEconomicCollapse

      Well said Ben.


      • Ben

        I appreciate the work you do. I was being very sarcastic. Our economic issues are very serious.

        • unemployed in Dallas

          Random question: If the government is lying about the economy, how can we be so sure Osama Bin Laden was killed and buried at sea?

          • wk

            @ unemployed in Dallas: I agree that story about murdering bin laden and burying him at sea seems fishy to me

          • Tim Pope

            Osama bin Laden, Sandy Hook, Extortion 17, Benghazi, etc. What observable evidence have you seen? The scientific method is not in effect.

    • Selaretus

      wow. Ben I don’t know what to say to you. The REAL unemployment rate is well over 11%. The Government drops discouraged or underemployed workers from the statistic, INCLUDING dropping out unemployed workers who have lost unemployment payment eligibility. I believe that Oboob is the WORST president…..ever. He’s dishonest, lies with every word and has gutted the Constitution and given us a police state.

      • Malcolm Reynolds

        I believe he is pulling our legs…

        • eddiestale

          I only have 1 leg

          • Malcolm Reynolds

            lol. Oh Nos.

      • Westcoastliberal

        The REAL unemployment rate is right around 25%; higher than the Great Depression.

      • James Rockford

        The worst?? I think that was Dush

    • Westcoastliberal

      Ben you forgot the /sarc

    • xander cross

      The “Obama Phone” program actually started in 1985 under the Reagan Administration. Initially it was a phone subsidy that gave a credit of $9.25 a month. Doesn’t seem like much but in those days our phone bills (before long distance calls) were roughly $19.95 a month. This was before the hundreds of phone companies and long distance carriers. It was more simple and cheaper at that time.

    • Mondobeyondo

      That’s actually pretty good sarcasm! 🙂

    • It’sComing

      Love your sarcasm, Ben

    • eddiestale

      on the funny farm where life is gay

    • It’sComing

      Obama is the best president we’ve ever had. He’s passionate about upholding our Constitutional rights, he’s very protective of late-term abortions, he’s brilliant in negotiating with terrorists, he cares deeply about the plight of our armed forces, and he has created the most successful and well-supported health care system EVER!

      • Conservative Canadian

        You forgot about his stellar economic leadership in approving Keystone XL without pandering to the Hollywood hovercraft driving crowd.

    • Annette Smith

      You are hysterically funny! Love it!

    • chilller

      LOL! Forgot the part about still living at home!
      Nice one Ben…

    • Conservative Canadian

      Don’t forget about the food stamps for your 5 kids.

    • JJ

      You forgot to add that you now have “affordable” healthcare too!

    • Gay Veteran

      good imitation of a troll

    • Buckeye42


  • Larry Edleson

    Last week Robert D. Hormats, Under Secretary for Economic, Energy and Agricultural Affairs speaking at the World Investment Forum in Xiamen, China said:

    “Foreign investment has accelerated at a breathtaking pace and shifts in the flow of this investment are now reshaping the global landscape. We have seen inward foreign direct investment stock [in the U.S.] roughly triple worldwide over the past decade.”

    Did you get that? We’re talking about trillions in capital, from all over the world, flowing into U.S. equity markets, driving up stock values.

    The Dow may pull back in the near terms, but it will rocket up to 31,000, and possibly beyond, by 2016 due to uncertainty and war in the rest of the world….and all the despite terrible employment in the USA, awful government and private debt levels, and stagflation everywhere. This is 1932 to 1937 all over again.

    • Tim

      Larry Edelson wrote this, but I doubt he actually posted this comment. This is an excerpt of the article he sent out this morning to Money and Markets subscribers.

      Is Edelson right? I don’t know. I started paying attention to Edelson after Martin Weiss praised him for calling the top in the price of gold in September 2011. Edelson then said we’d have a three-year bear market in gold (and other commodities), which we’ve seen. He believes that gold will bottom this month (January 2014) and then begin its next leg up taking it to at least $5,000 an ounce (and silver to at least $125). I suppose his guess is as good as anyone else’s.

      • mary

        this is martin armstrong’s thesis…

    • Oldphartbsa

      When the war breaks out, it won’t be in the rest of the world…it will be here; in our neighborhoods. American citizens will not be too popular with the ‘visiting’ troops, either.

  • GSOB

    Lets see…
    If a loss like that is predicted, that’s usually the tip of the iceberg.

    So, turn your assets into cash and stock up, get bug-out tickets out of town, and stand by to watch the Super Bowl XLVIII game.

  • K

    Why would Goldman warn people? Because they know most people will stop reading at 10%, decide that is not so bad and do nothing. Then when it drops at least 25%. They can say they warned everyone. The simple fact is the rich and powerful, rely on the 80% not being in touch with reality. How sad we live in a Country, where that keeps working.

    • Bernie

      I recently watched a documentary where they discussed several Citigroup reports that were sent to their wealthy clients roughly 10 years ago. The (non-wealthy) individual who made these memos available on his blog was threatened with a lawsuit by Citigroup. To summarize one of the points made in the memos, “The only thing keeping the bottom 90% from revolting was hope that they could also become a member of the top 10% of the wealth pie.” In reality, the top 10% know this in all likelihood will not happen.

      • Annette Smith

        I would love to read that blog!

        • Bernie

          Just do a Google search for the “Citigroup Plutonomy Memos” you’ll find it. Also do a you tube search for “Capitalism – A Love Story” by Michael Moore. They would not let me post links.

          • MrsBulldoggy .

            Thank you for posting.

  • Mondobeyondo

    The stock market is just another bubble that’s getting ready to pop.

  • Mike Smithy

    As a general rule, whatever Goldman Sachs say, they really mean the opposite.

  • Wally

    I think my agenda makes the most most sense. Could it not be that a collapse is on hold until they can bleed every last dime out of every small time investor? So the market is higher than ever and “experts” are saying invest…invest all along pushing Gold and Silver down and pushing them as “questionable” investments. Steal every last dime then poof. All gone. Sorry. No retirement income. No more 401 k. No more portfolio. YOU ARE BROKE! Is this not a possible agenda? I think it is. The likes of Buffet and Soros will of course get all of their money out just in the nick of time…Then the market collapses and the poor unsuspecting unknowing sheeple are now broke. Expect Buffet and Soros and the like to then swoop in and buy everything they can for pennies on the dollar.

    • Mike Smithy

      You are late to the party. Of course that is the agenda. The behind the scene messaging is directed at mom and pop to get a 2nd mortgage on the house or perhaps get a cash advance on the credit card and buy MOAR STAWKS with the proceeds. The international banksters need to line up as many bag holders as possible when they decide to implode this thing.

    • Gene Baugh BBA

      Buffet and Berkshire will suffer losses as they have in the past but they have 50 billion in cash waiting for bargain prices,

      • Mike Smithy

        I wouldn’t be surprised if Buffet hasn’t been purchasing Gold & Silver via the Asian markets since the price smack down over 8 months ago. He knows whats coming and I doubt that he has a lot tied up in a cash position.

  • Richard

    It is hard to trust whatever the Squid puts out to the public. they may have recently gone short and want to cause a decline to cash in. Or maybe they want to pick up stocks at a cheaper price going into earning season. Either way they cannot be trusted.

  • Alan

    And of course they didn’t know any of this 2 weeks ago while they were pumping the market up to pad their year end bonus checks.

    • Mike Smithy

      Goldman invented the “Pump & Dump” maneuver.

  • Jimbo

    The UK Daily Mail ran an article the other day advising ordinary people how to cash in on the “exciting world of stocks and shares”. The comments section was filled with posts from people saying how they had made 25% or higher returns over the last year and how this year was going to be even better.

    The MSM have been trying to push savers into stocks for the last six months. I can only assume that this is a concerted effort to pump the markets one last time so that the smart money can get out.

    • Mike Smithy

      It’s nice to know their are “Sheeple” in the U.K. and the phenomena is not limited to the U.S.

  • Gene Baugh BBA

    The first meltdown was bad. The second meltdown was worse. And now we are in
    position for the third and final meltdown. A three year trip down to trend line
    support at 4800 Dow.

    Market action from 2000 is either an expanding diagonal triangle or it is
    not. So far it looks exactly like one so treat it as such until proven wrong.

    Ten percent corection, Ha! I wish we lived in a world where all we had to
    worry about was a ten percent correction.

    Then again if the bottom trend line holds in 2016 we will be in a world where
    all we have to worry about are ten percent corrections and “normal” bear

  • Kim

    Exactly, what are the implications of a stock market “correction”

    • Mike Smithy

      It means that the bag holders lose most of their wealth with no chance of a modest retirement in their golden years.

  • Syrin

    Robert Weidmer who accurately predicted the last market crash says the market is due for a 90% correction. Others who accurately predicted the crash are all saying 50+%. Goldman Sachs just doesn’t want to admit the real numbers because they know it would cause a run on the market, something they are trying to avoid at all costs.

  • Conservative Canadian

    Perhaps Sachs of GOLDman would be a more appropriate name, like a reverse Robin Hood.

  • chilller

    Since when has GS EVER put “God’s Work” before its own iconic mountain of greed?
    Ironic that the new fed named “Yellen” isn’t uttering a peep since taking over. Probably why GS has taken matters into its own unscrupulous hands to move markets and skim profits.
    Where is Elliot Ness when we need him?

  • Jonathan

    Anyone else planning on shorting the S&P 500? Like with the SDS or SH funds. I’m not sure how much to throw at them.

    • Mike Smithy

      Be careful. The markets can remain irrational longer than most of us can remain solvent. I no longer have the stomach to play their game.

  • JailBanksters

    Why Is Goldman Sachs Warning That The Stock Market Could Decline By 10 Percent Or More?
    Well Duh !!, I wonder why


    This will go down as one of the biggest Pumps and Dumps ever! Shares were deliberately pumped up via massive QE (200 billions/mo IMHO), Gold was suppressed ensuring most of the funny money would end up in the markets. Made the banks look so good. Meanwhile, huge short positions were quietly accumulated. Bernacke will become a very wealthy man.

  • FounderChurch

    Stocks vs. Gambling by FounderChurch
    Some sobering thoughts about the riskiness of buying stocks.

    With Gambling you know the odds before you put your money down, and they rarely if ever change, whereas with Stocks you never know the odds, and they change constantly. So which is a better deal? Yes, with stocks you supposedly own equity in something, but do you really? If you owned equity when you bought a stock, how come stocks can and do go to zero in value without you having a chance to retrieve, rescue or recover this “equity” you supposedly own?

    If you look at the infamous New York Stock Exchange historically, you will see that practically every stock that was listed on the Exchange a hundred years ago, is worth zero now, and every stock that is currently listed on the New York Stock Exchange did not even exist until relatively recently.

    Also you will see that some magic hand continually adds to and erases stocks from the listed stocks on the Exchange without warning, and without stated reasons, and without any understood authority. The whole things seems to resemble some shady business.

    The main difference between Gambling and buying Stocks is that with stocks you usually don’t lose you money instantly, but over time it seems you do lose your money just the same.

    It would seem that stocks as such may not really have any equity at all, but be merely speculative. A better would perhaps be to buy something that has a real equity floor under it, like commodities, or real estate. Maybe that is why they call “REAL” Estate, Real Estate, and not a fictional Estate with no equity.

  • FounderChurch

    Prosperity in America by FounderChurch
    Our present Prosperity is entirely dependent on our military. The only thing that is holding us up, is raw military muscle exemplified by drone strikes.

    This was the situation Rome found itself in at the apex of its power and wealth. At the end it had only one resource, Brute Power of inestimable ruthlessness and cruelty.

    But when that power faltered and it did falter, the whole world piled on to loot, kill and burn everything Roman. Near its end Rome even sold its soul for a bit more time in power when the Emperor Constantine made his so called “Donation” of Constantine” to the Christian Church which on its part, promised to fill up his legions with new recruits, and help him stamp out the various raging rebellions among the captive peoples.

    Of course the new and pure Christian Church had to sell its soul also to get the deal that would give it a monopoly against the plethora of other religious sects that were dogging its heels, among them the omnipresent Jews and various heathen religions, both new and old.

    But the lesson here is, when the military arm fails the economy fails as well. So when you wake up in the morning, please pray for our military, for weak as it is, it is the only thing that stands between you and the hordes of barbarians that want to rape, plunder, rob and kill you.

    But any harm these barbarians intend to inflict on you is chicken feed compared to the harm we do to ourselves every day of the week, not the least of which is our ritualistic killing of nearly all of our young children by means of Birth Control of all types, and methods, all, of course, in the Holy Name of “reasonable” FAMILY PLANNING, both “Artificial” and “Natural” both of which have the wonderful “virtue” of killing children equally effectively. Bye Bye America… Search “FounderChurch”

  • chris

    Wasn’t it also Goldman Sachs who were responsible for revealing that the triple AAA rated mortage packages were basically junk resulting in the 2007/008 crash? Wasn’t it also Goldman sachs who helped Greece to borrow much more money than it should have been able to thus causing the Eurozone mess?

  • Rufus T Firefly

    Stock markets fluctuate. Always have, always will.

  • Richard O. Mann

    Me thinks Ben is a sarcastic troll. But, I could use one of the Obama phones if you could spare it.

  • Washington76

    “To be controlled in our economic pursuits means to be controlled in everything.” — F.A. Hayek

    • Mike Smithy

      I love F.A. Hayek. “The road to serfdom” is a must read.

      • Washington76

        Thanks’ for commenting MS!

  • Drud

    The problem is that a collapse of the financial system cannot be contained there as it was in 2008. We live in a country completely dependent upon cheap energy and thereby cheap transportation. Virtually none of the goods we consume on a regular basis are produced locally and every store relies upon a Just-in-time logistics system. We can see what happens when grocery store shelves empty in certain cities when natural disasters come (Katrina, Sandy, etc.) but what happens when they empty in EVERY city at the same time. While we’re at it, what happens when not a few, but millions of people are unable to afford their utility bills? Will the companies who provide us with insanely cheap energy in the form of electricity and natural gas (not to mention clean, pressurized water) be able to stay in business? And if not, does the government take over the utility companies? Now that is truly a scary thought. Stripped of BS (financial curves, indicating factors, speculation, hedges, etc.) the real economy runs on two things: ENERGY and CONFIDENCE. If either of those foundations are eroded on a broad scale everything comes crashing down, not just Wall Street.

  • piccadillybabe

    Since the stock market is no longer valued by real GDP but rather by speculation, it is the least GS can do but warn people. They were given their big bail out so they could survive now they are passing down the favor to the tax payers who bailed them in the first place. I think I would be putting my assets in safe keeping about now in a stable value account. Why wait, the time is approaching. Losing your shirt the first time was ignorance, the second time (if you had the stomach to be in) is negligence and no fault but your own.

  • Diana

    Probably because it already has declined 10% or more.

  • Buckeye42

    I think GS is an evil org. but I would own their stock at all costs. They rule the fin. world

  • Frank Bell

    10 %?

    Are you kidding me???

    That is absolutely NOTHING. NOTHING!!!

    Just take a calculator and look what a 10 % decline of the Dow Jones (now at around 16,000) means:

    Levels that we had a year before.

    Far, far away from the levels in 2009.

    So, stop bothering regarding this announcement from Goldman-Sucks.

  • felicityva

    And Snopes is just an extension of the Obama machine. Do your homework.

    • xander cross

      No its not. You’re just upset that your lie about the Obama phones have been exposed by the very guy that started it which is Ronald Regan. Regan created the phone program and it continued under Clinton, Bush and now Obama. But you idiots call it Obama phones? SMDH.

  • Sandbagger

    10% isn’t the collapse of the Dow.

    10% again and again and again…

    Now THAT’s the collapse.

    Appears we are beginning the descent.

  • MadMoto
  • flyingfox88

    Check the value of the dollar against the pound and the euro. Not too long ago, against the pound it was $1.50. Today, it’s $1.65. Against the Euro, it’s $1.36. The Fed keeps printing money, the dollar keeps getting cheaper. Nobody in Washington wants to be responsible for the bitter medicine it will take to get us out of this.

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