This report was originally published by Michael Snyder at The Economic Collapse
The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed. Will things be different for us this time? We shall see, but without a doubt this is what a pre-crash market looks like. This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention, but now global central banks are removing the artificial life support in unison. Meanwhile, the real economy continues to stumble along very unevenly. This is the longest that the U.S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close. Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.
If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider. The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter…
The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent. The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?
Since the market bottomed out in early 2009, the S&P 500 has been on a historic run. If this rally had been based on a booming economy that would be one thing, but the truth is that the U.S. economy has not seen 3 percent yearly growth since the middle of the Bush administration. Instead, this insane bubble has been almost entirely fueled by central bank manipulation, and now that manipulation is being dramatically scaled back.
And the guys on Wall Street know what is coming. For example, Joe Zidle says that this bull market is now in “the ninth inning”…
Joe Zidle, of Richard Bernstein Advisors, is arguing that the bull market has entered the bottom of the ninth inning.
“This is a late-cycle environment,” Zidle said on CNBC’s “Futures Now” recently.
“In innings terms, they’re not time dependent. An inning could be shorter or they could be longer. It just really depends,” the strategist said.
This bubble has lasted for much longer than it ever should have, and everyone understands that a day of reckoning is coming.
In fact, earlier today I came across an article on Zero Hedge that contained an absolutely remarkable quote from Eric Peters…
“We are investing as if 1987 will happen tomorrow, because it will,” said the CIO. “But we need to be long, or we’ll be out of business,” he explained, under pressure to perform. “So we construct option trades that are binary bets.” Which pay X profit if stocks rally, and cost Y if markets fall. No more and no less.
“What you do not want is a portfolio whose losses multiply depending on the severity of a decline.” That’s what most people have today. “At the last stage of the cycle, you want lots of binary bets. Many small wins. Before the big loss.”
“Are we at the start or the end of the ‘Don’t know what I’m buying’ cycle?” asked the same CIO. “No one knows.” But we’re definitely within it.
“When their complex swaps drop 40%, and prime brokers demand more margin, investors will cry ‘It’s not possible!’ But anything is possible.” The prime brokers will hang up and stop them out.
In case you don’t remember, in 1987 we witnessed the largest one day percentage decline in U.S. stock market history.
When it finally happens, millions upon millions of ordinary Americans will be completely shocked, but most insiders know that the other shoe is going to drop at some point.
In particular, watch financial stock prices very closely. Last month, Richard Bove issued a chilling warning about bank stocks…
One of Wall Street’s most vocal bank analysts is troubled by the rally in financials.
The Vertical Group’s Richard Bove warns that the overall market is just as dangerous as the late 1990s, and he cites momentum — not fundamentals — as what’s driving bank stocks to all-time highs.
“If we don’t get some event in the economy or in politics or in somewhere that is going to create more loan volume and better margins for the banks, then yes, they would come crashing down,” Bove said Monday on CNBC’s “Trading Nation.” “I think that the risk in these stocks is very high at the present time.”
It isn’t going to take much to set off an unstoppable chain of events. Our financial markets are even more vulnerable than they were in 2008, and the right trigger could unleash a crisis unlike anything we have ever seen in modern American history.
Unfortunately, most Americans keep getting fooled by the artificial boom and bust cycles that the central banks create. Right now most people seem to have been lulled into a false sense of security, and they truly believe that everything is going to be okay.
But every time before when the market has looked like this a crash has always followed, and this time will be no exception.
Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.
Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream.
If you want to know what is coming and what you can do to prepare, read his latest book [amazon text=Get Prepared Now!: Why A Great Crisis Is Coming & How You Can Survive It&asin=150522599X].
The plunge protection team is standing by for action. Will they be successful?
Apparently only ‘if’ they’re from Hollywood.
Him, I’ve been prepping forever and still stacking. I’m also debt free, so I know I’ll be OK. Whoever is not prepping and/or drowning in debt will be totally screwed and totally SOL. This economy will die and it’s not going to be nice.
Damn son… Stop with the retard… IF… And that’s a BIG F’in IF… If the economy tanks and the S really does HTF… You really believe I’m gonna be concerned about any debt I may have????
Furthermore, any and all those “prepping” for the up and coming turkey shoot better have their asses wired like a 50-year-old made in china VC trip mine…
The main structure of said ass wired is being able to keep yer fukin mouth shut in regard to what you’re actually up to. This point is crucial and the majority of you already failed the simplest test so to that I say, good luck… Maybe you can barter off yer woman to save yer own skin … You’ll be more at risk having supplies stocked in a said location then runnin light attempting to take em where ya find em. Fact…. You’ll be overrun in the end.
meh……..
Its not the 9th inning. Its the bottom of the 7th inning. All that fiat cash has to go somewhere, and its going into the stock market. There’s still much more cash that needs to work its way into those markets, before its exhausted. Expect another year or two of this ‘bull’ market before the inevitable and spectacular crash. The difference between the coming crash and previous crashes is that this will be the mother of all. And it will bring down everything…..and it will dwarf the great depression of the 30’s.!!!
Brave, also debt free. The system doesn’t like that. They lower the credit rating and say I have no credit history. Auto insurance companies charge higher rates to good drivers who have low credit scores. So check into your insurance company.
Him, I have NEVER had any type of loan or even a credit card so no credit history for me either. Supposedly my income level is too low to qualify or so I’ve been told. I don’t even care about credit now in this crappy economy. What you said about the insurance companies charging drivers with low credit scores higher rates is interesting. I didn’t know that. The only coverage I’ve ever had is liability. The insurance companies don’t write full-coverage policies for anything 15 years old or more. If I could afford a vehicle LESS than 15 years old it would be a miracle. Private owners for cash are the only people that will put me in a car. I know it sounds cray as many car lots as there are out there but that’s the way it is for me. I’ve been told that I’m not ‘creditworthy’ and ‘not a good risk’, although I’ve never been allowed to play the game. Go figure.
I did snap-on credit for a while. That taught me. I feel right at home. 🙂 Though I guess my vehicles average about 40yo. When they started with computers in cars, I quit buying them.
United States of Venezuela.
I’m also ready!! I’m amazed things have lasted as long as it has. I feel like the longer and higher the market goes up the worst the drop will be. We should have some interesting times coming.
Those close to retirement and those in retirement need to put a stop loss on their dividend paying stocks or sell now. Call your broker now and keep up with your investments. Try a muni fund in your state tax free.
I’ve followed this blog for years and I got to note that if I’d took its repeated advice about the “upcoming crash”, I’d have missed one of the great rallies of all time. All of this sky is falling talk is little d*ck thinking. No risk no reward.
Lower debt always. Have six months food always. Fireams – molon labbe. Close to retirement – lower your stock exposure.
But listen to the investment advice like above … never, you’ll end up living on dog food trying to stretch out social security payments if it’s still around.
Get your money out of the Stock Market and into Preps and stacked Silver. Keep the silver hidden somewhere other than where you live, obviously. You don’t own what’s not in your possession. Pray, get right with God, prep, pray some more, and repeat!
– the Lone Ranger
Won’t bother us folks living in the Ozark’s.
Place is paid for , stocked up till next season on canning . Chickens still produces, cows still in the pasture . The well ain’t running dry . Plenty of wood split for the winter . Plenty of folk around to make a standing army . Ozark folk can survive !
“Right now most people seem to have been lulled into a false sense of security, and they truly believe that everything is going to be okay.”
My reply to this is that Americans are suffering from ‘news whiplash’ (shock story after shock story) and don’t know what to believe about anything. The news cycle never presents what happens after a big story. For example, how is Houston faring after being flooded? What about Florida and various islands after Hurricane Irma? What happening in Calif with all the fires that ravaged the state?
Also many are working really hard to keep their heads above water financially so have little time and energy to do a deep dive into either news/scandals presented on major news outlets much less what Wall Street is doing. What alternatives are there to the 401k that are de riguer for retirement planning/preparation? No one touts those solutions.
They almost have to believe all is well or at least ignore mcuh of it to stay sane. No one can live in a state of high alert permanently.