International Forecaster
A newsletter for economic news, global trends, politics, money, and investment.
By: James Corbett
Date: 30 July 2014
The equity market is a overvalued. Stocks are in a bubble that has
been blown by the Fed's artificially low interest rates. The
price-to-earnings ratio has left all semblance of sanity behind. The
bubble is going to pop and it won't be pretty when it does.
Stop me if you've heard all this before. If you're a
subscriber to the International Forecaster then you doubtless have heard
it before. Numerous times. For the last several years. This is because Bob Chapman
had the foresight and experience to see the writing on the wall when it
came to the post-Lehman bailout and the Fed's emergency lending
facilities and quantitative easing.
As he told me in any number of our conversations in the post-Lehman
era, the bankers and the politicians in their back pocket were keeping
everything moving sideways. They could do it for some time, maybe
several years, but not forever. Eventually the piper would have to be
paid. And so it should be no surprise to see where we are: the S&P
and DJIA at record highs, P/E ratios that make no sense, consumer debt
levels (and delinquency rates) on the ascendant once again, 10 year
treasuries at 2.46% and a lot of advisors telling us that we're in for a
20 year bull run (yes, John Stephenson actually said this at the
beginning of the year).
But you don't have to look very hard to see another
phenomenon occurring. Right now investment advisors from across the
board are rushing to cover their assets for when the house of cards
inevitably comes toppling down. No one wants to be left as one of the
clueless smiling talking heads on one of the “Peter Schiff Was Right”
viral videos laughing at the idea of a housing bubble in 2005/2006.
Everyone wants to be the one who called it before it happened. And so it
is that we see mainstream publications finally accepting reality.
Case in point: Marketwatch.com. A subsidiary of the Wall
Street Journal, Marketwatch is not exactly known for its
straight-shooting, hard-hitting independent analysis of the economy.
Sure, they run stories on both the bullish and bearish side of the
spectrum and occasionally break news of interest, but this isn't exactly
Chapman-calibre information. Still, on Monday of this week there was an
interesting one-two punch of top-listed headlines.
The first was titled simply “This Stock Bubble is 'Beyond
1929 and 2007,' Says Hussman.” The report noted John Hussman of Hussman
Fund's latest commentary (“Yes, This is an Equity Bubble”) calling the
stock bubble for what it is. The story highlights Hussman's use of the
cyclically adjusted price to equity ratio and shows a chart of
nonfinancial market cap to GDP that shows the current ratio just shy of
the 2000 bubble's all-time low. Noting just how far overvalued stocks
have become, Hussman is quoted as saying: “My sense is that investors
have indeed abandoned basic arithmetic here” before pointing out how the
Fed is only making matters worse by running up a $4 trillion balance
sheet and using zero interest rates to prolong the inevitable collapse.
Posted right below that was a story that was no less
bleak: “Stock trader who called three crashes sees 20% collapse.”
Granted, the 20% stock pullback predicted in the story is not exactly
out on a limb (even Goldman Sachs predicted a 10% pullback at the
beginning of the year), that notes yet another way to measure the coming
stock market doom: a divergence in the NYSE Tick and stock prices that
indicates impending collapse. The last two times the Tick went down
while stock prices rose (as they are right now) was Q1 2000 and Q3 2007.
Talk about ominous.
Keep in mind these reports come just weeks after the
mainstream report from the banker-connected Official Monetary and
Financial Institutions Forum revealed that a cluster of the world's
central banks has amassed $29 trillion in market investments that "could
potentially contribute to overheated asset prices." The signs are
everywhere and unmistakable: even the mainstream talking heads and
institutions are getting in front of the bubble pop so they could say
“we told you so” once the dust has settled.
When that process of collapse does start, just remember
folks: you read it here first. And we'll be here to tell you what's
really coming next.
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