Home » Posts tagged 'Stock market bubble'
Tag Archives: Stock market bubble
It is time to crank up the Looney Tunes theme song because Wall Street has officially entered crazytown territory. Stocks just keep going higher and higher, and at this point what is happening in the stock market does not bear any resemblance to what is going on in the overall economy whatsoever. So how long can this irrational state of affairs possibly continue? Stocks seem to go up no matter what happens. If there is good news, stocks go up. If there is bad news, stocks go up. If there is no news, stocks go up. On Thursday, the day after Christmas, the Dow was up another 122 points to another new all-time record high. In fact, the Dow has had an astonishing 50 record high closes this year. This reminds me of the kind of euphoria that we witnessed during the peak of the housing bubble. At the time, housing prices just kept going higher and higher and everyone rushed to buy before they were “priced out of the market”. But we all know how that ended, and this stock market bubble is headed for a similar ending.
It is almost as if Wall Street has not learned any lessons from the last two major stock market crashes at all. Just look at Twitter. At the current price, Twitter is supposedly worth 40.7 BILLION dollars. But Twitter is not profitable. It is a seven-year-old company that has never made a single dollar of profit.
Not one single dollar.
In fact, Twitter actually lost 64.6 million dollars last quarter alone. And Twitter is expected to continue losing money for all of 2015 as well.
But Twitter stock is up 82 percent over the last 30 days, and nobody can really give a rational reason for why this is happening.
Overall, the Dow is up more than 25 percent so far this year. Unless something really weird happens over the next few days, it will be the best year for the Dow since 1996.
It has been a wonderful run for Wall Street. Unfortunately, there are a whole host of signs that we have entered very dangerous territory.
The median price-to-earnings ratio on the S&P 500 has reached an all-time record high, and margin debt at the New York Stock Exchange has reached a level that we have never seen before. In other words, stocks are massively overpriced and people have been borrowing huge amounts of money to buy stocks. These are behaviors that we also saw just before the last two stock market bubbles burst.
And of course the most troubling sign is that even as the stock market soars to unprecedented heights, the state of the overall U.S. economy is actually getting worse…
-The number of mortgage applications just hit a new 13 year low.
-The yield on 10 year U.S. Treasuries just hit 3 percent.
For many more signs like this, please see my previous article entitled “37 Reasons Why ‘The Economic Recovery Of 2013’ Is A Giant Lie“.
And most Americans don’t realize this, but the U.S. financial system and the overall U.S. economy are now in much weaker condition than they were the last time we had a major financial crash back in 2008. Employment is at a much lower level than it was back then and our banking system is much more vulnerable than it was back then. Just before the last financial crash, the U.S. national debt was sitting atabout 10 trillion dollars, but today it has risen to more than 17.2 trillion dollars. The following excerpt from a recent article posted on thedailycrux.com contains even more facts and figures which show how our “balance sheet numbers” continue to get even worse…
Since the fourth quarter of 2009, the U.S. current account deficit has been more than $100 billion per quarter. As a result, foreigners now own $4.2 trillion more U.S. investment assets than we own abroad. That’s $1.7 trillion more than when Buffett first warned about this huge problem in 2003. Said another way, the problem is 68% bigger now.
And here’s a number no one else will tell you – not even Buffett. Foreigners now own $25 trillion in U.S. assets. And yet… we continue to consume far more than we produce, and we borrow massively to finance our deficits.
Since 2007, the total government debt in the U.S. (federal, state, and local) has doubled from around $10 trillion to $20 trillion.
Meanwhile, the size of Fannie and Freddie’s mortgage book declined slightly since 2007, falling from $4.9 trillion to $4.6 trillion. That’s some good news, right?
Nope. The excesses just moved to a new agency. The “other” federal mortgage bank, the Federal Housing Administration, now is originating 20% of all mortgages in the U.S., up from less than 5% in 2007.
Student debt, also spurred on by government guarantees, has also boomed, doubling since 2007 to more than $1 trillion. Altogether, total debt in our economy has grown from around $50 trillion to more than $60 trillion since 2007.
So don’t be fooled by this irrational stock market bubble.
Just because a bunch of half-crazed investors are going into massive amounts of debt in a desperate attempt to make a quick buck does not mean that the overall economy is in good shape.
In fact, much of the country is in such rough shape that “reverse shopping” has become a huge trend. Even big corporations such as McDonald’s are urging their employees to return their Christmas gifts in order to bring in some much needed money…
In a stark reminder of how tough things still are for low-income families in America, McDonalds has advised workers to dig themselves “out of holiday debt” by cashing in their Christmas haul.
“You may want to consider returning some of your unopened purchases that may not seem as appealing as they did,” said a website set up for employees.
“Selling some of your unwanted possessions on eBay or Craigslist could bring in some quick cash.”
This irrational stock market bubble is not going to last for too much longer. And a lot of top financial experts are now warning their clients to prepare for the worst. For example, David John Marotta of Marotta Wealth Management recently told his clients that they should all have a“bug-out bag” that contains food, a gun and some ammunition…
A top financial advisor, worried that Obamacare, theNSA spying scandal and spiraling national debt is increasing the chances for a fiscal and social disaster, is recommending that Americans prepare a “bug-out bag” that includes food, a gun and ammo to help them stay alive.
David John Marotta, a Wall Street expert and financial advisor and Forbes contributor, said in a note to investors, “Firearms are the last item on the list, but they are on the list. There are some terrible people in this world. And you are safer when your trusted neighbors have firearms.”
His memo is part of a series addressing the potential for a “financial apocalypse.” His view, however, is that the problems plaguing the country won’t result in armageddon. “There is the possibility of a precipitous decline, although a long and drawn out malaise is much more likely,” said the Charlottesville, Va.-based president of Marotta Wealth Management.
So what do you think is coming in 2014?
One of the men that won the Nobel Prize for economics this year says that “bubbles look like this” and that he is “most worried about the boom in the U.S. stock market.” But you don’t have to be a Nobel Prize winner to see what is happening. It should be glaringly apparent to anyone with half a brain. The financial markets have been soaring while the overall economy has been stagnating. Reckless injections of liquidity into the financial system by the Federal Reserve have pumped up stock prices to ridiculous extremes, and people are becoming concerned. In fact, Google searches for the term “stock bubble” are now at the highest level that we have seen since November 2007. Despite assurances from the mainstream media and the Federal Reserve that everything is just fine, many Americans are beginning to realize that we have seen this movie before. We saw it during the dotcom bubble, and we saw it during the lead up to the horrible financial crisis of 2008. So precisely when will the bubble burst this time? Nobody knows for sure, but without a doubt this irrational financial bubble will burst at some point. Remember, a bubble is always the biggest right before it bursts, and the following are 15 signs that we are near the peak of an absolutely massive stock market bubble…
#1 Bob Shiller, one of the winners of this year’s Nobel Prize for economics, says that “bubbles look like this” and that he is “most worried about the boom in the U.S. stock market.”
#2 The total amount of margin debt has risen by 50 percent since January 2012 and it is now at the highest level ever recorded. The last two times that margin debt skyrocketed like this were just before the bursting of the dotcom bubble in 2000 and just before the financial crisis of 2008. When this house of cards comes crashing down, things are going to get very messy…
“When the tablecloth gets pulled out from under the place settings, you’re going to have a lot of them crash and smash on the floor,” said Uri Landesman, president of Platinum Partners hedge fund. “That margin’s going to get pulled and everyone’s going to have to cover. That’s when you get really serious corrections.”
#3 Since the bottom of the market in 2009, the Dow has jumped 143 percent, the S&P 500 is up 165 percent and the Nasdaq has risen an astounding 213 percent. This does not reflect economic reality in any way, shape or form.
#4 Market research firm TrimTabs says that the S&P 500 is “very overpriced” right now.
#5 Marc Faber recently told CNBC that “we are in a gigantic speculative bubble”.
#6 In the United States, Google searches for the term “stock bubble” are at the highest level that we have seen since November 2007 – just before the last stock market crash.
#7 Price to earnings ratios are very high right now…
The Dow was trading at 17.8 times the past four quarters of earnings of its 30 components, according to The Wall Street Journal on Friday. That was up from 13.7 times its earnings a year ago. The S&P 500 is trading at 18.7 times earnings. The Nasdaq-100 Index is trading at 21.5 times earnings. At the very least, the ratios are signaling that stock prices are rich.
#8 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.
#9 Twitter is a seven-year-old company that has never made a profit. It actually lost 64.6 million dollars last quarter. But according to the financial markets it is currently worth about 22 billion dollars.
#11 Howard Marks of Oaktree Capital recently stated that he believes that “markets are riskier than at any time since the depths of the 2008/9 crisis”.
#12 As Graham Summers recently noted, retail investors are buying stocks at a level not seen since the peak of the dotcom bubble back in 2000.
#13 David Stockman, a former director of the Office of Management and Budget under President Ronald Reagan, believes that this financial bubble is going to end very badly…
“We have a massive bubble everywhere, from Japan, to China, Europe, to the UK. As a result of this, I think world financial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future.”
#14 Bob Janjuah of Nomura Securities believes that there “could be a 25% to 50% sell off in global stock markets” over the next couple of years.
#15 According to Tyler Durden of Zero Hedge, the U.S. stock market is repeating a pattern that we have seen many times before. According to him, we are experiencing “a well-defined syndrome of ‘overvalued, overbought, overbullish, rising-yield’ conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing), and at three points in 2013: February, May, and today.”
As I mentioned at the top of this article, this stock market bubble has been fueled by quantitative easing. Easy money from the Fed has been artificially inflating stock prices, and this has greatly benefited a very small percentage of the U.S. population. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.
When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain.
But there are some people out there that argue that what we are witnessing is not a stock market bubble at all. That includes Janet Yellen, the new head of the Federal Reserve. Recently, she insistedthat there is absolutely nothing to be worried about…
“Stock prices have risen pretty robustly,” Yellen said. “But I think that if you look at traditional valuation measures, you would not see stock prices in territory that suggests bubble-like conditions.”
We shall see who was right and who was wrong. Let’s all file that one away and come back to it in a few years.
So where are stocks going next?
If you had the answer to that question, you could probably make a lot of money.
Yes, the current bubble could burst at any moment, or stocks could continue going up for a little while longer.
After all, the S&P 500 has risen in December about 80 percent of the time over the past thirty years.
Perhaps that will be the case this December as well.
Do you feel lucky?
- Here come that gold shills warning you to dump cash for gold (therebel.org)
- The Fishbowl Effect (cmt167.wordpress.com)
- ZeroHedge: Stock Market Crashes Since 2006: Trading Bots (silveristhenew.com)
- This Chaos Is All Part Of The Move To A New Financial System (silveristhenew.com)
- Is Slowing Money Supply Signalling Another Stock Market Crash? (economicpolicyjournal.com)
- Stock Market Crash Just Ahead? (lewrockwell.com)
- Bubbles Forever (project-syndicate.org)
- Stock Market Bubbles Cannot Be Timed (forbes.com)
- Ben Inker Q&A: High Profits, High Quality, and China Bubbles (news.morningstar.com)
- Barclays Warns “End-Of-QE.. Would Make 2000 Bubble Look Like A Day At The Beach” (zerohedge.com)
- Fed’s Tapering Is About Bubble Management (safehaven.com)