HJL:
I think prediction of a stock market crash are wrong. The market is certainly inflated unreasonably and harmfully. They are right in that it is inflated unreasonably and harmfully. I believe the harm will manifest itself in the form of a general price level and not a crash. In other words, the DOW represents the new normal. Everything will rise to meet it and achieve equilibrium. It will be the inflation that the bankers want. The worst thing you can do is stay out. The second worst thing you could do if you are out is jump all the way in at one time. Ride the inflation or be crushed. – R.V.
HJL’s Comment:
I’m quite confident that the economy will continue it’s downward spiral. You are probably right. Barring any sort of outside influence, the congress critters and banksters keep the system propped up and functioning. The transfer of wealth would continue. The middle class will continue to bear the brunt. The wild card is the outside influence.
I think war is the most likely scenario. In fact we hear the constant drumbeats for war today. Americans are inexplicably drawn into conflicts that really should have nothing to do with us. War is usually the culprit. But it could also be international financial pressure. We have long exported our inflation to the rest of the world and it is entirely possible that other nations grow weary of that. We see movement among China, South America, Europe and Russia in regard to that.
What I can say is that any direction it goes will not be good for the average American. The middle class of America will bear the brunt of inflation, war, economic collapse, or even a slow slide into oblivion. With our nation hopelessly divided among itself, a revolution would simply become a bloodbath. The blood spilled would be atrocious on all sides. All one has to do is look at the infrastucture collapse and violent crime rates of Chicago or Detroit to understand where that would go.
the white elephant in the room is the debt ceiling issue come fall. Sure maybe Trump will go along with QE forever. FOREVER. Let that sink in. Because that’s what it’ll take to keep this phoney market alive. The consequences of that can’t be ignored FOREVER. I don’t know when but the collision of the negative drags on the market and the natural free market forces occurs. That alone makes me have a plan B. That and other obvious issues is why Survival blog is a success. The #1 reason I believe there will be interesting times ahead is bc of financial / economic reasoning.
Thanks for what you do Hugh. I am wandering around north central Ohio after a conference. Visited the house my grandfather built in 1920 in anticipation of my father’s birth. Traveled from up by the lakes via two lane. I engage service personnel in conversation or make an attempt and waive at the Amish in the wagon. Middle class people need to take personal responsibility for educating themselves rather than just let it be fed to them. They work for food and watch television on an enormous screen with their new car sitting in the driveway. My father called it the boob tube. Personal entrepreneurship is at the root of the path out of this mess. People need to take the initiative and build themselves. Let me say that I figure just about anyone reading this blog is doing just that. I know I take your leads and go off for more research and experimentation.
And … on your exporting inflation comment, I really think the trade agreements we have signed and our monetary policies have been Western and not just US. I think the Eastern cultures were complicit. Further, I think it has been an attempt at creating one world currency to go with their elite one world government. The populist “uprising” we are witnessing is very entertaining. Go Trump go. It would probably we a wise investment to buy stock in a company that makes antacid. Ha!
Famous last words before every crash? “This time is different”.
Yah, you’ve got that right, Weekend Farmer.
When he wrote, ‘the DOW represents the new normal. Everything will rise to meet it and achieve equilibrium’ I was reminded of how that’s pretty much what people were saying about housing prices in 2003, and again today, and they say the same about high rents. Things are not going as some people planned, see it on display every day at TheHousingBubbleBlog.
1) The only reason I read the Lying News Media anymore is to see what they are NOT reporting.
2) One thing they do NOT mention is that the sainted Obama not only ran up $10 Trillion in debt on our credit card, he also borrowed the money from foreigners. Who may demand it back at any time.
3) NIIP –Net International Investment Position — is all the money we owe to foreigners minus what they owe to us. Includes assets like stocks as well as debt instruments like bonds. In 2009 it was around a MINUS $2,5 Trillion — today, it is a MINUS $8.1 TRILLION. In other words, we are in the hole to foreigners to the tune of 43% of our annual GDP (value of all we produce in a year). In 2009, our NIIP was only a minus 17.3 % of GDP.
https://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm
PS And what happens to the US stock market if the foreigners turn off the IV drip at some point?
R. V., actually WAR represents the new normal. It is amazing how people who call themselves Christians became so blood-thirsty. Even America’s pulpits are silence, with the exception of Pastor Chuck Baldwin.
I value the stock market with a little thumbrule I came upon somewhere. Due to the fact that bonds are typically less risky than stocks, 10 year treasuries have typically had a yield that is about 2% less than the inverse of the S&P 500 PE.The long term average of 10 year treasuries is about 4% and the long term average of the S&P 500 PE is about 15 (inverse being about 6.7%). Shiller PE (10 years of trailing months instead of 12 months) gives you closer to 6%.
Right now if you do the arithmetic that roughly 2% gap is closer to 1.5% and if you do more arithmetic I would say the stock market is 10% overvalued by that thumbrule.
The danger in my view is that if we were to return to historical 10 year treasury rates, the market would be about 35% overvalued. And that kind of overvaluation could well result in a 50% correction much like 2008 as people over react and drive PE down below historical averages for a while.
The abnormally low interest rates are quite dangerous when you do the arithmetic.
Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants and debt is the money of slaves.
Traditional Woodpilereport.com
The only reason the stock market effects us workers: Is the 401 we use for retirement. We are conned into investing our money every week when it is deducted from our paychecks. The stock market gets replenished every Friday. The basic necessities are required week in and week out. If Facebook, google, iPhone, etc collapses are irrelevant. We will bounce back
Take out the highly priced FANG stocks and the S&P 500 ain’t been all that impressive in the past few years:
https://www.fool.com/investing/general/2015/12/15/fang-stocks-the-next-bubble.aspx
Could be a bubble waiting to pop — I don’t see any providing products that are essential if the consumer cuts back.
My point was not that “this time is different”. My point is that the level of the stock market including all its dives and bubbles … somersaults for that matter is indicative of price levels of goods. You can raise your own food. Make your own clothes. But you have to have cash for parts and property tax. You have to figure out how to index yourself and ride it (price level, not the stock market) up rather than get driven to the ground.