Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Volatile Markets Shake U.S. Economy

Stock-Markets / Financial Markets 2014 Aug 04, 2014 - 06:47 PM GMT

By: Harry_Dent

Stock-Markets

Volatile markets are shaking the U.S. economy and geopolitical conflicts are intensifying. This is bad news.

Iraq is falling into civil war, like Syria did after the Arab Spring across North Africa; Israel is invading Gaza; a Malaysia airliner was shot down over Ukraine — by who knows whom; and two Ukrainian fighter jets were shot down by Russian rebels.


But no problem! The markets go down for a day (on July 17) and then bounce right back up like nothing was happening at all.

The markets have gone nuts!

Even Janet Yellen, after saying there is no bubble, is warning of bubbles in select sectors like small cap stocks and biotech.

Major stock analysts are saying that stocks are fairly valued at 17 times earnings. Small cap stocks (at 26 times earnings) aren’t seeing their earnings grow any faster than larger cap stocks. They’re getting just 6% growth and even that’s slowing.

What are these people thinking? This is what I call an “economy of nut cases and sheep.”

Robert Shiller’s innovative, cyclically-adjusted model for measuring price-to-earnings ratios, which uses the average real earnings of the past 10 years, shows that stocks are highly overvalued (and getting more so). In fact, current valuations correspond to most of the greatest stock tops over the last century.

See for yourself…

Yes, such ratios were higher in the tech bubble that peaked in March 2000. But that was the greatest bubble in modern history. The second greatest was the auto and farm bubble of the Roaring 20s, which culminated on Black Tuesday.

But those are what I call rare and primary bubbles that see the combination of very strong demographic trends and surging technology penetrations like automobiles and the Internet. Don’t expect a repeat.

That’s not to say we’re not in a bubble right now. It IS to say that the market is now high on the fumes of its own success and will come crashing down soon enough.

My opinion of this is confirmed when I consider the Geopolitical Cycle, which alternates between positive and negative every 17 to 18 years. (An economic cycle always fluctuates between growth and recession.) During negative cycles, like the one we’re in now (from 2001 to 2019), stocks have roughly half the valuations than they do during the positive cycle.

Basically, this means that we’re extremely overvalued for this point in the negative Geopolitical Cycle. Only if we were in the positive cycle could we expect to see a repeat of the 1920s and 2000s bubbles and valuations.

Markets may go up some more, but we’re heading into the worst part of the Geopolitical Cycle, so stay very cautious. With worsening demographic trends and unprecedented debt ratios around the world, every day the market goes higher, the riskier things get.

When bubbles burst, it can be very violent. The first crash in May of 2000 saw a 40% drop of the Nasdaq bubble. It’s better to get out of a bubble like this a bit too early than a bit too late.

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjrHarry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in