For example, Nobel Prize-winning economist Robert Shiller is warning that market valuations are tremendously bloated right now…
Shiller, a Yale University professor who is often cited as one of the most influential people in economics and finance in the world, created a metric that compares stock prices with corporate profits. The metric recently climbed above 25. That level has only been surpassed three times since 1881: 1929, 1999 and 2007.
Steep market tumbles followed each instance, including the bursting of the dotcom bubble in the early 2000s.
But it doesn’t take a genius to see this.
Just look at the chart of the NASDAQ that I have posted below. The “dotcom bubble” in 2000 is really easy to see. So why can’t more people recognize the bubble that is happening now?…
In so many ways this bubble is reminiscent of the “dotcom bubble” of 14 years ago. Consider the following numbers from a recent article by Brett Arends…
When you look at medians, or in other words the typical stock, valuations are higher today than they were at the peak in 1999-2000.
For example, the median stock today is 20 times earnings. In January 2000, it was 16 times.
The median stock today trades at 2.5 times “book” or net asset value. At the start of 2000 it was just 2.2 times.
The median stock today trades for 1.8 times annual per-share revenues. In 2000: just 1.4 times.
What we are experiencing is not normal.
And this is especially true considering the fact that our overall economic performance is tepid at best.
A stock market correction is coming.
But you don’t have to take my word for it. Some of the most prominent names in the financial world are warning about the coming correction. Two of them were recently interviewed by CNBC…
A jolt to international confidence in central banks will lead to a 30 to 60 percent market decline, David Tice, president of Tice Capital and founder of the Prudent Bear Fund, told CNBC’s “Power Lunch.” When this happens, he said, markets will face a “period of extreme turmoil.”
This crash will be precipitated, he said, by a disillusionment with the Federal Reserve’s “confidence game,” which will then see inflation rise, and the Fed scramble to raise rates. At that point, Tice added, “the Fed starts to lose control.”
Another market watcher also called for an impending fall.
The Fed’s low interest rates could bring a “scary” 50-60 percent market correction, said technical analyst Abigail Doolittle.
“Unfortunately, I think it could come on a crash similar to what happened in 2007,” Doolittle, the founder of Peak Theories Research, said on “Squawk Box” a day after the S&P 500 closed above the 2,000 level for the first time ever. “It’s tough to know what the exact catalyst will be. But that’s the very nature of that kind of selloff. They start slowly and then happen very suddenly.”
And as Zero Hedge has pointed out, billionaires such as Sam Zell, George Soros, Stan Druckenmiller and Carl Icahn all seem to be “quietly preparing” for the next crash.
Yes, the next financial crash has taken longer to come to fruition than many had anticipated. But as I have discussed so many times before, this is a very good thing.