The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed.
Will things be different for us this time?
We shall see, but without a doubt this is what a pre-crash market looks like.
This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention, but now global central banks are removing the artificial life support in unison.
Meanwhile, the real economy continues to stumble along very unevenly.
This is the longest that the U.S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close.
Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.
If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider.
The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter…
The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent. The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?
Since the market bottomed out in early 2009, the S&P 500 has been on a historic run.
If this rally had been based on a booming economy that would be one thing, but the truth is that the U.S. economy has not seen 3 percent yearly growth since the middle of the Bush administration.
Instead, this insane bubble has been almost entirely fueled by central bank manipulation, and now that manipulation is being dramatically scaled back.
And the guys on Wall Street know what is coming. For example, Joe Zidle says that this bull market is now in “the ninth inning”…
Joe Zidle, of Richard Bernstein Advisors, is arguing that the bull market has entered the bottom of the ninth inning.
“This is a late-cycle environment,” Zidle said on CNBC’s “Futures Now” recently.
“In innings terms, they’re not time dependent. An inning could be shorter or they could be longer. It just really depends,” the strategist said.
This bubble has lasted for much longer than it ever should have, and everyone understands that a day of reckoning is coming.
In fact, earlier today I came across an article on Zero Hedge that contained an absolutely remarkable quote from Eric Peters…
“We are investing as if 1987 will happen tomorrow, because it will,” said the CIO. “But we need to be long, or we’ll be out of business,” he explained, under pressure to perform. “So we construct option trades that are binary bets.” Which pay X profit if stocks rally, and cost Y if markets fall. No more and no less.
“What you do not want is a portfolio whose losses multiply depending on the severity of a decline.” That’s what most people have today. “At the last stage of the cycle, you want lots of binary bets. Many small wins. Before the big loss.”
“Are we at the start or the end of the ‘Don’t know what I’m buying’ cycle?” asked the same CIO. “No one knows.” But we’re definitely within it.
“When their complex swaps drop 40%, and prime brokers demand more margin, investors will cry ‘It’s not possible!’ But anything is possible.” The prime brokers will hang up and stop them out.
In case you don’t remember, in 1987 we witnessed the largest one-day percentage decline in U.S. stock market history.
When it finally happens, millions upon millions of ordinary Americans will be completely shocked, but most insiders know that the other shoe is going to drop at some point.
Our financial markets are even more vulnerable than they were in 2008, and the right trigger could unleash a crisis unlike anything we have ever seen in modern American history.
Unfortunately, most Americans keep getting fooled by the artificial boom and bust cycles that the central banks create.
Right now most people seem to have been lulled into a false sense of security, and they truly believe that everything is going to be okay.
But every time before when the market has looked like this a crash has always followed, and this time will be no exception.
Are the days of the free and open internet numbered?
The internet is certainly used for all sorts of horrible things, but it has also allowed ordinary people to communicate on a mass scale that would have been unimaginable decades ago. In the old days, if you wanted to reach large audiences of people with your information you always had to go through corporate gatekeepers. But today, anyone with an internet connection can literally broadcast whatever they want to say to the whole world. Personally, my wife and I have always been amazed at how many people we are able to touch all over the planet from our little home in the mountains. Over the past seven years, our websites have been viewed more than 100 million times, and we receive emails about our work from people all over the globe.
Unfortunately, major changes may soon be coming to the internet. The election of Donald Trump really angered the elite, and they are blaming the power of the internet for his victory. They insist that something must be done "for the good of democracy".
For example, in an opinion piece for the Guardian, U.S. Senator Al Franken proposed that it is time for the U.S. government to step in because Google, Facebook and Twitter have failed to prevent the spread of propaganda, misinformation, and hate speech...
Those are very ominous words.
So precisely what would constitute "propaganda", "misinformation" or "hate speech"?
When you start regulating speech, you cross a very dangerous line. There is a reason why our founders guaranteed us freedom of speech in the Bill of Rights, because if we don't have the freedom to say what we want then what do we really have left?
During the presidential election, there was a lot of talk about Hillary Clinton's health. The mainstream media insisted that she was just fine, and they accused those of us in the alternative media that were questioning her health of engaging in "propaganda" and "misinformation". Well, it turns out that we now know that Clinton's health was so bad that Donna Brazile was actually considering replacing her as the nominee, and so it was actually the mainstream media that was putting out "propaganda" and "misinformation".
Any effort to institute some sort of "truth police" would take us significantly down the road to totalitarianism, but apparently that is what Franken wants. In fact, he is openly suggesting that it is time for government regulators to step in...
So once government regulators begin regulating speech on the Internet, where will it end?
Will everything that we do on the Internet have to be evaluated for "truthiness" before it is allowed to be posted?
And who decides what the "truth" actually is?
I am a big believer in the marketplace of ideas. I have always been convinced that if everyone is allowed to openly share what they believe that the truth will win in the end.
Of course the elite are scared of the free exchange of ideas, because that gives the people way too much control over their own destiny. Prior to the onternet age, they were always in control of the flow of information in our society, but now things have changed dramatically.
They desperately want to get control of the internet, because they want things to go back to the way that they used to be. But we can't allow that to happen, and so we must greatly resist any attempts to regulate speech on the internet.
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