Tuesday , 19 March 2024

SELL! U.S. Stock Market Is An Investor’s Nightmare – Here’s Why (+2K Views)

At today’s lofty prices, the U.S. stock market is worse than overvalued. It’s a stockcrashimages-1speculator’s nightmare: minimal upside with retirement-ruining downside. Sell your stocks and wait for the stock market to revert to its mean, as it always does. Below, you’ll find…clues…that will warn when a stock market decline is not just inevitable, but imminent.

The above are edited excerpts from a post* by Dan Steinhart, Managing Editor (caseyresearch.com), introducing an article below by John Hussman (hussmanfunds.com) both of which are titled  Dimes on Black and Dynamite on Red.

The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), and the FREE Market Intelligence Report newsletter (register here; sample here).  This paragraph must be included in any article re-posting to avoid copyright infringement.

Edited excerpts from Hussman’s article are as follows: (You can find more of John’s analysis on his Fund’s website.)

The stock market is presently a roulette wheel with dimes on black and dynamite on red. We continue to have extreme concerns about the extent of potential market losses over the completion of the present market cycle and, at the same time, we have very little view with regard to short-term market action.

If one reviews market action surrounding major pre-crash peaks such as 1929, 1972, 1987, 2000, and 2007, you’ll observe a sort of “resilience” in the major indices on a day-to-day and week-to-week basis even after market internals had already corroded.For example,

  • in 1987, for example, the break following the August bull market peak was largely recovered over the course of several weeks before failing rapidly in October,
  • in 2000, the market actually experienced a series of 10-12% corrections and recoveries before a final high in September that was followed by a loss of half the market’s value, and
  • in 2007, the initial break in mid-summer was fully recovered, with the market registering a fresh nominal high in early October that marked the end of the bull market and the start of a 55% market collapse.

As economic historian J.K. Galbraith wrote about the advance leading up to the 1929 crash, the market’s gains “had an aspect of great reliability… Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in February and March of 1929, it seemed that the end had come. On various of these occasions the Times happily reported the return to reality – and then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit but it has long since been forgotten that for many months those who resisted reassurance were similarly, if less permanently, discredited.

None of this implies that the market will or must collapse in short order. Stocks remain strenuously overvalued, overbought, and overbullish, but those conditions have persisted uncorrected much longer in the present instance than they have historically. That doesn’t encourage us to abandon our concerns, but it does make us less aggressive about investment stances that rely on any immediate unwinding of what we continue to view, along with 1929 and 2000, as one of the three most reckless equity bubbles in the historical record.

Our perspective is straightforward:

  • on the basis of measures that have been reliably correlated with actual subsequent market returns in market cycles across a century of data, we estimate that the S&P 500 Index will be no higher a decade from now than it is today.
  • on the basis of nominal total returns (including dividends), we estimate zero or negative returns for the S&P 500 on every horizon shorter than about eight years.
  • At the same time, we don’t have strong views about immediate market prospects. Still, even a run-of-the-mill completion to the present market cycle would wipe out more than half of the market’s gains since the 2009 low, so whatever gains the market experiences in the interim are likely to be transitory, and few investors will retain them by exiting anywhere near the top.
  • Frankly, we doubt that the present cycle will be completed with the S&P 500 even above 1,000 (a level that we would associate with historically normal subsequent total returns of roughly 10% annually).
  • We readily accept that 3-4 more years of zero interest-rate policy would justify market valuations 12-16% above what would otherwise be “fair value” (see Optimism vs. Arithmetic to see why), but we also recognize that the vast majority of bear markets have overshot to the downside. In short, an informed view of market history easily admits the likelihood that the S&P 500 will lose half of its value over the completion of the present cycle. While we could certainly observe very constructive or even aggressive opportunities without that outcome, those opportunities, however, are most likely to coincide with a material, if less extreme, retreat in valuations, coupled with an early improvement in market internals.
  • Here and now, we don’t observe any investment merit in equities, and with market internals deteriorating, any remaining speculative merit has also receded quickly.

As I emphasized last week, “While we’re already observing cracks in market internals in the form of breakdowns in small-cap stocks, high yield bond prices, market breadth, and other areas, it’s not clear yet whether the risk preferences of investors have shifted durably. As we saw in multiple early selloffs and recoveries near the 2007, 2000, and 1929 bull market peaks (the only peaks that rival the present one), the ‘buy the dip’ mentality can introduce periodic recovery attempts even in markets that are quite precarious from a full cycle perspective. Still, it’s helpful to be aware of how compressed risk premiums unwind. They rarely do so in one fell swoop, but they also rarely do so gradually and diagonally. Compressed risk premiums normalize in spikes.

The above mentioned spikes:

  • will make it quite difficult to exit in the nice, orderly manner that speculators seem to imagine will be possible…[and]
  • readily observable warnings (beyond those we already observe) are not likely to provide a clear exit signal.

Galbraith reminds us that the 1929 market crash did not have observable catalysts. Rather, his description is very much in line with the view that the market crashed first, and the underlying economic strains emerged later:

“[T]he crash did not come—as some have suggested—because the market suddenly became aware that a serious depression was in the offing. A depression, serious or otherwise, could not be foreseen when the market fell. There is still the possibility that the downturn in the indexes frightened the speculators, led them to unload their stocks, and so punctured a bubble that had in any case to be punctured one day. This is more plausible.

Some people who were watching the indexes may have been persuaded by this intelligence to sell, and others may have been encouraged to follow. This is not very important, for it is in the nature of a speculative boom that almost anything can collapse it. Any serious shock to confidence can cause sales by those speculators who have always hoped to get out before the final collapse, but after all possible gains from rising prices have been reaped. Their pessimism will infect those simpler souls who had thought the market might go up forever but who now will change their minds and sell. Soon there will be margin calls, and still others will be forced to sell. So the bubble breaks.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.caseyresearch.com/cdd/dimes-on-black-and-dynamite-on-red (© 2014 Casey Research, LLC; All rights reserved)

If you liked this article then “Follow the munKNEE” & get each new post via

Related Articles:

1. Harry Dent: Get Into Cash – Stock Market Will Crash to 5,500-6,000 By 2017!

You have to get out of stocks. Stocks have bubbled again and when they go down they’re going to go down hard. Read More »

2. Coming Bear Market Could Turn Into A Historic Crash – Here’s Why

Amazingly, we are on the verge of a global deflationary downturn and what could be a historic bear market, yet Wall Street prognosticators remain focused on the inflationary risks of excessive monetary stimulus. Their focus could not be more wrong. Let me explain further. Read More »

3. What Does the “Market Map Model” Say About Future Direction Of U.S. Stocks, Interest Rates & Commodities?

If the past long-term cyclical correlations between interest rates, equities, and commodities were to play out as they have done going back to the 1880s, U.S. stocks and interest rates should continue to rise as commodities either fall or underperform according to a 60-year cyclical pattern model referred to as The Market Map. Read More »

4. It’s Just A Matter Of Time Before the Stock Market Bubble Is Pricked! Here’s Why

Once again the stock market is in full bubble mode. The market was already overvalued earlier this year and the froth continues to build. Valuations are off the chart and euphoria is setting in while, at the same time, you have inflation eroding the purchasing power of regular Americans not participating in this casino. All the signs of a bubble top are there – massive speculation, unexplainable valuations, and blind optimism – even though the fundamentals don’t make any sense. This article substantiates that contention. Read More »

5. These 6 Indicators Reveal A Great Deal About Market’s “Upside” Potential

Trying to predict markets more than a couple of days into the future is nothing more than a “wild ass guess” at best but, that being said, we can make some reasonable assumptions about potential outcomes based on our extensive analysis of these 6 specific price trend and momentum indicators. Read More »

6. What Does the 10-year Yield’s Death Cross Mean For Stocks?

The 10-year yield’s Death Cross has proven to be a pretty significant risk-off shot across the bow over the last decade and this matters today because the 10-year yield put in a Death Cross back in early April of this year. So what does the 10-Year’s Death Cross mean for stocks this time? Read More »

7. Financial Asset Values Hang In Mid-air Like Wile E. Coyote – Here’s Why

The financial markets are drastically over-capitalizing earnings and over-valuing all asset classes so, as the Fed and its central bank confederates around the world increasingly run out of excuses for extending the radical monetary experiments of the present era, even the gamblers will come to recognize who is really the Wile E Coyote in the piece. Then they will panic. Read More »

8. Look Out Below? Buffett Market Indicator Has Now Surpassed 2007 Level

Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett and it is now at the second highest level in the past 60 years – even surpassing the levels reached in 2007. Read More »

9. World’s Stock Markets Are Saying “Let’s Get Ready to Tumble!”

To ignore all the compelling charts and data below would be irresponsible and, as such, will NOT go unnoticed by institutional investors. Such bearish barometers for stocks worldwide will, unfortunately, be ignored by the ignorant and gullible hoi pollo causing them severe financial loss as investor complacency in the past has nearly always led to a stock market crash. Read More »

10. Stock Market Bubble to “POP” and Cause Global Depression

In their infinite wisdom the Fed thinks they have rescued the economy by inflating asset prices and creating a so called “wealth affect”. In reality they have created the conditions for the next Great Depression and now it’s just a matter of time…[until] the forces of regression collapse this parabolic structure. When they do it will drag the global economy into the next depression. Let me explain further. Read More »