We all know by now that the U.S. stock industry is in a huge bubble, and stock bubbles are by no means a new phenomenon in the global equity markets – there are always periods of development and periods of decline. While some argue that the current valuations mark a booming period for equities, others are really worried about the recent rally, stressing that we’re on the verge of the biggest stock industry crash ever. That’s what financial writer Harry Dent has been warning, saying that the current industry is the riskiest since 1929 and we’re about to witness the most catastrophic collapse in all U.S. history. And he is not alone. Several other experts and multiple different measures are indicating that we’re fast approaching a disastrous stock bubble burst, and that’s what we are going to expose in this video.
Everywhere we look, there are evidences pointing out the stock industry bubble is getting increasingly unsustainable. On the other hand, everywhere we look, there is also someone claiming we shouldn’t worry about it. However, according to a recent Bloomberg study, when inventors start to dismiss indicators, risks, and warnings, that’s usually a sign they’re trying to hide something – or, at the very least, they are really making an effort to believe this time will be different.
But multiple indicators are showing the industry is at extremely stretched levels. Evidently, the stock industry is much more complex than metrics can measure, but when all major indexes are flashing a red warning light for a stock bubble burst, it’s just not clever to keep overlooking it and thinking it won’t hit you. And when we say, all major indexes, we really mean ALL of them. The Buffet Indicator. Tobin’s Q. The S&P 500’s Shiller price-to-earnings ratio. And even more alarmingly, Treasury bond yields.
Shiller’s index cyclically adjusts the price-earnings ratio and includes the last 10 years of earnings. On March 30, the S&P 500’s Shiller P/E ratio was at 35.61, more than doubling its 150-year average of 16.8, and marking the second-highest reading in its history. But whenever the index raised above 30, things did not end well. In the previous four cases where the Shiller P/E crossed above and held above 30, the stock industry crashed anywhere from 20% to as much as 89%. That doesn’t necessarily mean equities will plunge 89% now, but a big drop is certainly expected as valuations have been extended to record highs.
Another indicator raising concerns is the one developed by Nobel Prize-winning economist James Tobin in 1969, known as Tobin’s Q. The ratio compares the industry value to the adjusted net worth of companies. Current readings are suggesting the industry is almost surpassing the bubble peak reached in 2000. To Ned Davis, one of the most reliable financial analysts in the world, it’s a valuation metrics worth of attention, especially because now the indicator is roughly 40% above its long-term trend. Needless to say, with exceedingly high levels of corporate debt and high financial failure rates, the stock industry is in huge trouble.
Moreover, Warren Buffet’s indicator and the S&P 500 average price-to-revenue ratio are also sending the signal that a bubble burst is ahead. While the “Buffett Indicator,” is a ratio of the total industry capitalization of U.S. equities divided by gross domestic product, the S&P 500 average price-to-revenue ratio is based on current industry prices and sales rates of the past 12 months. The Buffet index is now currently at its highest-ever reading above its long-term trend, which implies high valuations aren’t supported by real development. While, the S&P 500 Price to Sales Ratio it’s at the highest point it’s been over the past 30-plus years, and that’s highly correlated with negative returns.
That’s why financial writer and industry-watcher Harry Dent is sounding the alarm for equities, arguing that this is the riskiest industry since 1929. “A huge collapse is coming,” Dent warns, pointing out that since there’s an everything bubble, “this may be the biggest bubble crash ever – equities, commodities, real estate. The next crash is the initiation of the next big economic depression, which will be much worse than the one in 2008-2009”.
With all that said, it’s pretty clear there’s no way around the next stock industry crash, and it’s going to be a BIG, a HUGE one! The evidences are there for all to see – and you should keep on watching the course of events that will trigger the most critical financial disaster ever, here, on Epic Economist. Thank you very much for watching! We hope to have you here for the next video.
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