International Forecaster Weekly

Advisors Line Up to Call the Bubble Pop

Everyone wants to be the one who called it before it happened. And so it is that we see mainstream publications finally accepting reality.

James Corbett | July 30, 2014

The equity market is a overvalued. Stocks are in a bubble that has been blown by the Fed's artificially low interest rates. The price-to-earnings ratio has left all semblance of sanity behind. The bubble is going to pop and it won't be pretty when it does.

            Stop me if you've heard all this before. If you're a subscriber to the International Forecaster then you doubtless have heard it before. Numerous times. For the last several years. This is because Bob Chapman had the foresight and experience to see the writing on the wall when it came to the post-Lehman bailout and the Fed's emergency lending facilities and quantitative easing.

As he told me in any number of our conversations in the post-Lehman era, the bankers and the politicians in their back pocket were keeping everything moving sideways. They could do it for some time, maybe several years, but not forever. Eventually the piper would have to be paid. And so it should be no surprise to see where we are: the S&P and DJIA at record highs, P/E ratios that make no sense, consumer debt levels (and delinquency rates) on the ascendant once again, 10 year treasuries at 2.46% and a lot of advisors telling us that we're in for a 20 year bull run (yes, John Stephenson actually said this at the beginning of the year).

            But you don't have to look very hard to see another phenomenon occurring. Right now investment advisors from across the board are rushing to cover their assets for when the house of cards inevitably comes toppling down. No one wants to be left as one of the clueless smiling talking heads on one of the “Peter Schiff Was Right” viral videos laughing at the idea of a housing bubble in 2005/2006. Everyone wants to be the one who called it before it happened. And so it is that we see mainstream publications finally accepting reality.

            Case in point: A subsidiary of the Wall Street Journal, Marketwatch is not exactly known for its straight-shooting, hard-hitting independent analysis of the economy. Sure, they run stories on both the bullish and bearish side of the spectrum and occasionally break news of interest, but this isn't exactly Chapman-calibre information. Still, on Monday of this week there was an interesting one-two punch of top-listed headlines.

            The first was titled simply “This Stock Bubble is 'Beyond 1929 and 2007,' Says Hussman.” The report noted John Hussman of Hussman Fund's latest commentary (“Yes, This is an Equity Bubble”) calling the stock bubble for what it is. The story highlights Hussman's use of the cyclically adjusted price to equity ratio and shows a chart of nonfinancial market cap to GDP that shows the current ratio just shy of the 2000 bubble's all-time low. Noting just how far overvalued stocks have become, Hussman is quoted as saying: “My sense is that investors have indeed abandoned basic arithmetic here” before pointing out how the Fed is only making matters worse by running up a $4 trillion balance sheet and using zero interest rates to prolong the inevitable collapse.

            Posted right below that was a story that was no less bleak: “Stock trader who called three crashes sees 20% collapse.” Granted, the 20% stock pullback predicted in the story is not exactly out on a limb (even Goldman Sachs predicted a 10% pullback at the beginning of the year), that notes yet another way to measure the coming stock market doom: a divergence in the NYSE Tick and stock prices that indicates impending collapse. The last two times the Tick went down while stock prices rose (as they are right now) was Q1 2000 and Q3 2007. Talk about ominous.

            Keep in mind these reports come just weeks after the mainstream report from the banker-connected Official Monetary and Financial Institutions Forum revealed that a cluster of the world's central banks has amassed $29 trillion in market investments that "could potentially contribute to overheated asset prices." The signs are everywhere and unmistakable: even the mainstream talking heads and institutions are getting in front of the bubble pop so they could say “we told you so” once the dust has settled.

            When that process of collapse does start, just remember folks: you read it here first. And we'll be here to tell you what's really coming next.