The longest bull market in history could be showing worrying echoes of one of the greatest crashes Wall Street has ever seen.
Robert Shiller, professor of economics at Yale University and a Nobel laureate, says the steep run-up in this market rally is similar to the excesses of the 1920s before the October 1929 market crash and Great Depression.
"The 1920s is quite a legend that people are often thinking about," Shiller said Friday on CNBC's "Trading Nation." "I look at 1929 particularly as the end of the roaring '20s and it ended in a bout of speculation. Between May and September of '29 the stock market went up over 30 percent in just a few months."
Rapid stock market rises began even earlier. From the beginning of 1928 to Black Thursday on Oct. 24, 1929, the S&P 500 surged nearly 50 percent. Over the next five days, the index plummeted 23 percent. It had reached an all-time high just a month before the crash.
"At that time it seemed like it was a kind of gambling. The word gambling was used a lot to describe the market at that time so it became vulnerable. We're not exactly in that circumstance but we do have the market that has surged since 2009 so there is something of that spirit today," he said.
The S&P 500 hit its market bottom in March 2009. Since those lows, the S&P 500 has rallied 334 percent in the longest stretch on record since World War II without dipping into a bear market.
While markets briefly fell into a correction earlier this year, stocks quickly recovered to reach new heights as recently as late September. Shiller says this rebound is driven more by the bullish market narrative than hard data.
"It's something about capitalism and the advancement of people willing to take risks. We have a role model in the White House who models that," said Shiller. "Something like that has driven not just the stock market but the whole economy up in the United States and makes the United States the most expensive stock market in the world."
The roaring '20s and dot-com mania of the 1990s share in some of that bullish sentiment, said Shiller.
"It was a similar story that was boosting the market but they don't last forever and eventually the story starts to wilt," he said. "It's animal spirits — people's excitement about the stock market, bitcoin and other things."
Bailouts and interest rates have been used by the FEDs to “bolster” the market. To me that means – create a bigger bubble. This is the longest running Bull market in history. The purpose of the ”stimulus” is to give us a false sense of security; Borrow more at low rates, go into debt, and then borrow for even more debt.
ReplyDeleteNow, what about the timing of the bubble. The FEDs have started to raise the interest rate. The time of easy money is over. When the easy money is gone, the crash is near. Using loans upon loans in a continuing borrowing cycle to keep your business corporations alive is just about gone. Without these easy interest rates the corporation can no longer afford to take on more debt.
Presently the FEDs are blaming inflation for the rise in interest rates. Inflation rates have been so far out of whack from the reported rate that it is unbelievable. I believe the FED has approximately two or three more moves before the interest rate reaches a pace which cannot be sustained by corporations and individuals. I believe this is their window on the next crash. So, when is the next crash. The FEDs raised the interest rate in September. The FED meet approximately every 6 weeks. So, the next raise could be early November (7-8)… And thereafter in December (18-19).
The central bank now needs someone else to blame the upcoming crash on. I don’t think it is a coincidence that almost every escalation in the trade war that happens to take place, the bank announces an interest rate jump. The FEDs tightening the market has resulted in a severe reaction by emerging markets; The latest being the China market. They will simply blame Trump’s trade war policies for the economic crash.
Back to the timing of the bubble. In 2018 bad economic news keeps rolling in. The underlying economic numbers are clearly telling us that enormous problems are right around the corner. If, as I predict, the Democrats DO NOT GAIN CONTROL of the House and/or Senate this fall because of the fiasco they created over voting for Kavanagh. I believe they will revolt and start a rebellion... A good time to blame Trump’s policies. And, if the FED continues its current path, the next stock crash could be easily as early as December 2018 or the first quarter of 2019. After that any sector of the economy which is unstable will continue to break down during 2019 and 2020.
Now, God could take control and make the crash happen by inducing a great earthquake in Utah and California. I would remind you of the decline in Japan’s economy after their 2011 9.0 earthquake, Tsunami and Nuclear disaster. That was a multiple disaster. First it destroyed over 360 billion in assets. Rebuilding took several years. Second, it destroyed the nuclear reactor which caused them to replace its production of power with oil or coal. Third, it added to Japan’s economic challenges by the addition of massive governmental debt. Forth, it caused raising prices and labor problems, effecting Japan’s shipping ports (Think California). Fifth, it slowed growth because of needed repairs on producing manufactures and relying in imports. (trade deficits) Some plants continued to be closed for a couple of years. And lastly, it slowed Global Growth throughout the world. Their market plunged 20% on March 14 within just 3 days (Earthquake March 11). After 9/11 the NYSE remained closed for a week. On the first day of opening it dropped 7.1%; the biggest loss in exchange history. California’s economy is the 5th biggest in the world. Just think what would happen to the US and the World if California’s economy collapsed… let along the US economy.
Expansion leads to contraction, what goes up must come down. Central banks understand this very well. The market has be manipulated for a very long time. The concept new to naive people is that the banks want continuous economic upturn. The reality is that the elites create the artificial bubble then deliberately exploit them at opportunistic moments.
ReplyDeleteGenerally the bankers mislead the public to believe that the crashes are the result of mistakes like 2008. They do not mention the fact that they use these crashes to control assets, resources and governments. It is certainly no mistake that after every crash they get wealthier.
Yet another crash is being weaponized by the banks. This time I think the motive behind it are different. I think the next phase is to restructure the global monetary climate. They have used the term “economic reset” like it is a code word. This global reset would need a global financial bubble burst. Which is exactly what we are seeing in the world today.
Bailouts and interest rates have been used by the FEDs to “bolster” the market. To me that means – create a bigger bubble. This is the longest running Bull market in history. The purpose of the ”stimulus” is to give us a false sense of security; Borrow more at low rates, go into debt, and then borrow for even more debt.
Now, what about the timing of the bubble. The FEDs have started to raise the interest rate. The time of easy money is over. When the easy money is gone, the crash is near. Using loans upon loans in a continuing borrowing cycle to keep your business corporations alive is just about gone. Without these easy interest rates the corporation can no longer afford to take on more debt.
Presently the FEDs are blaming inflation for the rise in interest rates. Inflation rates have been so far out of whack from the reported rate that it is unbelievable. I believe the FED has approximately two or three more moves before the interest rate reaches a pace which cannot be sustained by corporations and individuals. I believe this is their window on the next crash. So, when is the next crash. The FEDs raised the interest rate in September. The FED meet approximately every 6 weeks. So, the next raise could be early November (7-8)… And thereafter in December (18-19).