by Umar Farooq
If you invested in the stock market, this news is for you. Wall Street has reached new heights, breaking all records. The market bulls are telling us that the reason for the Dow Jones topping 21,000 points is because of the zeal for U.S. President Donald Trump. His policies, they say, could drive that market to even greater heights, delivering even more vigorous returns. But, the reality is altogether different. Investors should prepare for a future stock market crash in 2017.
Several noted economists and distinguished investors are warning of a stock market crash.
“Jim Rogers, who founded the Quantum Fund with George Soros, went apocalyptic when he said that a $68 trillion ‘Biblical’ collapse is poised to wipe out millions of Americans. Mark Faber, Dr. Doom himself, recently told CNBC that investors are on the Titanic and stocks are about to endure a gut-wrenching drop that would rival the greatest crashes in stock market history. And the prophetic economist Andrew Smithers warns that U.S. stocks are now about 80% overvalued. Smithers back up his prediction using a ratio which proves that the only time in history stocks was this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89% and 50%, respectively. Even the Royal Bank of Scotland says the markets are flashing stress alerts akin to the 2008 crisis. They told their clients to sell everything because in a crowded hall, the exit doors are small.” banyanhill
“The American economy is not performing all that well. After the especially disappointing 0.7% gross domestic product (GDP) rate from March, the April figure of 1.7% was a relief. But it still suggests Trump’s target of three-percent annual growth remains distant. The unemployment rate has not changed significantly. Meanwhile, instead of an overall climate conducive to growth, Americans have to get used to unprecedented instability. Indeed, the stock market is overvalued in 2017 based on a combination of risk factors. Sooner or later, the market sentiment will become more cautious. Investors will start to pull back, fearing a greater bubble risk. But by then, it will likely be too late. It’s always too late. Nobody wants to call out a bubble for fear of making it burst. That’s what happened in 2000 with the tech bubble, and it’s also what happened in 2008. In fact, it’s what happened with the Wall Street Crash of 1929, with the subprime mortgage crisis, and the housing bubble”. Lombardiletter
Bottom-line is that Dow has been shattering all-time highs, but low interest rates have overinflated the value of the market. We can’t say with certainty an overvalued market will lead to a stock market crash, but these signs mean investors need to be prepared.
by Umar Farooq