by Alexander Trigaux, Editor, GoldSilver
It stands to reason that if we have indeed been experiencing an Everything Bubble, we will experience an Everything Collapse.
According to Deutsche Bank and Bloomberg, more asset classes have fallen in unison this year than they have in 117 years of previously recorded data.
90% of the investable universe has posted a negative total return in 2018. Yes, this includes gold, which usually falls in tandem with the markets at first as investors liquidate everything they own to meet margin calls and source liquidity.
But then…
So the question to ask is “Are we closer to the end of this pullback, or is this just the beginning?” Is this mid-correction, or beginning collapse?
The only long-term metric of any use whatsoever in predicting stock market cycles is underlying valuation. Let’s take a look at where the current market valued vs. past markets.
Source: The Effect of a Stock Market Collapse on Silver & Gold, Jeff Clark, GoldSilver
Using John Hussman’s variant of Robert Shiller’s CAPE (Cyclically Adjusted PE) ratio, the current stock market is the most expensive and overvalued stock market of all time when valued by price-to-earnings ratio.
Compared to past overvalued markets and then extrapolating out 12 years from their actual returns, Hussman projects a negative total 12-year return for the S&P 500. As in, based on current valuations, he predicts that if you invest in the S&P 500 right now, in 2030, you will have less money than when you started.
I’ll say this again, because it is important. Over the completion of the current market cycle, I fully expect the S&P 500 to lose close to two-thirds of its value from the recent peak.
Not adjusted for inflation. Put in $1,000, and you’ll end up with about $990. Of course, all the while, inflation will have been eroding the buying power of those dollars, making them worth less and less.
An unprecedented Everything Bubble is giving way to an unprecedented Everything Collapse. Historically speaking, when everything else crumbles and investors seek the singular most reliable and best store of value in the world?
Gold. Always gold. Which just so happens to be at inflation-adjusted 50-year lows.
The confluence of the most overvalued stock market of all time, an impending Everything Collapse, and the most undervalued gold of a lifetime. Seldom are opportunities gift-wrapped this nicely. And just before the holidays, too.