World View: The 'Experts' Scramble to Explain the Stock Market Plunge
This morning's key headlines from GenerationalDynamics.com
- The 'experts' scramble to explain the stock market plunge
- The largest bubble in history
- Egypt's 'Tamarod' campaign heads for mass confrontation on June 30
The 'experts' scramble to explain the stock market plunge
S&P 500 Price/Earnings Ratio (P/E1) Index, 1871-present
I've written a couple of articles in the last four months that the
stock market bubble was rising so quickly that it was becoming
dangerously parabolic and might collapse at any time. The worldwide
selloff during the last week of stocks, bonds and commodities is
raising fears that the time is at hand. There is no way to predict
exactly when a crash will occur, or whether the current selloff is the
leading edge of a crash, but we can be absolutely certain that one is
coming at some point.
I hope that no regular readers of Generational Dynamics World
View are still in the stock market. If you are, then you have
no one to blame but yourself for what happens to you.
Mainstream economists are completely incompetent to recognize what's
happening. Just remember what mainstream economists were saying in
2006 about a possible real estate bubble that I and a few others were
It was not until 2010 that mainstream economists even admitted that
there had been a real estate bubble four years earlier. These
"experts" are so incompetent that they couldn't even recognize
something as obvious a huge real estate bubble until four years later.
This is the caliber of people you're depending on if you listen to
CNBC or read the financial news. You might as well ask your five year
old daughter for investment advice. It won't be any worse.
- "Housing prices can't go down -- people have to live
- "Banks won't foreclose -- it's not in their interest to do
- "These housing construction firms know what they're doing, and
they wouldn't be building houses if it were just a bubble."
- "Bubbles are impossible because of laws and regulations that were
put into place in the 1930s."
- "They're not making any more land, you know."
Last week's global selloff was apparently triggered by
a statement by Fed chairman Ben Bernanke that the Fed might
"taper" its policy of pumping $85 billion PER MONTH of
money into the banking system, which investors then used to
prop up the stock market. (Remember in 2007 how many people
complained about President Bush's $60 billion stimulus package?)
The reasons that analysts and "experts" gave in 2006 for why
there was no real estate bubble were ridiculous, and the reasons
we're hearing today for last week's stock market sellout sound
The reason that a big selloff must occur is that stocks are
- "The U.S. economy is so good that stocks will continue to go
- "People are being completely irrational to sell their stocks just
because of a few words from Ben Bernanke."
- "Bernanke's words are now priced into the market, so the market
will not go up again."
- "Whenever stock prices fall, investors rush in to take advantage
of the low prices, so stocks go up again, so now's the time to
- "The stock market fell over 50% in 2008, but economists figured
out what went wrong, so it won't happen again."
It's impossible to predict with certainty when the current bubble will
deflate, but it's possible that it's deflating right now. Stocks are
enormously overpriced by historical standards. According to Friday's
Wall Street Journal, the S&P 500 Price/Earnings index on Friday
(June 20) morning was 17.99, which is extremely high by historical
standards, indicating that stocks are far overpriced.
The largest bubble in history
If you look at the graph at the top of this article, you can
see what's going on. Every 30 years or so, the P/E index (also
called "stock valuations") falls to the 5-6 range, and it
appears to on its way down to that level again, which means
that the Dow index will fall to 3000 or lower.
What this graph also shows is that, since 1995, the stock market has
experienced the largest bubble in history. When it does collapse,
whether next week, next month, or next year, it will be the biggest
financial crisis in history. By the Law of Mean Reversion, the stock
market won't recover for decades.
The signs in the last week are that investors are selling everything
they can into order to pay off money they borrowed to invest in
stocks. A ZeroHedge article calls it "A Dash for Cash," and documents
how one asset class after another has fallen sharply in the last few
days. These asset classes include U.S. Treasuries, bonds from Spain,
Portugal, Greece, and Italy and other European countries, municipal
bonds, commodities, including gold and silver. There will be pressure
on Fed chairman Bernanke to reverse himself next week, even if a
reversal is a sign of desperation. Zero Hedge
Egypt's 'Tamarod' campaign heads for mass confrontation on June 30
Egypt's anti-government "Tamarod" (or "Rebel") campaign is calling for
massive demonstrations and protests on Sunday, June 30, in response to
to a rally by hundreds of thousands of Islamists in support of the
Muslim Brotherhood and president Mohamed Morsi on Friday (June 21) in
Cairo and other cities. The protesters plan to demand the resignation
of Morsi, and threaten to continue the protest until he resigns.
Morsi called for calm and accused the Tamarod protesters trying to
incite instability and of supporting the the regime of ousted
president Hosni Mubarak of inciting instability. On Saturday, he
warned the Tamarod protesters to restrain themselves on June 30:
"They want to bring back the past because the
revolution harmed their interests. (People) must stop their evil
plans because they do not want calm and stability for
There was already sporadic violence between supporters and opponents
of Morsi in Friday's pro-Morsi demonstrations. But now 34 political
parties have announced plans to participate in the upcoming anti-Morsi
protests, and some are promising smaller protests all week, leading up
to Sunday. It's feared that there will a lot more violence between
the two groups next Sunday. Daily News Egypt and Al-Ahram (Cairo)
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