Worst Case Scenario: 73% Down From Here
By Tyler Durden
As Main Street dies, Wall Street has been paved in gold.
The S&P 500 soared to all-time highs, with 40% gains from the September 2012 QE3 launch until its cessation in October 2014. Like a heroine addict, Wall Street has experienced withdrawal symptoms ever since, and begs for more monetary easing injections. Yellen and her gang of central bank drug dealers keep the patient from dying by continuing doses of ZIRP and psychologically comforting dialogue designed to cheer up Wall Street bankers.
QE3 ended 17 months ago and shockingly the S&P 500 is exactly where it was 17 months ago. How many bull markets go flat for 17 months? As John Hussman accurately points out, we are experiencing a topping formation in the third and biggest bubble of the last 16 years. It’s a long way down from here.
With the S&P 500 Index at the same level it set in early-November 2014, and the broad NYSE Composite Index unchanged since October 2013, the stock market continues to trace out a massive arc that is likely to be recognized, in hindsight, as the top formation of the third financial bubble in 16 years.
The chart below shows monthly bars for the S&P 500 since 1995. It’s difficult to imagine that the current situation will end well, but it’s quite easy to lose a full-cycle perspective when so much focus is placed on day-to-day fluctuations. The repeated speculative episodes since 2000 have taken historically-reliable valuation measures to extremes seen previously only at the 1929 peak and to a lesser extent, the 1937 peak (which was also followed by a market loss of 50%). Throughout history, at each valuation extreme – certainly in 2000, 2007 and today – investors have openly embraced rich valuations in the belief that they represent some new, modern and acceptable “norm”, failing to recognize the virtually one-to-one correspondence between elevated valuations and depressed subsequent investment outcomes.
So we’ve had the stock market going nowhere for 17 months, with valuations at obscene levels based on all historical precedents, corporate profits falling for three straight quarters, real wages of working people stagnant at 1988 levels, and home prices soaring to unreachable heights due to hot money from China, Wall Street hedge funds, and the ever resilient and late flipper class. Consumer spending, which accounts for 67% of our economy, is dead in the water as Obamacare, soaring rents, rising food costs and 0% interest on savings accounts drain the life out of middle class households. The average person (not Wall Street bankers, government apparatchiks, or other parasites of the establishment) is experiencing and has been experiencing a recession for years.
Low interest rates and double talk from clueless academic Federal Reserve lackeys cannot and will not prop up the stock market forever. Corporate buybacks, financed with cheap debt, by insanely greedy CEOs is the last leg in this wobbly stool. This will come to a …read more
Source: Worst Case Scenario: 73% Down From Here
