Sky high stock and bond prices have former Reagan Administration White House Budget Director David Stockman worried because we are on our way to a big financial crash. Stockman explains, “Yes, absolutely. The market is insanely valued right now. They were trying to tag, the robo machines and day traders, they were trying to tag 2,400 on the S&P 500. They ended up at 2,399, I think, but the point is that represents about 25 times trailing earnings for 2016. We are at a point in the so-called recovery that has already lasted 96 months. It’s almost the longest one in history. What the market is saying is we have reached the point of full employment forever. There will never be another recession or any kind of economic surprise or upset or dislocation. The market is pricing itself for perfection for all of eternity. This is crazy. . . . I think the market could easily drop to 1,600 or 1,300. It could drop by 40% or even more once the fantasy ends. When the government shows its true colors, that it’s headed for a fiscal blood bath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all. I mean it’s not going to happen. They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade. It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.”
So, when is cold hard reality going to set in? Stockman contends, “There will be no bid for the stock once the panic sets in. We’re going to hit an air pocket. The S&P 500 is going to drop by hundreds and hundreds of points sometime over the next few months as we drift into this unexpected crisis. . . . I would target sometime between August and November because that’s when the rubber is going to meet the road on a debt ceiling increase when they are out of cash. Washington is going to end up in vicious political conflict over what to do about the debt ceiling. . . . It is going to be one giant fiscal bloodbath the likes of which we have never seen.”
So, what should you do right now? Stockman says, “The main thing is get out of the markets. These markets are unstable. They’re rigged, and there is no reason to own stock at this point of the game. It is so overvalued. Maybe you can get another two or three percent up, but you are facing another 30% or 40% down. The risk/reward is horrible. . . . The bond market is one giant bubble because the central banks have been buying all these bonds worldwide. They’ve been buying trillions of dollars’ worth, and they are still buying a trillion dollars’ worth on an annual basis. All that is coming to a halt. The Fed has finally run out of dry powder. They are out of the bond buying business. They are even talking about the initiation of the shrinkage of their balance sheet. That clearly needs to happen . . . . The central banks are finally getting to the end of the road. There isn’t going to be any more money printing, and that is going to leave a giant mess on the doorstep of all the fiscal authorities. It’s going to make the bond market a particularly dangerous place. There is a $100 trillion global bond market, and this is the biggest bond bubble the world has ever seen.”
In closing, Stockman recommended, “Get out of the stock market. Get out of the bond market and buy some gold.”
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.