U.S.
Stock
Market Crash
Japanese Style?
Why I think Stocks Won’t Crash Spectacularly but May Zigzag Lower in Agonizing Ups-and-Downs, Possibly for Decades
The S&P 500 has more than tripled over the past eight years; the Nasdaq has more than quadrupled. Practically everyone knows – even the Fed has gingerly admitted it – that the stock market is way overvalued, that price-earnings ratios for companies that have earnings have reached dizzying heights, and that the market is primed to unravel either on Tuesday or next year or whenever.
But here’s the thing: the more investors prepare for this by putting large amounts of money aside to plow into a crashing market to pick up the pieces, the more likely they will be to stop the crash in its tracks.
This can go on for many years – a brutal zigzagging lower that never quite offers the buying opportunities because too much money jumps in too soon to turn selloffs into rallies that then fail. Japanese stocks have gone through this since 1989 despite the Bank of Japan’s umpteen rounds of QE and endless interest rate repression. And they’re still going through it, with the Nikkei down nearly 50% from its peak almost three decades ago.
DYI:
Knowing what you do know is important; knowing what you don’t know is
imperative! What I do know is the U.S.
stock market is horribly overvalued which will produce dismal future
returns. How dismal? Estimated average annualized nominal return
over the next 10 to 12 years is around 0.0%!
What I don’t know is how or when the downturn will take place. I’ve advocated a 45% to 60% market smash –
which I believe is not only possible but probable – as sincere as I’m am,
sincerity is an over rated virtue and prone to possible error.
The year 2000 marked the end of the great
bull market that began in July of 1982.
A complete mean inversion where the Shiller PE10 was under 10
and then sky rocketed to 44 times Shiller PE10 a massive bull market
peak and yet here we are 17 years later stocks are not even close to a bear
market secular low (Shiller PE10 under 10)! WOW!
Are we not roller coasting just like the Japanese? Looks like it to me. This scenario would not have been my first
guess and yet here we are Japanese style.
If it were not for the Trump rally stocks on
a real (after inflation) basis would have been no higher than the year
2000. An individual who invested a lump
sum back in August of 2000 reinvested dividends with an S&P 500 index fund
would be madder than a wet hen as 17 years later he is finally showing minuscule profits. A clear case of
valuations do matter to one’s financial health.
Be that as it may be…. Whether U.S. stocks
continue their Japanese roller coaster or imparts upon a market crash, DYI will
be guided by valuations to determine the percentage asset allocation for
stocks, long term bonds, or gold precious metals mining companies.
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