Most People Have No Idea How Much Stocks Are Likely To Crash

Most People Have No Idea How Much Stocks Are Likely To Crash. By John Hussman.

The biggest theme in markets is that ratios eventually revert to their mean (or average). No, it’s not different this time.

A return to average on this graph implies a drop of about 75%.

US stock market price-earning ratio (adjusted)

Why is it so hard to accept that speculative bubbles can burst? Interest rates were driven to zero for a decade. Yield-starved investors chased stocks to valuations beyond the 1929 and 2000 extremes. That speculation front-loaded more than a decade of future market gains into the present. Those gains are now behind us, embedded in breathtaking multiples. If history is any guide, a collapse in valuations is likely to return those gains to the future.

Mish Shedlock:

Is there any escape? In aggregate no. For every seller there is a buyer. In this case a buy-the-dipper. Someone must hold every stock every step of the way down, and pension funds will do just that.

Individually, investors have a choice. You can cash out, lighten up, or try to buy value. … But most won’t. It is extremely difficult to believe what … Hussman is saying, and what I am saying. …

The upcoming decline will shock most bears. Many will buy the dip, then that dip and then the next dip. Some hedge funds will do this with leverage and blow up.

If you just retired and think you have a big nest egg and can ride it out in equities, expect your portfolio to fall by 50%, minimum.

If you are age 24 with few assets, you should be rooting for an epic decline. …

For sure, the Fed will “try” to halt the decline. And so will Congress by sloshing money everywhere.

The beneficiary of fiscal and Fed stimulus is highly likely to be gold.

Faith in the Fed is a key driver for gold. And it blew the third major bubble in just over 20 years.

The Fed has no credibility and that should already be obvious. Soon it will be unavoidably obvious.

Meanwhile, to discourage investors from thinking about gold, just as they did in the crash in March 2020 at the beginning of the covid scare, last night the market manipulators in New York dropped the price of gold by $100. War in Europe, and the price of gold drops??!! Sure.