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…We are now at the end of a major economic era [and] bubbles in many asset markets and commodities are typical for the end of a cycle. This is exactly what we have seen in this century with historical overvaluations of stock, bond, and property values.@$$4$
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Stock Prices
@$The Buffett Indicator now shows U.S. stocks at over 200% above GDP. This is an epic overvaluation and massively above the 2000 high of 140%. See graph below.
Jeremy Grantham agrees that this US Super Bubble is shockingly overpriced and maintains that it will not just return to the mean but will go beyond trend on the downside just as it has on the upside. What few investors…[understand, though,] is that in the next decline, buying the dips will fail [unlike those of] 1973 (not shown), 1987, 2000, 2007 and 2020 [in which] virtually every fall during those five bear markets/corrections look like a blip on the chart today.
Just like the Dow in 1929 which fell 90% between 1929 and 1932 and then took 25 years in nominal terms, until 1954, to recover to the 1929 high
and the Nikkei which peaked in 1989 at 39,000 and subsequently fell by 89% and today, 33 years later, has still not reached the 1989 peak in spite of massive money printing and debasement of the currency, so any investor who has the idea of buying the dips, when the Super Bubble soon bursts, is going to get the shock of a life time as he trades in and out of super volatile market which relentlessly turns down after every rally and reaches new lows.
The average investor will continue to expect that the Fed Put (the Fed Put in simple terms means that the Fed saves the stock market by printing enough money and manipulating interest rates so that stocks quickly recover) will work as it have done in the past but, sadly this time, the Fed Put will not work, although most dip buyers will not realize that until it is much too late and so they will ride the coming super bear until they have lost most of their money in real terms. No one goes bankrupt by taking profit too early but many will lose everything by holding on until the top and then riding the market all the way down.
Bond Prices
The bond market is equally dangerous and a bubble as great as the stock market. The Federal Funds rate peaked in 1981 at 19% and has been in a 40 year downtrend and, since the Great Financial Crisis in 2008, Fed Funds have been around 0%. (continue reading here).
Property Values
@$$The U.S. housing bubble is looking more dangerous than during the sub-prime crisis in 2006-8. If we just look at the median sales price for new homes, they are up 150% since 2007.
Mortgage Loans
@$$$With higher house prices, mortgage loans are also growing and are now $17.6 trillion, which is 20% above the 2008 peak. It is a virtual certainty that with historically low interest rates, the quality of mortgage loans as well as the leverage is as unsound as in 2006-8.Therefore, yet another problem in the mortgage debt market is very likely.
U.S. Dollar
Another problem area for the US is the artificially strong US dollar. Since the closing of the gold window in 1971, the dollar has declined rapidly. Against the strong Swiss franc for example, the dollar has fallen 80% since 1971. It now looks like the dollar has just turned down again and I would expect a 40-50% fall against the Swiss franc in the next few years.
Summary
@$$$$Starting in 2022, we will see:
- falls of 75-95% in US stocks (in real terms),
- a collapsing bond market,
- a collapsing property market,
- a much weaker dollar,
- high inflation and
- debt will continue to increase until one day the whole debt market collapses, led by the $2 quadrillion derivative market.
Conclusion
What will the solution be? [The answer is physical gold which has] maintained its intrinsic value for 5,000 years and been the best asset to hold in periods of crisis in order to preserve wealth.
…Gold moved up for 12 years from $250 in 1999 to $1,920 in 2011 and we are just seeing the end of a 11 year consolidation that is on the verge of breaking out to much higher highs so there is not much time left to buy gold and silver at these bargain prices.
Finally, let us leave the last word to Confucius again with the addition of just two words:
If you think in terms of a year, plant a seed, if in terms of ten years, plant trees, if in terms of 100 years or more – teach the people about GOLD – Confucius
The above version of the original article by Egon von Greyerz was edited [ ] and abridged (…) to provide you with a faster and easier read.
Editor’s Note: The above article is sponsored by Dominique C. from Holland. You can become a sponsor, too, by going here and making a donation. You will receive a public or private acknowledgement (your choice) and also receive the 258-page e-book entitled WEALTH IF YOU WANT IT (introduction here) as a thank you.
