munKNEE.com Your Key to Making Money
Extremes eventually reverse, and generally in rough symmetry with their explosive rise and we are reaching such extremes in valuation, complacency and margin debt.
The above edited excerpts come from this article by Charles Hugh Smith (oftwominds.com) entitled Markets Getting Extreme which also includes charts showing:
- the explosive rise in margin debt in the past few months,
- the diminishing returns of more margin debt at tops,
- China’s Shenzhen stock exchange P/E ratio (sentiment) reaching extremes of euphoria and
- a diverging ADX (a measure of trend strength) and the MACD rolling over into a sell signal, both suggesting strongly that the Shenzhen Composite bubble has burst.
When the speculative frenzy dissipates, central banks will be the only buyers left and unless the Fed increases its balance sheet from $4.5 trillion to $14.5 trillion in a matter of months, even central bank manipulation will be swamped by sellers exiting bursting-bubble markets.
Related Articles from the munKNEE Vault:
1. Both Stocks & Bonds Could Decline By 75% – Yes, 75%! – In Coming 10 Years – Here’s Why
The current credit-bubble boom in stocks and bonds is getting long in tooth after 34 years of relentless expansion, and the rise of securities to 400% of GDP is reaching extremes that are increasingly difficult to support, much less push higher. As such, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target. This implies a 75% decline in both stocks and bonds.
2. Curtains To Come Down 70% On Greatest Bull Market & Bubble In History By 2017
Where does the Dow go from here? Maybe up a little higher but, more likely, it’s all downhill from here though perhaps that statement is misleading. More like, down a cliff. Read More »
3. Major Market Gurus See Devastating Collapse of Global Bond Bubble Soon
There is literally nowhere for the bond market to go except down and, when this bull market turns into a bear, it will create chaos and financial devastation all over the planet. Read More »
4. Current Equity Market Valuations Defy Logic – Here’s Why
What is unique about this rally is the excessive premium being placed on future earnings and economic growth. Unfortunately, the level and term structure of interest rates are not confirming the broad logic behind these equity market valuations. In fact, they damn that logic. In the past, when high valuation measures occurred and subsequent GDP was weak, the stock market has posted substantial losses. What can we expect this time? Read More »
5. Warren Buffett’s Favorite Stock Market Valuation Tool Is Screaming Again
Warren Buffett’s favorite macro valuation tool is screaming that U.S. stocks are nearing bubble territory. This is a time to stay tactical, focus on income, and look to buy pockets of value as you see them. Read More »
6. Is This the Beginning of the Expected Stock Market Crash?
For months numerous articles have been posted on this site substantiating why a stock market collapse of epic proportions is in the cards to happen soon. The basis for such a conclusion are based on a diverse perspective that warrants your attention. With your money on the line – your future quality of lif