Stocks Primed for a Devastating, 1930’s Style Collapse
A stock market crash appears imminent. A number of renowned economists and even a few well-known investors are warning the industry that a crash is on the horizon. With sales and earnings rolling over sharply, the markets are on shaky ground since earnings drive stocks. Economist Andrew Smithers said, “U.S. stocks are now about 80 percent overvalued.” Carl Icahn, the famous billionaire, also weighed in on the market’s current conditions. During a national broadcast, he said, “The public is walking into a trap again as they did in 2007.”
Backing Up a Prediction
Smithers supports his prediction by using a ratio. His ratio confirms that the only other times throughout history that stocks were as perilous as they are now was in 1929 and again in 1999. During 1929, stocks fell by 89 percent, and in 1999, they fell by 50 percent.
When speculation takes hold of investors, they sometimes forget what drives stocks. The only real reason for people to purchase a stock is to share its profits through dividends or earnings. Today’s market growth is happening at a moment in which stocks are experiencing more growth than earnings merit.
The Royal Bank of Scotland is even bailing on the markets saying that stocks are currently sending distress signals that are similar to the ones that appeared before the 2008 crisis. The bank advised its clients to “sell everything because in a crowded hall, the exit doors are small.”
According to research, stocks are more stretched than they have been at any other time during the last 10 years. Because of this, investors should at least be prepared for a 10 percent to 15 percent correction if not a full-on crash in the upcoming months.
James Davidson Makes an Alarming Prediction
James Dale Davidson, the celebrated economist who accurately predicted the market collapses that occurred in 1999 and 2007, has issued his own warning that investors should heed. Davidson said, “There are three key economic indicators screaming sell. They don’t imply that a 50 percent collapse is looming. It’s already at our doorstep.”
Investors know that when Davidson shares a market prediction, he has the evidence to back it up. In keeping with his routine, Davidson released a video featuring 20 indisputable charts verifying why a 50 percent stock market crash has arrived.
Billionaires are Leaving the Party
When it comes to stock market investing, everyday investors often pay attention to the nation’s most influential businesspeople and investors. This list includes names like Warren Buffett and George Soros. Their investing prowess has allowed them to accumulate a fortune. Instead of putting their money in U.S. stocks, successful investors are changing their tactics.
For instance, during the last few years, Berkshire Hathaway, which is Warren Buffett’s holding company, has been unloading its exposure to stocks that depend on consumer spending. Toward the end of the second quarter in 2012, Buffett’s company owned 10.33 million shares of Johnson & Johnson, but by the end of this same quarter in 2014, it held just 327,100 shares. The company completed a similar action with its Kraft Foods Group stock. With a market correction likely on the way, Berkshire Hathaway has expanded its Wells Fargo & Company holdings. The company also retained stakes in American Express and U.S. Bancorp.
The Chairman of Soros Fund Management, George Soros, also made changes to his company’s holdings. During the first quarter of 2014, his company got rid of its holdings with several major financial institutions. Soros Fund Management sold stock in Bank of America, Citigroup and JPMorgan.
The Economic Outlook Wanes
The stock market should reflect the country’s economy, but right now, that isn’t the case. Most Americans are unaware that the country is in the middle of a recovery. As with the stock market, the nation’s economy exhibits a good impression on paper. Interest rates are low while the unemployment rate is below 6 percent.
Those who take a closer look at the economy will discover that the country’s underemployment rate is still too high at 14.6 percent while wages have stagnated. Individual debt levels are also high, and more than half of the country’s residents live paycheck-to-paycheck.
Preparing for the Crash
If everyday investors listen to the advice of analysts, prediction pros and billionaires, then they’ll soon move their money into more stable investments. Keep in mind that the nation has never experienced a crash that didn’t result in a stock market recovery. For more details regarding the recent stock market predictions, head over to the Personal Money Store website.