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Guest Post:15 Signs That We Are Near The Peak Of The Stock Market Bubble

Tyler Durden's picture





 

Submitted by Michael Snyder of The Economic Collapse blog,

One of the men that won the Nobel Prize for economics this year says that "bubbles look like this" and that he is "most worried about the boom in the U.S. stock market."  But you don't have to be a Nobel Prize winner to see what is happening.  It should be glaringly apparent to anyone with half a brain.  The financial markets have been soaring while the overall economy has been stagnating Reckless injections of liquidity into the financial system by the Federal Reserve have pumped up stock prices to ridiculous extremes, and people are becoming concerned.  In fact, Google searches for the term "stock bubble" are now at the highest level that we have seen since November 2007. 

Despite assurances from the mainstream media and the Federal Reserve that everything is just fine, many Americans are beginning to realize that we have seen this movie before.  We saw it during the dotcom bubble, and we saw it during the lead up to the horrible financial crisis of 2008.  So precisely when will the bubble burst this time?  Nobody knows for sure, but without a doubt this irrational financial bubble will burst at some point.  Remember, a bubble is always the biggest right before it bursts, and the following are 15 signs that we are near the peak of an absolutely massive stock market bubble...

#1 Bob Shiller, one of the winners of this year's Nobel Prize for economics, says that "bubbles look like this" and that he is "most worried about the boom in the U.S. stock market."

#2 The total amount of margin debt has risen by 50 percent since January 2012 and it is now at the highest level ever recorded.  The last two times that margin debt skyrocketed like this were just before the bursting of the dotcom bubble in 2000 and just before the financial crisis of 2008.  When this house of cards comes crashing down, things are going to get very messy...

"When the tablecloth gets pulled out from under the place settings, you're going to have a lot of them crash and smash on the floor," said Uri Landesman, president of Platinum Partners hedge fund. "That margin's going to get pulled and everyone's going to have to cover. That's when you get really serious corrections."

#3 Since the bottom of the market in 2009, the Dow has jumped 143 percent, the S&P 500 is up 165 percent and the Nasdaq has risen an astounding 213 percent.  This does not reflect economic reality in any way, shape or form.

#4 Market research firm TrimTabs says that the S&P 500 is "very overpriced" right now.

#5 Marc Faber recently told CNBC that "we are in a gigantic speculative bubble".

#6 In the United States, Google searches for the term "stock bubble" are at the highest level that we have seen since November 2007 - just before the last stock market crash.

#7 Price to earnings ratios are very high right now...

The Dow was trading at 17.8 times the past four quarters of earnings of its 30 components, according to The Wall Street Journal on Friday. That was up from 13.7 times its earnings a year ago. The S&P 500 is trading at 18.7 times earnings. The Nasdaq-100 Index is trading at 21.5 times earnings. At the very least, the ratios are signaling that stock prices are rich.

#8 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.

#9 Twitter is a seven-year-old company that has never made a profit.  It actually lost 64.6 million dollars last quarter.  But according to the financial markets it is currently worth about 22 billion dollars.

#10 Right now, Facebook is trading at a valuation that is equivalent to approximately 100 years of earnings, and it is currently supposedly worth about 115 billion dollars.

#11 Howard Marks of Oaktree Capital recently stated that he believes that "markets are riskier than at any time since the depths of the 2008/9 crisis".

#12 As Graham Summers recently noted, retail investors are buying stocks at a level not seen since the peak of the dotcom bubble back in 2000.

#13 David Stockman, a former director of the Office of Management and Budget under President Ronald Reagan, believes that this financial bubble is going to end very badly...

"We have a massive bubble everywhere, from Japan, to China, Europe, to the UK.  As a result of this, I think world financial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future."

#14 Bob Janjuah of Nomura Securities believes that there "could be a 25% to 50% sell off in global stock markets" over the next couple of years.

#15 According John Hussman via Tyler Durden of Zero Hedge, the U.S. stock market is repeating a pattern that we have seen many times before.  According to him, we are experiencing "a well-defined syndrome of 'overvalued, overbought, overbullish, rising-yield' conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing), and at three points in 2013: February, May, and today."

As I mentioned at the top of this article, this stock market bubble has been fueled by quantitative easing.  Easy money from the Fed has been artificially inflating stock prices, and this has greatly benefited a very small percentage of the U.S. population.  In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.

When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain.

But there are some people out there that argue that what we are witnessing is not a stock market bubble at all.  That includes Janet Yellen, the new head of the Federal Reserve.  Recently, she insisted that there is absolutely nothing to be worried about...

"Stock prices have risen pretty robustly," Yellen said. "But I think that if you look at traditional valuation measures, you would not see stock prices in territory that suggests bubble-like conditions."

We shall see who was right and who was wrong.  Let's all file that one away and come back to it in a few years.

So where are stocks going next?

If you had the answer to that question, you could probably make a lot of money.

Yes, the current bubble could burst at any moment, or stocks could continue going up for a little while longer.

After all, the S&P 500 has risen in December about 80 percent of the time over the past thirty years.

Perhaps that will be the case this December as well.

Perhaps not.

Do you feel lucky?

 


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Tue, 12/03/2013 - 18:40 | Link to Comment HedgeAccordingly
HedgeAccordingly's picture

We go higher? http://hedge.ly/1aWnWdO

Tue, 12/03/2013 - 18:43 | Link to Comment XAU XAG
XAU XAG's picture

Only 15???

I can think of several trillion reasons!!

Tue, 12/03/2013 - 19:07 | Link to Comment johngaltfla
johngaltfla's picture

When equity markets think the Fed has their back, the Fed member banks go short and fuck everyone over. Of course only us old farts remember the 1970's,1987, 1999, 2008, etc...

The One Stock Market Chart that the Media Does Not Want You to See!

Tue, 12/03/2013 - 19:41 | Link to Comment SWRichmond
SWRichmond's picture

When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain.

As these people constitute the political status quo, everything possible will be done to keep them feeling wealthy...and fully invested in continuing the status quo.

Tue, 12/03/2013 - 21:07 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Too late.  The wealthy already cashed out.  They sold their shares to your pension fund.

 

Tue, 12/03/2013 - 23:26 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

I thought I noticed some rectal bleeding on my last monthly statement.

Wed, 12/04/2013 - 07:44 | Link to Comment Truthseeker2
Truthseeker2's picture
The Sucker’s Rally of the Millennium
. . . 

http://stateofthenation2012.com/?p=2826
 

"Coming soon to a ‘free market’ near you!"
Wed, 12/04/2013 - 13:20 | Link to Comment Winston Smith 2009
Winston Smith 2009's picture

"When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain."

Nah, they'll do just fine as they always do.  For them, bubbles/bursts are two steps forward/one step back as clearly illustrated by this:

http://i142.photobucket.com/albums/r100/EGoldstein1984/Whoreallybenefits...

Why else do you think such things are allowed?

Tue, 12/03/2013 - 18:56 | Link to Comment Occident Mortal
Occident Mortal's picture

16. Occident Mortal said to short sell the DJIA at 16,050.

Tue, 12/03/2013 - 19:31 | Link to Comment frankTHE COIN
frankTHE COIN's picture

And a Partridge and a pear tree.

Tue, 12/03/2013 - 23:24 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

With Bitcoin ear rings. oh and 12 NSA agents listening, 11 Liars lying, 10 humpers humping,9 drunkards drinking, 8 hookers hooking, 7 sailors sailing, 6 packs a packing. 5 golden dreams, 4 flushing scoundrels, 3 wedgies wedging, 2 Bubbles bursting and....

a Bernake in a Pear tree (with bitcoin earrings)

 

Tue, 12/03/2013 - 20:46 | Link to Comment playnstocks
playnstocks's picture

BTFD!

Tue, 12/03/2013 - 18:49 | Link to Comment 666
666's picture

#16) The tracks in my underwear are getting bigger and darker.

Tue, 12/03/2013 - 19:17 | Link to Comment MrSteve
MrSteve's picture

your #16 is....the dreaded "BROWN OUT".

Wed, 12/04/2013 - 18:59 | Link to Comment are we there yet
are we there yet's picture

Sounds like Obamas rainbow coalition.

Tue, 12/03/2013 - 18:51 | Link to Comment orangegeek
orangegeek's picture

Euro markets tanked today.

 

US markets fell marginally.

 

That $5B in today's POMO really helped Wall Street.

 

Thanks Yellen you fucking asshole.

Tue, 12/03/2013 - 18:54 | Link to Comment Czar of Defenes...
Czar of Defenestration's picture

Puh-LEASE!

When quoting the Master, be precise:

"You've got to ask yourself one question: "Do I feel lucky?"  Well, DO YA, PUNK?"

http://www.youtube.com/watch?v=A732Cuuo2tI

heh

Tue, 12/03/2013 - 19:59 | Link to Comment NoDebt
NoDebt's picture

"Fair's got nothing to do with it."  <Bang!> 

When it goes down, that's how it will be.

Tue, 12/03/2013 - 19:14 | Link to Comment forwardho
forwardho's picture

Bubble-shmubble. We are and have been since 2008, where no man has gone before.

Go ahead, pull those old charts from storage to predict what evil comes our way. It is a new era. Never before have all the CB's got together and printed to keep the fantasy alive. Real production of value (the fundimentals, remember those?) crashed and died 5 years ago. The economy of the world has been kept alive with a constant adrenalin drip of QE. Throw out any charts from before TARP, drawing conclusions from the past when we now live in a Fed created delusion will only give you the feeling of control. This nightmare will continue until overwelming imperical evidence can no longer be denied.

 

Tue, 12/03/2013 - 19:48 | Link to Comment nightshiftsucks
nightshiftsucks's picture

Exactly,this time is really different.The next time we go down is the last time.

Tue, 12/03/2013 - 20:42 | Link to Comment FreedomGuy
FreedomGuy's picture

No problemo. If the market crashes again we will blame it on the last vestiges of the "free market" and "unfettered capitalism" and have governments go all in on control. We will just do more QE and lower interest rates to, to , to, to we pay you to borrow! You will be able to make a living off borrowing money.

Tue, 12/03/2013 - 18:58 | Link to Comment besnook
besnook's picture

the sky won't fall until the first 10qs and ks come out in 2/14. enjoy your flight in the meantime. have some peanuts.

Tue, 12/03/2013 - 19:02 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

It's going to be really interesting when more than a tiny minority of people start realizing that the stock market is a drop in the bucket compared to the apeshit amount of fiat riding on changes in the 10 year UST yield.

There is exactly one reason for QE:  to delay/soften the inevitable death of the US dollar.  Now tell me if you really think they're going to rip the band-aid via tapering or stopping QE.   

Tue, 12/03/2013 - 19:17 | Link to Comment sablya
sablya's picture

How could creating more dollars delay or soften the inevitable death of the dollar?  

Wed, 12/04/2013 - 11:19 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

That is a wise question, because it's hard to look at the reserve chart and not conclude that we are presently in a hyperinflation scenario as a result of money printing.  They key is in what the printed fiat is being utilized to do.  

1.  Prop US treasury bond prices, which slows foreign institutional selling.

2.  Buy assets of real value via MBS purchases.  These are legally enforced contratual claims to both the unimproved and improved land value of the United States (that would theoretically survive even a currency death).  This oddly enough helps prop the underlying value of those printed dollars, which helps offset the continuing deleveraging crash in loans.   

Tue, 12/03/2013 - 19:05 | Link to Comment Number 156
Number 156's picture

"When this stock market bubble does burst, those wealthy Americans are going to be in for a tremendous amount of pain."

No, most of the wealthiest, especially those with insider and political connections will make a killing on short trading.
They know when the time is right.

Tue, 12/03/2013 - 19:05 | Link to Comment buzzsaw99
buzzsaw99's picture

fed gangsters set the price of everything. there are no markets, there is only the bernank.

Tue, 12/03/2013 - 19:10 | Link to Comment ironmace
ironmace's picture

Now where's that pot I use for a helmet?

Tue, 12/03/2013 - 19:41 | Link to Comment Things that go bump
Things that go bump's picture

I've got a stale loaf of bread you can borrow.

Tue, 12/03/2013 - 19:15 | Link to Comment Satan
Satan's picture

"Please, do not worry."

Tue, 12/03/2013 - 19:17 | Link to Comment Gordon Freeman
Gordon Freeman's picture

I get it: The stock market is in a bubble ...because some bearish pundits say it's a bubble...

Jesus H. Christ--what tripe!

Tue, 12/03/2013 - 19:19 | Link to Comment DOGGONE
Tue, 12/03/2013 - 19:22 | Link to Comment yogibear
yogibear's picture

Wait until QEen Yellen is in charge. She'll ramp this market up further.

Yellen and the rest of the Fed banksters want to burn the remaining shorts.

Tue, 12/03/2013 - 23:15 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

I think the shorts are smoked, now they're trying to set the pubic hair ablaze.

every bubble pops. I've seen 3 or 4 in my lifetime already. The bigger the bubble the faster it deflates and the bigger crater it leaves.

Hope it pops soon or we'll be even more fucked than we are already.

I think Hitler came to power on the backs of a pretty fucked up economy, that is the sort of thing we need to watch for. With the NSA and a real NUTjob in office, the world is a gulag and we are all political prisoners.

Economics and politics, money and power, two sides to the same coin.

Tue, 12/03/2013 - 19:25 | Link to Comment spinone
spinone's picture

Consider for a moment:

What if the FED has such good and tight control of the banking system and the money supply that they can keep this new system going as long as they want.  And, what if the dollar isn't going to be rejected as WRC, that the US and its soft and hard power can keep dollar hegemony for our lifetime.

Just consider it.  Groupthink is dangerous.

Tue, 12/03/2013 - 20:37 | Link to Comment Al Huxley
Al Huxley's picture

And China is setting up bilateral non-USD trade agreements, ending its accumulation of foreign currency reserves, shortening the duration on its Treasury portfolio, and sabre rattling at Japan because...?

Tue, 12/03/2013 - 22:14 | Link to Comment spinone
spinone's picture

Not saying you're right or wrong, but be skeptical.  Be careful.  This is unmapped territory.  Don't jump to the conclusion you've got it all figured out.  This is a very complicated situation, and all the facts aren't known.

No one ever thought that the Fed would go to these lengths for this long.  Maybe they'll stick with it longer and go harder than anyone has yet predicted.

Tue, 12/03/2013 - 23:09 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

Yes!!!! Because the longer you make a string the easier it gets to push, or maybe not, now that I think about it.

The economy on mainstream is so fragile 49 million people are on food stamps and 91 million people are not in the workforce. The housing market is stagnant except for the last dying pools of wealth puddled about the 10%, waiting to be extracted by the 1%. Washington,NY,LA and only certain areas of each, most real estate markets even in these "prestige" markets are dead.

The marke is where the market is for one reason, and that is QE and each round of QE produces less gain, if it goes infinite it goes negative.

To call this market a bubble is to be too kind, its an outright fraud, a con, a bailout of the rich by the government. It is welfare for the 1%.

The sort of thinking that "this time is different" is a classic sign of impending doom.

The real question is how do they blow the next one? Cause we have a serial bubble blower in the FED and they won't give up because they know everything about everything and they have no oversight and nobody really gives a fuck since the cable went high-def and Domino's delivers.

The next bubblicious bubble,mmm where is it and when does it start?

Tue, 12/03/2013 - 19:51 | Link to Comment Son of Captain Nemo
Son of Captain Nemo's picture

"Do you feel lucky?"...

Let me finish that.

"Well Do Ya Punk"!

Tue, 12/03/2013 - 20:03 | Link to Comment bobbydelgreco
bobbydelgreco's picture

of course it's going to burst but you can't pick when & keep in mind ms piggy will up qe which makes this time different

Tue, 12/03/2013 - 20:14 | Link to Comment Quaderratic Probing
Quaderratic Probing's picture

Anyone sent the list to the FED?

Tue, 12/03/2013 - 20:20 | Link to Comment whoknoz
whoknoz's picture

"#15 According John Hussman via Tyler Durden of Zero Hedge, the U.S. stock market is repeating a pattern that we have seen many times before."...

wow! now we can tune into ZH to read about what ZH already published...??...or am I not on ZH now but rather just in a dream brought on by Tyler Durden presenting Michael Snyder...

...its all seems to just be swirling around lately...

Tue, 12/03/2013 - 22:01 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

The compression of reality caused as we are swept into the blackhole may cause confusion,delusions and Deja Vu.

You must be at least this high to enter this ride.

Wed, 12/04/2013 - 18:20 | Link to Comment MrSteve
MrSteve's picture

We are on the bus!

Tue, 12/03/2013 - 20:36 | Link to Comment Downtoolong
Downtoolong's picture

The best sign of a bubble is everyone looking desperately for an alternative form of investment.

Because, let’s face it, you can‘t have bubbles without shutting out every reasonable alternative.

Tue, 12/03/2013 - 20:49 | Link to Comment FreedomGuy
FreedomGuy's picture

The problem is that in this political economy there are not really reasonable alternatives. The stocks versus bonds paradigm is dead. Those were always the big alternatives with commodities in between. In a market crash shorts are often banned so you cannot reliably make money accurately predicting disaster.

Government can intervene anywhere at any time and we know they have a propensity to do so, especially if there are votes or favors to be won. Economics and fiduciary duties be damned.

Tue, 12/03/2013 - 20:46 | Link to Comment Al Huxley
Al Huxley's picture

The best, guaranteed, 'bet your life on it' sign of a bubble is when people with no previous experience or interest in the 'bubbled' item suddenly become experts.  Eg, shoeshine boy gives Joe Kennedy stock advice (probably apocryphal), interviews on MSM with 22 year old day traders during the .com bubble, interviews with 22 year old condo flippers in the latest real-estate bubble, etc... 

 

I remember clearly in 2006 the youngest people in our office quitting to concentrate full-time on their condo-flipping activities.  In 1999 we couldn't keep junior developers because they kept moving to Silicon valley to join .coms, in 1996 everybody I met was a gold mining expert who could tell me what the best junior exploration stock was to own (guys who 2 years before had been dealing drugs for a living were suddenly brokers at various boiler room operations - appropriately enough I guess).

 

Honestly, I think valuations are idiotic right now, the FEDs going to ultimately destroy the $ and the country with their actions, eventually this is all going to end very badly.  But I don't see the telltale signs on the street of an equities bubble.  Retail's still too far out of it..,  A good correction's definitely overdue, maybe after that the bubble behavior will kick in, or maybe it will be the lack of a correction that finally draws in the retail crowd...

Tue, 12/03/2013 - 21:57 | Link to Comment TheMerryPrankster
TheMerryPrankster's picture

retail got wiped out in the last bubble, they can't come back. They are busted and can't get a 2nd mortgage to play in the market.

Boomers are saving for retirement or living in quiet desperation beneath interstate bridges and collecting aluminum cans to make a livlihood.

The bubble is real and look how fast it inflated. it will deflate a 1000 times faster.

Its all richboyz rippin each other off on wallstreet till a few of them have to take their ball and go home for dinner and the rest notice nobodies playing ball anymore.

I can't recall such a languid economy supporting such a "vibrant" stock market in my lifetime.  Perhaps Bernake put some nitrous oxide into the banking system along with the QE.

Bubbles full of tears waiting for a prick.

Tue, 12/03/2013 - 22:03 | Link to Comment Al Huxley
Al Huxley's picture

I agree with your observations, but the professionals trying to scalp each other isn't going to generate the kind of feeding frenzy they need to close out positions - they know the game too well, they'll just trade range-bound.  But I think there's still enough retail wealth out there to fuel a last bubble - there's less than in the past, but there's still a significant % of the population doing well enough that they have money to lose chasing stocks.

Tue, 12/03/2013 - 21:06 | Link to Comment starman
starman's picture

I just twittered all my friends to google bubble! There. Bummm

Tue, 12/03/2013 - 21:44 | Link to Comment robnume
robnume's picture

Welcome to the show, please come inside, ladies and gentlemen. What goes up must come down.

Tue, 12/03/2013 - 22:26 | Link to Comment brown_hornet
brown_hornet's picture

1/2/2014 is the top.

Wed, 12/04/2013 - 02:08 | Link to Comment Dr. Bonzo
Dr. Bonzo's picture

Don't be so panicky Mike. Average P/Es were around 50 before the Chinese stock bubble kabloooeed, by that measure stocks can still double their P/Es and be a ggggggrrrrrrrreat investermunt.

Wed, 12/04/2013 - 18:18 | Link to Comment MrSteve
MrSteve's picture

 +1 for great use of a favorite Calvin and Hobbes story word "kabloooeed" with innovative past tense!!

Wed, 12/04/2013 - 02:18 | Link to Comment Rastadamus
Rastadamus's picture

I can't wait to see this crash and burn..... Got gold?

Wed, 12/04/2013 - 06:02 | Link to Comment GFORCE
GFORCE's picture

If you think this is the  top of a bubble you are going to lose your shirt... or spend months and months in schadenfruede misery.

Wed, 12/04/2013 - 06:22 | Link to Comment smacker
smacker's picture

It's not surprising that the likes of Yellen deny the existence of a bubble because they also claim that the economy is recovering, slowly but surely. Admitting the bubble would contradict that message.

For them, it's much safer to claim a slow recovery is happening and point to the stock markets as evidence!!

A virtuous circle of self-fulfilling lies which they hope and pray will get people spending. Same thing is happening in the UK.

Wed, 12/04/2013 - 07:52 | Link to Comment samcontrol
samcontrol's picture

@ al

they trade "range bound" ,,, funny. not reading you anymore. Your avatar is a cheat.

Wed, 12/04/2013 - 10:22 | Link to Comment Gavrikon
Gavrikon's picture

So just fucking POP already!

Wed, 12/04/2013 - 11:06 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

I am completely out of stocks at this point. It was fun, but hate hangovers so I am headed home to bed.  Maybe the party will go on for a while longer, and I'll have another sip or two, but all in? No thanks.

Wed, 12/04/2013 - 16:36 | Link to Comment are we there yet
are we there yet's picture

Yes, stock is overpriced and should have popped some time back.  But the FED will print whatever is needed to fake it upward. Don't fight the FED even if they are crooks, they have the printing guns. The market will not crash that way.

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