Stockman: This Is The Most Hideously Overvalued Market In History

Tyler Durden's picture

Authored by Craig Wilson via The Daily Reckoning,

David Stockman joined Fox Business on Varney & Co. to discuss why he believes the current markets are setting up investors for a big drop.

Asked for an explanation regarding his call that the S&P 500 faces a 35% fall and whether the market was seeing the start, Stockman fired away at his logic and reasoning. “I think it will happen any day. Because we’re a country that’s out of control.”

Varney, quick to draw conclusion noted that the economist had been making such claims for years. Stockman rebutted, “I could have said that in February 2000 and the market dropped by sixty percent. I could have said that in November 2007 and the market crashed. I am old enough to remember October 1987.”

“Markets go up on an escalator, they come down on an elevator. This is the most hideously overvalued market in history.”

David Stockman is a former Cabinet member where he served as the Director for Office of Management and Budget under President Ronald Reagan. Ranging from 1976 to 1981 Stockman also served in the U.S Congress.  He went on to be a senior managing director of The Blackstone Group. The economic and financial analyst is now a best-selling author where his most recent book, Trumped! A Nation on the Brink… And How to Bring it Back explores what he believes the current White House must do to correct the economy.

Stockman carried on with his call to the markets, and in particular his focus on the S&P 500, noting, “It is trading today at twenty-five times the hundred dollars a share that the S&P 500 earned in the period ending in March. Now, I go back ten years to June 2007 and the S&P 500 earned $85 dollars a share. That’s 1.2% growth, nominal in ten years.”

“You want to pay twenty-five times earnings going into a world where the Fed yesterday said ‘we’re going to shrink the balance sheet by $2 trillion over the next several years?’


Where we have a government that is in total chaos. A president that they’re trying to unseat. A debt ceiling that can’t be raised. A tax bill that will never pass. Going into all of that, to say nothing of the red Ponzi in China that one of these days will spill its guts all over the world economy.


And you want to pay twenty-five times earnings for today’s stock? Be my guest. This is a mania.”

Varney, in rare form, then offered a compliment to the former Reagan official saying that he made a very intriguing position. However, the Fox Business host then took to asking about market reaction following financial crisis noting that, “In 1989 and in 2009 the markets bounced back very quickly.” David Stockman then targeted his sober analysis highlighting, [that’s] “because the Fed opened up the stimulus shoot and printed money like there was no tomorrow.”

“Seven weeks after the Lehman bankruptcy [former Federal Reserve Chairman] Bernanke doubled the size of the balance sheet [of the Fed] from $900 to 1.8 trillion. He did in seven weeks what the Fed did in ninety-four years. My point is, they can’t do it again. They’re out of dry powder.

Varney then let out, “I’m listening to you but you’ve got all of our viewers worried still.”

Stockman urged, “they should be! Any of them that are in the market today need to get out of the market and out of harm’s way.”

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ebworthen's picture

It's as if 2001 or 2008-2009 never happened.

Serial debt bubbles.  Lather, rinse, repeat.

No such thing as money or markets now.

bamawatson's picture

stockman is most hideously over-hyped tout since gartman

Soul Glow's picture

Stockman doesn't manage money.  It's like buying a book.  Listen to him and make your own decision.  Gartman takes money and throws it around like a mad hatter.  Big difference.

LetThemEatRand's picture

Stockman is absolutely right about everything except understanding/acknowledging that the markets are controlled by central banks.  ZH has been running articles calling for imminent doom since I started reading here some seven years ago.  Stockman has been calling for the end of the world for at least a couple of years.  Many of the articles were right about what should happen and what probably would have happened but for that one central-banks-control-the-markets detail.  So they were wrong in every way that matters to the extent you made investment decisions based upon their wisdom.

There are probably people who know when the bankers plan to crash things, but they aren't giving interviews.

Soul Glow's picture

I think ZH balances it's deflation rhetoric with hyperinflation rhetoric and that means that you have to read and make your own decisions.  Sure it's all doom porn but critically understanding the doom is another thing.  ZH has been at the epicenter of bitcoin reporting since at least 2012.  It never said to buy and it never said to sell.  It reported the price and the action, who's buying and what the governments/institutions are doing.  So people reading ZH may have thought to buy it, maybe not, but ZH informed people as to what is happening.

Same with stocks and currencies.  They tell you when a Hindenburg Omen happens, but it never says, "So sell your stocks today".  ZH is also the 1st to admit the central bank intervention, whether it is the Fed or China.  So the report both sides, bull/bear, of the market.  It is up to us to decide what action to take.

Now the one thing I would say where ZH has been "wrong" is gold and silver. I put it in parentheses because they were right until 2011.  Now sure gold bulls got caught in a bear trap, but what phsyical invstor - and ZH recomends physical over paper - doesn't want a low price to continue.  I'm 35 and have 20 more years of buying silver and gold before I want the price to spike.  Anyway, I think we agree for the most part but I wanted to lay my case out.  And I always appreciate your insight.


- LH

LetThemEatRand's picture

Yes, I think we pretty much agree.

ZH has clearly been biased towards the doom scenario for many years, but I agree with you the Tylers have never suggested we should take any investment advice from this site, and I have learned more than I can believe from reading here.  If I had to pick a single internet site as the best form of the red pill for the average person, ZH would be it.


asteroids's picture

GLD topped out in 2011 at around $180. Well, I bet it'll be there again by 2021. NOT that far away.

Ignorance is bliss's picture

Stockman is well aware of the Fed and their machinations in the market. He is telling you that there is a crash coming in spite of Fed interventions. He apparently, thinks they can't increase their balance sheet any further.

LetThemEatRand's picture

Sort of.  He's been imminent doom for well over a year.  I'm not saying he's wrong in his assessment of what's coming, but he ought to take the Jim Rogers approach of admitting that his timing stinks.

SheHunter's picture

So long as the VIX is dead in the water long is the only plan.  Sure the mighty SPY and DOW fall a few hundred every now and then...but even on those days VIX just sighs and rolls back a few points to do a partial gap fill.  Yeah...when it crashes it will crash hard and unexpectedly.  Something will have to happen that triggers the sells faster than the fat finger banks can buy to 'stabilize'.  The bots have made day trading a farce.  Feels like a gaming machine these days.  No human touch.

Kidbuck's picture

It aint the stocks that are over valued. That's like saying health insurance is over valued. Or college tuition is over valued. It's Janet's fucking buck that is undervalued. When Janet gives the banksters unlimited free shit (bucks) of course they spend like coke whores.

CheapBastard's picture

So, a PE of 298 is abby normal?

yogibear's picture

The Federal Reserve has made Stockman and the rest of the bears look like dufusses.

Infinite printing to buy assets can keep pushing stocks higher. The Fed is stuck  doing it until it all collapses.

VD's picture

adjusted for QE/NIRP a 35% correction isn't even a correction!


Stockman is the last person to prognosticate "markets", but he is good at policy breakdown.


think about this: if Stockman is right that "markets" are most overvalued ever, then does a mere 35% selloff logically follow? think about this....

slimycorporatedickhead's picture

Stockman, you old chesnut, you've done it again!

When a cell phone app that turns your face into a dog is worth twice as much as the entire physical silver market, i think its time to rush to the exit door

xtremers9's picture

did he bother to look at valuation indicators? valuation today is much lower than 2000. By P/E ratio accounts, the S&P 500's valuation is lower than the mid-1990s. focus on the data, not the fear mongering.

LetThemEatRand's picture

I've been jonesing for my weekly Stockman prediction of impending doom.  Now, I can enjoy what's left of the weekend.

Dumpster Elite's picture

I wonder what Stockman will say next week? Ooooo, I can't wait! Never what you expect.

max2205's picture

Markets can't crash if there is no market 

CPL's picture

Imagine a whole market built to gaslight and people keep staying in it for the most stupid reasons.  That's okay.  It means only one thing.  DOW 36000!!!  And...the All in One Account hacker is now available for distribution.

Account cracking tool for Paypal-Origin-Steam-Uplay-Amazon to check security on listed and found accounts.

order66's picture

ECB, Japan, Switzerland willing to buy unlmited assets and $300 billion in buybacks scheduled. Would need some serious shit to stop those programs.

EuroPox's picture

Exactly!  Stockman is like all those doomers and gloomers saying the US will be shooting down Syrian planes in Syria, hahaha... oh, wait...

Soul Glow's picture

The ECB and BoJ have balance sheets that just surpassed the Fed.  The Fed is bigger an the BoJ in terms of printing power and equal size to ECB.  If the Fed could have kept printing they would have but the dollar was nose diving and it needed to fill the gap.  The euro and yen are historically weak, meaning there isn't much room for them to print.  

The bubble is ready to burst.  I expect stocks to fully correct in the Fall due to over leverage and debt drama.  This will not be the final crash though as Trump is not willing to take responsibility - ironically if he had kept up the rhetoric from his campaign that stocks are "in a bubble" he could have rightfully blamed Obama (and Bush as he did TARP) and rebuilt the economy how he wished.  Instead he will have had a full year as POTUS and POTUS elect and will now be blamed.  This means he will prime the pump - his words - and will bailout (or bailin) banks.  This will give a few more years.

Of course as he wants to be a two term POTUS - his ego is too big for him not to be - he will have to hold the sinking ship together for 7 years after my hypothetical fall correction.  This will not happen.  And we will likely see a crash heading into the 2020 election.  It will be all hindsight that year.....

jewish_master's picture

it will be an on and off crash. the market will crash only to be proped up. but with bitcoin and etherum there is a new casino in town. plus baby boomers are goinng to retire starting this year pension and start to eat thier gains in the bubble (which these fuckers created).

what changed is there is enough mass of ppl not beliving in the system anymore. so these bailouts will face strong street oppostions.

i said it here befire november that trump is a stooge. i also said that the economy today is built around the fucking boomers money loving, and will end once they are out of the pic -  a prcocess of 7 years or so

SofaPapa's picture

The choice is the same as it was in 2010: destroy the dollar and have hyperinflation or allow stock prices to collapse and go to a "1930s looked like a picnic" scenario.  

I will give credit where credit is due.  TPTB (central banks in particular) have managed to stretch this out way longer than I ever imagined, basically engineering a "targeted and limited hyperinflation" in the financial products space.  They have danced an incredibly tight wire for years now.  It's an amazing performance, and I cannot say I'm not impressed.  BUT no matter how good they are, the original choice has not changed.  Financialization - the engine they have used so skillfully, in all areas, US, Asia, and Europe - is still a limited tool.  It can postpone but not prevent the final endgame.

The juggler's ball's are flying so fast now it's almost a blur.  Who will notice when the first one falls?

Dump's picture

Its already fallen. Bank Populare in Italy.

Dump's picture

Bank Popular Spain

Delving Eye's picture

Jim Rogers says it won't be where anyone is looking. Put your finger on a world map, and that's as a good a bet as anything in predicting where the topple will start. 

Dump's picture

Add in the State of Illinois and Dallas Fire and Teachers Super fund for some US flavour.

hibou-Owl's picture

You won't be able identify the trigger!

Things will happen so fast on multiple fronts that everyone head will be spinning. It like a massive hot fire, all the evidence will be ash.

There are multiple powder kegs europe asia US, south America, south Africa.
Only relative safe place south pacific, but housing bubble pretty savage.

Mark777's picture

Something the money experts didn't anticipate, that the Central Banks would do what they've done... Kicking the can down the road... and it's still rolling, well, until it stops.

I recall when I was in elementary school a silver quarter was worth a quarter. (Calculated as 0.90 (purity pct) * 0.70 / 4 = 0.1575 ounces of silver.  (I think back then the silver content in a quarter was worth a little less than a quarter to offset the cost of minting, but let's ignore that for the moment.)   So with silver worth now about $16.50 (a low this week not seen for over a year) those silver content quarters are worth $2.60 at a minimum.  So that begs the question, is silver really worth TEN times as much or is today's dollar worth ONE TENTH of what it was worth back in the 1960s, a mere 5 decades ago?

Another explanation for the purportedly "low" price of precious metals is that the paper market is manipulated, keeping the price quotes low but the paper certificates are backed by only a token amount of physical metals.  The experts (Maloney, Rickards, etc) point out that when there finally is a panic someday, (1) the price may dip for a while when people are forced to sell for margin calls but (2) soon followed by surging demand when all the paper metals can't be redeemed for the real thing.

Soul Glow's picture

This is a good interview and is a much watch.  Please note even Fox Business - who rode Obama, and rightfully so - gives him a hard time.  They say he's been saying this all the time.  It's not true.  He wasn't a bear until a few years ago.  

Fox also points out stocks bounce back after a fall - a usual rhetoric - so once again the red team is flip flopping.  What I want to know is why is anyone supporting the blue and red teams anymore?  They just say what is good for them?  Trump bashes the market heading into the election so to blame Obama and Clinton, then once stocks roar he takes credit.  Get out of politics.  Makes your own decisions and don't back any man.

HRH Feant2's picture

Long time fan of Varney on FOX business. I have seen him break news that was posted here on ZH.

I agree with Stockman. This market is one snowflake away from an avalanche.

SheHunter's picture

I like Varney OK.  But even he drolls on about AMZN and TSLA hitting obscene repeated new highs and never ever looks into the cameras and says "folks, these companies are so overvalued you damn well better do a look and no touch'.  He has to know these FAANG stocks are dead stinking meat. 

The Gray Man's picture

A message to all fathers and future fathers.

Remember your roles, even when the outside world demeans and diminishes them, and pushes you to abdicate. Resist those forces.

Cordeezy's picture

Stockman always says this I agree it is overvalued but there is also no where else for people to put money. I don't think Europe is a good investment because there is more uncertainty there when you have so many bad economies tied to a whole. Your only as strong as the weakest link there. There will be a correction but I don't think it will be as dire as it seems

mary mary's picture

My guess is there could be a 40% correction, but it won't happen in a day, because the Super Rich can't move that much money out that quick.  So I believe trend-following is still the best idea, and of course keeping some always in bonds, real estate, and gold.  The trend is your friend.  When the market starts down, I will lose, but if I don't follow the still-existing uptrend, the FED will steal my savings.  Makes it a hard game, but that's the financial playing field we exist in these days.

I keep gradually increasing my apportionment to bonds.  In my "brokerage investments", I'm up to about a third now.  But the rest is almost completely in QQQ, because that's where the trend still is.

SantaClaws's picture

"A debt ceiling that can’t be raised.  A tax bill that will never pass.  Going into all of that, to say nothing of the red Ponzi in China that one of these days will spill its guts all over the world economy."

Why can't the debt ceiling be raised?  Not saying it should be.

Endgame Napoleon's picture

So, they printed all that money, twice as much as was printed over a century, "throwing it at the banks," Milton Friedman-style. And it saved the two high-earner couples and the 1% who have extra money to speculate. Unlike during the Great Depression, they did not have those hordes of poor, but optimistic, common flappers, speculating on the stock market from their $10--$12/hr wages in temp, part-time and churn jobs.

For everyone else, every dollar earned stretched over fewer bills, mitigated slightly by small reductions in price on items like clothing, plastic toys for children, plastic containers and disposable furniture, made in countries with low-cost labor, where they shipped millions of our jobs.

For many workers who do not fall into the category "working family," most of those savings on foreign-made goods do not even help us minimally, nor are we blanketed by a combination of the womb-based welfare/taxfare system and family-friendly crony jobs.

Throwing money at the banks did not seem to reduce the major household expense that most people have: housing. What will they do to avert total collapse but follow this advice again, leading to what?

A82EBA's picture

is he warning, complaining or whining

enough of this's picture

For those thinking about shorting the market, it can stay overvalued longer than you can remain solvent.

VangelV's picture

"I will give credit where credit is due.  TPTB (central banks in particular) have managed to stretch this out way longer than I ever imagined, bascially engineering a "targeted and limited hyperinflation" in the financial products space.  They have danced an incredibly tight wire for years now.  It's an amazing performance, and I cannot say I'm not impressed."


I would not give them any credit, my friend because all the CBs have done is divert investments into areas that make no sense.  What happens when the liquidity dries up and all of the capital-destroying projects in the shale, solar, and wind sectors show just how unprofitable they are?  What happens to all those social media companies, retail spaces, and coffee shops that were started up using borrowed money that cannot be paid back in time?  Time to buy some insurance in the form of precious metals, hold a bit of cash, and wait out the storm.  

mary mary's picture

FED always keeps printing funny-money because baby always needs a new pair of bombs.

Dump's picture

People who think markets are overvalued and near to a crash:

David Stockman

Jeremy Hussman

Paul Singer

Bill Gross

Jeff Grundlach

Jeremy Grantham

and Warren Buffett has $120bn in cash.......


Tim Knight from Slope of Hope's picture

And, glancing at Sunday afternoon action, ES and NQ are both fuckin' GREEN.

Soul Glow's picture

Money's going to pour into grocers.  The algos got scared and flash crashed the sector for no reason.  AMZN aquiring WFM means nothing to the sector.  It will take years for Bezos to work out and apply a business model for his new brand.  In the meantime SWY, KR, et al have already automated online shopping.  Get it delivered or pick it up already placed in bags.  Grocers are already doing the model Bezos plans on doing down the road.

Now that I put it down it is very similar to iPhones.  Apple is a year behind when it comes to screen tech, waterproofing, cameras, and the hardware.  Yet WS loves them.  It's all branding.  Beezos bought a brand, not a model.  Now he has to apply it.  Once again, it will take years. 

And let's not foget $13B just got put into WFM at a 33% overvaluation.  Talk about a premium!  That means there is some debt to be sold.  JPM is chomping at the bit.  So watch as a whirl wind surrounds the sector and bleeds into other sectors.  There is still a few more months of blood letting until a nice fall correction....

SantaClaws's picture

You may be right, but I would not bet carelessly against Bezos.  Imagine some variation of Amazon Prime applied to groceries and whatever else Whole Foods may sell.

ElTerco's picture

Careful with those grocer investments. For instance, Kroger has a total debt to equity of 210%, and very low margins. Every rate hike hurts. Also, there is already a huge amount of competition among grocers, so profitability is a bitch.

Gordon_Gekko's picture

Fighting against a tsunami of funny money is never easy