This Is What A Pre-Crash Market Looks Like

Tyler Durden's picture

Authored by Michael Snyder via The Economic Collapse blog,

The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed. 

Will things be different for us this time?  We shall see, but without a doubt this is what a pre-crash market looks like.  This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention, but now global central banks are removing the artificial life support in unison.  Meanwhile, the real economy continues to stumble along very unevenly.  This is the longest that the U.S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close.  Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.

If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider.  The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter

The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent.


The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?

Since the market bottomed out in early 2009, the S&P 500 has been on a historic run.  If this rally had been based on a booming economy that would be one thing, but the truth is that the U.S. economy has not seen 3 percent yearly growth since the middle of the Bush administration.  Instead, this insane bubble has been almost entirely fueled by central bank manipulation, and now that manipulation is being dramatically scaled back.

And the guys on Wall Street know what is coming.  For example, Joe Zidle says that this bull market is now in “the ninth inning”

Joe Zidle, of Richard Bernstein Advisors, is arguing that the bull market has entered the bottom of the ninth inning.


“This is a late-cycle environment,” Zidle said on CNBC’s “Futures Now” recently.


“In innings terms, they’re not time dependent. An inning could be shorter or they could be longer. It just really depends,” the strategist said.

This bubble has lasted for much longer than it ever should have, and everyone understands that a day of reckoning is coming.

In fact, earlier today I came across an article on Zero Hedge that contained an absolutely remarkable quote from Eric Peters…

“We are investing as if 1987 will happen tomorrow, because it will,” said the CIO. “But we need to be long, or we’ll be out of business,” he explained, under pressure to perform. “So we construct option trades that are binary bets.” Which pay X profit if stocks rally, and cost Y if markets fall. No more and no less.


“What you do not want is a portfolio whose losses multiply depending on the severity of a decline.” That’s what most people have today. “At the last stage of the cycle, you want lots of binary bets. Many small wins. Before the big loss.”


Are we at the start or the end of the ‘Don’t know what I’m buying’ cycle?” asked the same CIO. “No one knows.” But we’re definitely within it.


“When their complex swaps drop 40%, and prime brokers demand more margin, investors will cry ‘It’s not possible!’ But anything is possible.” The prime brokers will hang up and stop them out.

In case you don’t remember, in 1987 we witnessed the largest one day percentage decline in U.S. stock market history.

When it finally happens, millions upon millions of ordinary Americans will be completely shocked, but most insiders know that the other shoe is going to drop at some point.

In particular, watch financial stock prices very closely.  Last month, Richard Bove issued a chilling warning about bank stocks…

One of Wall Street’s most vocal bank analysts is troubled by the rally in financials.


The Vertical Group’s Richard Bove warns that the overall market is just as dangerous as the late 1990s, and he cites momentum — not fundamentals — as what’s driving bank stocks to all-time highs.


“If we don’t get some event in the economy or in politics or in somewhere that is going to create more loan volume and better margins for the banks, then yes, they would come crashing down,” Bove said Monday on CNBC’s “Trading Nation.” “I think that the risk in these stocks is very high at the present time.”

It isn’t going to take much to set off an unstoppable chain of events.  Our financial markets are even more vulnerable than they were in 2008, and the right trigger could unleash a crisis unlike anything we have ever seen in modern American history.

Unfortunately, most Americans keep getting fooled by the artificial boom and bust cycles that the central banks create.  Right now most people seem to have been lulled into a false sense of security, and they truly believe that everything is going to be okay.

But every time before when the market has looked like this a crash has always followed, and this time will be no exception.

*  *  *

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on

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IH8OBAMA's picture

Up Up And Away......


Joe Davola's picture

It won't end until the printing presses stop.

scraping_by's picture

It's only in the real economy hyperinflation is a bad thing. If it stays in the financial economy, it's the markets going up.

As long as equities have no real connection to companies, just like derivatives have no real connection to financial instruments, there's no real limit here.

Justin Case's picture

Debt is a snake eating it's tail. As debt rises so does the amount of money leaving the system in the form of interest. As interest rates rise, this accelerates and thus the amount of liquidity must be replaced to service the economy and creats moar debt, compounding it. There comes and end to the madness and history is no liar, like our Gov'ts. It's happened hundreds of times already. The only question to this game is "when" not if.

Clock Crasher's picture

"As interest rates rise"

converse holds true? 

Negative yielding 100 year 10 year notes inbound. 

Folkvar's picture

Michael Snyder - The boy that cried wolf.

lil dirtball's picture

> Michael Snyder - The boy that cried wolf.

Eventually, the wolf showed up and things became unpleasant soon enough.

I don't think Synder is necessarily lying - he's just being opportunistic by pointing fingers at the real culprits ... wolves in bankers clothing.

SubjectivObject's picture

fundamentals fundamentals fundamentals

we don't need no stinkin' fundamentals

Brazen Heist's picture

Does Warren Buffet know something we don't know about?

Albertarocks's picture

Yeah, what it was like to arrive in Omaha in a covered wagon.

Brazen Heist's picture

He also knows how rigged the system is.

scraping_by's picture

Actually, his last big play was Pilot-Flying J truck stops. Which he picked up on the cheap because it's loaded with merger debt, under legal pressure for ripping off their customers, and owned by a couple of his rich/connected buddies. It's unusual for a blood-in-the-streets quality, taking on other people's debts, but pretty usual for bailing out rich friends. Warren's just following his social policy of protecting the 1% while saying nice things about the rest of us.

Rick Cerone's picture

Even Bitcoin will drop? I thought Bitcoin was untouchable?

Brazen Heist's picture

Bitcoin dropped, but this garbage still hasn't. What does that tell you?

Everything is just awesome!

Quantify's picture

That Bitcoin is as worthless as the rest of the other worthless paper.


Brazen Heist's picture

1 Bitcoin fetching >$6400 fiat dollaroonies as we speak.

SelfGov's picture

Yes point at your tulip. Forgive us for not being as amazed and turned on by it as you are.


I'll take physical silver.

Winston Churchill's picture

Funny name for his dick,but whatever,at least he'll still be able play with that when

his BTC is gone or co-opted.Try as hard as I can, I just cannot get a boner about my quickbooks.

shitshitshit's picture

people will need liquidities... the rest is going to be history.

Kassandra's picture

I've got some Woodford Reserve put aside. I'm good.

arby63's picture

What market? Let's not discuss history, fundamentals or anything else until there's a market. There is no market. Period.

syzygysus's picture

When I get my crash pr0n, I make sure it only comes from Nom de Plume Ranger Dude, not Michael Snyder.

Ron_Mexico's picture

"I don't always read doom porn, but when I do I read"

  - The Most Interesting Man in the World

Quantify's picture

What could possibly go wrong....war with n Korea....massive unchecked immigration....$20 Trillion in debt....the fall of the western Europe...a worldwide virus....pedofiles providing our national entertainment.....massive government fraud....a marxist all looks fine from here.

Cash Is King's picture

Great script for a movie. Better get an option now before someone steals the show!

besnook's picture

the other historical fact is there has never been a crash that was predicted by so many "experts". btfath!

2banana's picture

GE led in the last crash...


Just saying

Cash Is King's picture

Actually, if memory serves, IndyMac was the first red herring and then everyone else fell in unison once its size (leverage) was discovered world wide. GE went down mostly due to their banking BS, not their toasters and light bulb division, no?

Peak Finance's picture

In the previous 4 crashes, the "buyers" were people, institutional buyers, and investment banks. 

But now, Who is the buyer?

Who cut the flash crash in half in just an hour? 

Who engineers these magical stick saves? Who engineers the post-terrorist attack, "blood and guts" rallies?

The answer is the central banks

When central banks are the buyers, you don 't get "crashes" you get hyperinflations 

atomp's picture

Q: What's inbetween inflation and hyperinflation?

A: Us!

CHX13's picture


Chauncey Gardener's picture

Read The Creature From Jekklyl Island. 

arby63's picture

I find bitcoin hilarious. If things ever get to the point (which is likely) that bitcoin is killing fiat or PMs then there will be no power. As in: No computers or internet. That's the long and short of it. There is no in between for the average person. 

Invest in yourself. 

goldoverbtc's picture

It is pretty easy to say this is what a pre crash market looks like when there hasn't been a "crash"in nearly ten years.  Bitcoin crashed and bounced back, Bitcoin Cash crashed and might not bounce back.  

Everything will crash at some point, the key is getting out when it does and getting back in at the bottom.  Easier said than done....


Peak Finance's picture

Well, my guess is that a bunch of people like myself got their Bitcoin cash "For Free", so, in the Bitcoin Cash bounce the other day a lot of peeps took profits. 

I didn't though my Bitcoin cash is tied up. 


Ron_Mexico's picture

Just face it, "we have reached a permanently high plateau."

slice's picture

"we have reached a permanently high plateau."


Hmmm...I think I heard that somewhere once before...

I've also recently heard "another financial crisis is unlikely "in our lifetime."

ted41776's picture

this time it's different, this "market" will never crash because that would mean the value of $USD increases


did weimar's stock market crash during hyperinflation? here's what the next crash will look like

Peak Finance's picture

Great Chart!

Where are we?

I would say 1919 1/2

Then you see the perfect bull trap form, but, instead of a follow-up collapse, it's "off-to-the-races"  

ted41776's picture

i was thinking more around 1921 1/2, 2008 was sort of like our 1919   we might have a few more little humps along the way though, no idea when it's time for take-off, but when it happens it won't take long

AlphaSeraph's picture

Very likely. Meltup as opposed to meltdown.


Who gives a shit if the DOW is at 1 million if your electricity bill costs 30k and climbing.

buzzsaw99's picture

It isn’t going to take much to set off an unstoppable chain of events.  Our financial markets are even more vulnerable than they were in 2008, and the right trigger could unleash a crisis unlike anything we have ever seen in modern American history...

bravo, brav-fucking-o.  lip smacking good doom porn there fella.

Hkan's picture