Worst Case Scenario = 73% Down from Here

by James Quinn

Based on never-ending mainstream media happy talk, you would think we are in a bull market of epic proportions. One problem: The Fed ended QE in October 2014, and the market has been stagnant ever since.

Several rounds of QE prior to 2014 have contributed to the death of Main Street and the rise of Wall Street. Unfortunately, Wall Street cannot sustain its highs, and requires more and more monetary infusions.

The stock markets have gone nowhere for 17 months, while valuations remain at obscene levels. Corporate profits have fallen for 3 straight quarters, real wages are stagnant at 1988 levels, and home prices are soaring due to hot money from China, Wall Street hedge funds, and flippers.

Consumer spending is nonexistent as Obamacare, soaring rents, rising food costs and 0% interest on savings accounts drain the life out of the middle class. The average person has been experiencing a recession for years.

Low interest rates cannot prop up the stock market forever. Corporate buybacks, financed with cheap debt, is the last straw. All will come to a screeching halt as profits collapse and the market tanks.

We have entered a recession, and the last 17 months offered the public an opportunity to exit near the top. Anyone who hasn’t will regret it.

Throughout history the stock market has experienced secular bull and bear markets where valuations go from extremely overvalued to extremely undervalued. In 2008/2009 we were headed towards a secular low, but the Fed intervened in order to save Wall Street from bankruptcy. The system was not purged of its excesses. Therefore, the secular lows have not yet happened.

Basic mathematical relationships that have held for over 100 years show that a reversion to the mean will result in a 50% stock market loss. In order to reach a secular low in valuations, we need a 73% loss from here. That seems inconceivable if you believe mainstream media. Will you let cognitive dissonance rule your decision making, or will you use reason to understand the danger ahead?

Unfortunately, many will ignore the facts until it is too late. Every statistical valuation method proves we are in the mother of all bubbles, created by the Fed. Every reliable economic indicator is flashing red for recession. There is no doubt this market is going to crash, it’s just a matter of when and by how much. If you’re not out of the stock market already, now is the time to exit.


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