Economic Crisis: Goldman Sachs Says That There Is A 99 Percent Chance That Stock Prices Will Not Keep Going Up Like This
Analysts at Goldman Sachs are saying that it is next to impossible
for stock prices to keep going up like they have been recently. Ever
since Donald Trump’s surprise election victory in November, stocks have
been on a tremendous run, but this surge has not been matched by a
turnaround in the real economy. We have essentially had a “no growth” economy
for most of the past decade, and ominous signs pointing to big trouble
ahead are all around us. The only reason why stocks have been able to
perform so well is due to unprecedented intervention by global central banks,
but they are not going to be able to keep inflating this bubble
forever. At some point this absolutely enormous bubble will burst and
investors will lose trillions of dollars.
The only other times we have seen stock valuations at these levels
were just before the stock market crash of 1929 and just before the
dotcom bubble burst in 2000. For those that think that they can jump
into the markets now and make a lot of money from rapidly rising stock
prices, I think that it would be wise to consider what analysts at
Goldman Sachs are telling us. The following is from a CNBC article that was published on Monday…Investors may be in for disappointing market returns in the decade to come with valuations at levels this high, if history is any indication.Do you really want to try to fight those odds?
Analysts at Goldman Sachs pointed out that annualized returns on the S&P 500 10 years out were in the single digits or negative 99 percent of the time when starting with valuations at current levels.
Unfortunately, it appears that is precisely what a lot of investors are planning to do. In fact, Schwab says that they are opening new accounts “at levels we have not seen since the Internet boom of the late 1990s”…
New accounts are at levels we have not seen since the Internet boom of the late 1990s, up 34% over the first half of last year. But maybe more important for the long-term growth of the organization is not so much new accounts, but new-to-firm households, and our new-to-firm retail households were up 50% over that same period from 2016.And a different survey found that Millennial investors in particular are eager to pour money into the stock market…
Furthermore, according to a June survey from Legg Mason, nearly 80% of millennial investors plan to take on more risk this year, with 66% of them expressing an interest in equities. About 45% plan to take on “much more risk” in their portfolios.One of the fundamental tenets of investing is to buy low and sell high. Those that are getting in at the peak of the market are going to get absolutely slaughtered. Trillions of dollars of paper wealth will be completely wiped out by the coming crash, and I wish that I could get more people to understand what is about to happen.
I recently wrote about how some really big investors are betting millions upon millions of dollars that a major stock market crash is going to happen in the very near future. The financial markets are far more primed for a crash than they were in 2008, and there are certainly a lot of potential “black swan events” that could push us over the edge. In his most recent article, Simon Black listed some of the things that he is currently watching…
– North Korea is threatening to nuke the USYou only make money in the stock market if you get out in time. And since just before the crisis of 2008 I have never seen so many prominent names in the financial community warn about a coming stock market crash as I have over the last 90 days. For example, legendary investor Jim Rogers is warning that there will almost certainly be a crash “this year or the next”, and that it will be “the worst in your lifetime and my lifetime”…
– Donald Trump is firing his entire cabinet
– The Federal Reserve has dropped interest rates to record lows and drowned the world in trillions of dollars of cash
– Debt levels are at record highs
– Entire banking systems, especially in Europe, are in need of massive bailouts
– The US government will run out of money in less than 90-days and hit the debt ceiling once again
The best-selling author expects the next financial crisis to be the “worst” he has ever seen.What goes up must come down, and markets tend to go down a whole lot faster than they go up.
“We’ve had economic problems in the U.S. or in North America every four to eight years since the beginning of the Republic so to say that we’re going to have a problem is not unusual,” he told Kitco News from the Freedom Fest conference in Las Vegas.
“I would expect it to start this year or the next…and it’s going to be the worst in your lifetime and my lifetime.”
And in the environment that we are in today, caution is a very good thing. I really like how billionaire Howard Marks put this the other day…
I think it’s better to turn cautious too soon (and thus perhaps underperform for a while) rather than too late, after the downslide has begun, making it hard to trim risk, achieve exits and cut losses.Perhaps this will be the first giant financial bubble in our history to end smoothly, but I wouldn’t count on it.
In the end, I expect this one to end just like all of the others. And I anticipate that the coming crisis will ultimately be worse than anything we have ever faced before because this current bubble has been artificially inflated for so long.
Hopefully stock prices will go up again tomorrow, but it would be exceedingly foolish to ignore all of the warnings. Goldman Sachs says that there is a 99 percent chance that stocks cannot continue surging like this, and in this case I believe that Goldman Sachs is entirely correct.
A Quarter Trillion Dollars In US Savings Was Just "Wiped Away"
As part of its historical revision to GDP, the
BEA also had to adjust personal income and spending, with the full
results released in today's July report. What it revealed was striking:
over the revised period, disposable personal income for US household was
slashed cumulatively by over $120 billion to just under $14.4 trillion,
while spending was revised higher by $105 billion, to just above $13.8
trillion. There were two immediate consequences of this result.
First, as the following table shows, while government pay has remained roughly flat over the past 3 years, growing in the mid-2% to mid 3% range, wages and salaries for private workers have been steadily declining as the blue line below shows, and after hitting a 4% Y/Y growth in February, wage growth has slumped to just 2.5% in June, the lowest since January 2014 when excluding the one-time sharp swoon observed at the end of 2016.
But a more troubling aspect of today's revision is what the drop in income and burst in spending means for the average household's bank account: following the latest annual revision, what until last month was a 5.5% personal saving rate was revised sharply lower as a result of the ongoing downward historical adjustment to personal income and upward adjustment to spending, to only 3.8%.
In dollar terms, this revision means that a quarter trillion dollars, or $226.3 billion, in savings was just "wiped away" from US households - if only in some computer deep in the bowels of the BEA buildings - who as a result have that much less purchasing power, and following the revision the total personal saving in the US as calculated by the BEA is now down to only $546 billion, down from $791 billion before the revision.
This means that either households will have to incur this much incremental debt to continue on the previous spending "trendline", or a quarter trillion in potential growth from the future economy (recall 70% of US GDP is the result of consumer spending), has just been chopped off.
Source
First, as the following table shows, while government pay has remained roughly flat over the past 3 years, growing in the mid-2% to mid 3% range, wages and salaries for private workers have been steadily declining as the blue line below shows, and after hitting a 4% Y/Y growth in February, wage growth has slumped to just 2.5% in June, the lowest since January 2014 when excluding the one-time sharp swoon observed at the end of 2016.
But a more troubling aspect of today's revision is what the drop in income and burst in spending means for the average household's bank account: following the latest annual revision, what until last month was a 5.5% personal saving rate was revised sharply lower as a result of the ongoing downward historical adjustment to personal income and upward adjustment to spending, to only 3.8%.
In dollar terms, this revision means that a quarter trillion dollars, or $226.3 billion, in savings was just "wiped away" from US households - if only in some computer deep in the bowels of the BEA buildings - who as a result have that much less purchasing power, and following the revision the total personal saving in the US as calculated by the BEA is now down to only $546 billion, down from $791 billion before the revision.
This means that either households will have to incur this much incremental debt to continue on the previous spending "trendline", or a quarter trillion in potential growth from the future economy (recall 70% of US GDP is the result of consumer spending), has just been chopped off.
Source
