This is Worse than Before the Last Three Crashes

This chart shows “multiple compression” is coming.

How long can this surge in stocks go on? That’s what everyone wants to know. Projections range from “forever” – these projections have become increasingly common – to “it’s already finished.” That’s a fairly wide range.

Everyone has their own reasons for their boundless optimism or their doom-and-gloom outlooks. But there are some factors – boundless optimists should push them aside assiduously – that, from a historical point of view, would trigger tsunami sirens. Because in the end, it’s not different this time. And the cycle of “multiple expansion” and “multiple compression” is one of those factors.

For example, a stock trades at a price that gives it a P/E ratio of 20 (stock price is 20 times earnings per share). When earnings per share remain flat over time, but the stock price rises, then the P/E ratio (the multiple) expands. When this spreads across the market, even when aggregate earnings remain flat, it means “rally.”

And earnings have been flat since 2011! The other day, I posted a chart that showed that earnings of the S&P 500 companies in Q4 2016 were back where they’d been in Q4 2011. So five years of earnings stagnation. Yet, during those five years, the S&P 500 index soared 87% [read… S&P 500 Earnings Stuck at 2011 Levels, Stocks up 87% Since].

The thing that changed during those five years was the P/E ratio. This combination of flat earnings and soaring stock prices, and thus soaring P/E ratios, is, historically speaking, not a good thing when it drags on for too long. This chart shows the S&P 500 P/E ratios on every January 1 of the year. This aggregate P/E ratio has nearly doubled from 14.9 on January 1, 2012, to 26.7 on March 3, 2017:

Flat earnings, no problem. But wait… The problem for stocks is the inevitable multiple compression. Multiple expansion and compression go in cycles. Like boom and bust. Invariably!

Multiple compression with flat earnings means “sell-off.” And when this combines with an earnings decline, the sell-off turns into much worse. It happens with regularity.

This chart by John Alexander at Macro Charting tracks the percentage increase and decrease of the P/E ratios – so multiple expansion and compression – going back to 1979. I marked the four record periods of multiple expansions (in months). The first three – which ended in 1987, 2000, and 2009 – turned into periods of multiple compression associated with blistering crashes (click to enlarge):

The current period of non-stop P/E ratio expansion has lasted for 57 months, by far the longest in the data series. Can this go on forever? The chart says no.

Does the chart tell us when the pendulum will swing in the other direction? Nope. In fact, the chart tells us that the pendulum should have already swung in the other direction after, say, 40 months, and that it started to do so, and then bounced off.

There are a million reasons why multiple compression hasn’t started yet, including the scorched-earth monetary policies by central banks around the world and the hope for miracles during the Trump administration.

Does the chart tell us how far stocks will fall, or how sharply they will fall, or for how long they will fall once the pendulum swings in the other direction? Nope. But it does suggest, from a historical perspective, that it could get very ugly. And if you tilt your head just right, the chart suggests that it should already have gotten very ugly. But it hasn’t….

This market (“Dow 30,000”) practically guarantees that the Fed will hike rates. Read…  What’s Different This Time? Stocks

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  105 comments for “This is Worse than Before the Last Three Crashes

  1. Paulo says:

    Ahh, the pointing fingers of blame will be astounding when this Market tanks. There is an unnamed politician taking credit for the recent expansion. I wonder if he will shoulder any blame when it shrinks?

    Life goes on as necessities continue to be met with both goods and services. This Fluff economy, not likely to continue. Unfortunately, most economic activity these days seems unnecessary and superficial. We could all skip dining out, vacations, a new wardrobe, new car, etc. But when the toilet leaks or the stove starts throwing sparks you definitely will not be calling an Ivy league grad to come and fix. Instead, you will purchase exactly what you need, and nothing more.

    Proud to be a tradesman. Thankful to be retired. Grateful to have transferred investments into a RRIF and term deposits several years ago. I will be very interested to watch this crazy market collapse. I will feel very bad to see regular investors get hosed, as they assuredly will. Buyer beware, right?

    • John M says:


      What if we get hyper-inflation? How will RRIF work then? Maybe not so well. Keep nimble.

      • interesting says:

        I would call a starter home in a so so neighborhood at $600K hyperinflation so i guess we are already there.

        • RF says:

          NYC, Chicago, Seattle, or SV? The vast majority of other cities do not have this problem, which suggests that currency has less to do with this, and more to do with a fed fueled credit boom that disproportionately helps those with existing capital.

        • Peter Forsyth says:

          It is a measure of the slave index. The higher number means heavy incarceration by the new masters.

      • Rez says:

        A fixed SPIA is the best option for retirement, in my opinion. They’re easy and predictable.

    • Sonomendo Steve says:

      100% ditto for me Paulo. BTW, I have many lifelong friends who skipped out to your neck of the woods long ago. Sointula, Port Hardy, Black Creek, etc. Loved my many many visits up there. Incredible Country!
      Hyper-inflation? John has no idea how far people like you are capable of downsizing.

      • OutLookingIn says:

        Agreed. The “Wet Coast” is truly ‘the’ place to be.

        Hyper-inflation is the natural course of these events.
        The DOW at 21,000 – Who cares? That number just shows how out-of-whack the system is and continues to be! Remember those in Zimbabwe who were in the market, were ALL multi-millionaires with virtual truck loads of cash, as their stock market went up to stratospheric heights. The high numbers meant virtually “nothing”, when all they did was measure how much “air” was in the system.
        I foresee the same thing occurring now, with the DOW leading the way. The mad scramble to the one small exit door, will be epic!

        • economicminor says:

          I’m still having trouble with the hyper inflation scenario. Seems to me that with the record amount of consumer debt any significant amount of inflation would just totally crash disposable incomes. That would crash the system.

        • Sonomendo Steve says:

          Me too mirror-I don’t have much trouble with stagflation, or even just out right depression scenarios, though. With the chosen few being completely immune, of course, just like after ’29.

          A real sad thing, to me, is that following the ’29 melt there were businessmen/manager suicides EVERYWHERE, whereas following this last melt, the only one I know of, was a European Noble feeding Madoff (who it also almost seems had to turn himself in to get “caught”). Peasants in both killed themselves in quantity for years, and still do today. Evidently, 80 years later on, integrity, responsibility, and honor are no longer the important measures of respect or success they once were.

        • Sound of the Suburbs says:

          Today’s elites have bought New Zealand real estate to run away to when it all goes wrong.

          They liked the rewards for success but weren’t very keen on the responsibility for failure.

    • RepubAnon says:

      I think we can confidently predict that any bad news, economic or otherwise, will be blamed on Democrats in general and Barack Obama in particular. After all, when has a Republican ever taken personal responsibility for the results of their policies?

      • interesting says:

        I find it odd in this day and age anyone can find a hill of beans difference between the two parties.

        If the crash happened tomorrow who should be blamed?

        personally I blame the FED, but that’s just me.

        • d says:

          ” If the crash happened tomorrow who should be blamed? ”

          BEAT the socially acceptable American scapegoat. BLAME the FED

          How About some reality.

          Try the Oligarch that own both side’s of the American political duopoly that keep it as a duopoly and the Vampire, Globalised, Corporates, currently allied with china, that tell that oligarchy, who to appoint.

          They allowed this situation to develop, as they refuse to change their business model, based on ever expanding population, and continuously shorter life and lower quality consumer item’s.

          As they are unwilling to risk the possibility that under a new trade and business model, their entity’s could not survive with the current remuneration structures.

        • DaveP says:

          Fixing the blame is simply an exercise in displaying ones prejudices, and won’t fix the problems… only a systemic crash (financial, legal, moral) can engender a reset.

        • Hendospops says:

          Partisan minded people will always focus on political parties and not pathological system that spawns the corrupt people in the parties. Everytime i hear someone say republicans this or democratss that, i give a little chuckle to the universe

  2. As says:

    If the S&P drops 5%, the FED loosens monetary policy, until the rally resumes.

    No policy is off the table during a 10% market correction.

    • But can the Fed “loosen”? It has kept the accelerator stomped down against the floor for nearly eight years with near-zero (or negative real) rates. It could re-institute QE, but that’s slow and its efficacy is questionable, plus it incentivizes all the wrong things and screws the taxpayer. What tools does it have left? Had it raised rates earlier, say, in 2013, it would have some dry powder, and maybe multiples wouldn’t be so insane, especially if it had tempered buyback activity.

      • Stinkfist says:

        They could incorporate helicopter money, but the elites will never allow that

    • Smingles says:

      People act as if the Fed has a magic wand it can wave that just props markets up.

      I suspect it won’t work this way if there’s a true crash and stampede for the exits.

      By the way, S&P 500 dropped almost 20% at one point in 2011. Has had multiple 10+% drops since then.

  3. Coaster Noster says:

    I read somewhere the hypothesis that liquidations in other markets (oil? bonds? currencies?) left a lot of money-cash with nowhere to go, except…the stock market! Don’t fight the tape, they always say. Analysts seem to put giddy evaluations on stuff that is way overpriced (e.g. Cowen & Co gave US Steel (“X”) a target of $60 a share, and the stock is at $37, rising from $8/share a year ago). Hedge funds now run the Markets…their algorithms exploit people with “common charts” and fundamentals, whipsawing prices back and forth, shorting then relentless buying, on no news.
    When will it crash? When hedge funds say so.

    • RD Blakeslee says:

      “When will it crash? When hedge funds say so.”

      Sort of like: When is there news? Not on weekends – all the “newscasters” are off.

    • andy says:

      By definition “money-cash” is always on sidelines and never in the market. And someone is holding every bit of it at any moment in time.

  4. Steve M says:

    You demonstrate from a historical perspective that the market is due to correct in the near future under normal circumstances and then you list point by point how nothing about this market is normal.

    So we’re almost six years into the current run, and if it’s not a stretch to say the previous market ride was based on equal financial whimsy (the mortgage fiasco), then a broker/planner with 17 years under the belt – a true veteran – has never worked under normal market conditions.

    For them, what isn’t normal makes perfect sense!

    So let’s draw a parallel to another big sphere of human activity, say geopolitical. Without pointing fingers at numerous candidates, a big country throws bombs at a defenseless country but nothing changes.

    So do they stop? No, it just throws more. The people getting bombed can’t do anything to stop it and the people throwing the bombs can’t stop or won’t stop, but they definitely haven’t.

    And the rest blog or write replies.

    Brilliant piece. A snapshot that makes one think of bigger pictures.

    • RD Blakeslee says:

      Remember the movie “Ship of Fools”? Followed a few years later by “Judgement at Nuremberg”?

      Hubris is reflected in the first, propitiation in the second. An endless pendulum swings and swings and swings …

    • RogerThat says:

      (you list point by point how nothing about this market is normal.)

      Looks normal to me. Stocks travel on “themes” and investors move in “herds”. Not recessions, not PE. When a theme seems less believable, stocks rotate and sell off. Congress can make anything look less believable. Give them time.

  5. NotSoSure says:

    There are news outlets saying that more than 60% of Muppets can’t afford a 500 dollar emergency, and yet they magically can find moolah to get brand new iPhones, consoles, etc.

    It’s obvious that the financial strength of Muppets has continued to be underappreciated. That’s why the stock market has been so strong.

    • RD Blakeslee says:

      Is a credit card that’s not quite maxed out “financial strength”?

      • NotSoSure says:

        Well if you have a credit card, then you can afford a 500 dollar emergency right?

        • TJ Martin says:

          Good question . The better question though and the one they [ those unable to pay out of pocket w/zero health insurance ] subscribe to is why put the bill on your credit card when your overall financial situation places the responsibility on the city and the state ?

        • RD Blakeslee says:

          Right, but if we are talking about the recent headlines, they were about lack of savings, not credit.

    • TJ Martin says:

      They don’t ” find moolah ” .. what they acquire is more debt . So its not the muppets driving sales but rather the creditors . e.g. Limit the muppets , the majority of which will never be able to pay off their debts credit and watch sales plummet into the abyss along with the economy and stock markets

    • Intosh says:

      Well, to the Muppets, a brand new smartphone IS an emergency spending. ;-)

  6. Groucho Marxist says:

    Wealth despairity (no typo) has exploded obviously during the past 30 or so odd years. And the mechanism used to funnel money from the 99% to the 1% during this period has been the stock market. And through this magical money- spigot, the elite have managed to stage what is essentially a soft coup, using their immortal money to solidify, with Citizens United, QE, mega-lobbying, etc., their grip on the levers of power.

    Given that, I wonder if the elites will allow a market crash. Sure, the market can start to correct, but they can give investment bankers unlimited money through the Fed’s discount window. They can buy stocks either outright (they have the audacity) or through proxies. They are also possessed with an idealogical insanity that was last seen in the United States when people fought and died to protect the right to enslave others…. a craziness that people a century from now will shake their head at and wonder “what were they thinking?”

    And sure, I get that the markets are way over-valued right now, and a correction is due one way or another. This is what will probably happen. Still, I wonder how far the powers that be will go to protect their fiefdoms and their magic money-spigot. They will not go down without a fight.

    • Sonomendo Steve says:

      Groucho- The question then becomes what to do with all the soon to be very upset peasants. I have long believed peasants everywhere should build shrines to Dr. Oppenheimer, as we otherwise would have had WW 4-5 by now. But if those A-birds fly, even the elite are doomed, sooner or later.
      We should have some level of net wealth above which a person is deemed completely insane, and hospitalized…..jailed?

      • Jungle Jim says:

        Steve, you’re right about the upset peasants. It remains to be seen whether the 1 % can actually rely on their security forces. Lets not forget that those security forces are drawn from the 99 % along with their families and friends.

        New Yorker Magazine recently ran a story about the wealthy preppers and their activities. Add to that the huge number of assault-type weapons that the 99 % are buying and there is serious cause for concern.

      • Intosh says:

        “what to do with all the soon to be very upset peasants”

        The same that the Elites have always done: convince the upset peasants to fight their own and/or to go fight some foreign people.

        • Sonomendo Steve says:

          Intosh- And they are always spending a lot of time and money to convince them to do just that, based on fears or disgust of any peasant differences that they can exploit.
          As Lincoln put it,”…prey on the prejudices of the people until all the wealth is in the hands of the few and the Republic is destroyed.”

      • economicminor says:

        So you don’t believe that people who have never done a real days labor, who are completely disconnected to the real main street economy, who gamble and game the system for their livelihood, won’t again make some agrrgeous error(s)?

    • John M says:


      The Muppets always go massively long at all end of of bull market how else do you Elites channel the Muppets money into the Elites’s accounts?

  7. d says:

    There is a massive down channel in that chart.

    That starts with the 97 low and the 2001 high. as the starting points for the upper and lower band’s S/R channel lines.

    We we do not seem to have broken out of it, or side traveled out of it, yet. Which is ominous.

  8. Sound of the Suburbss says:

    It’s a global system and the ECB and BoJ are still pumping in liquidity.

    It’s got to go somewhere and it isn’t going into the real economy.

    Markets can be inflated but the correction to fundamentals always comes in the end.

    1) Reality cannot be denied as real economy is so bad
    2) Less liquidity being pumped in
    3) Major shock
    4) FED tightening

    One of the above will do it.

    • economicminor says:

      So you don’t believe that people who have never done a real days labor, who are completely disconnected to the real main street economy, who gamble and game the system for their livelihood, won’t again make some agrrgeous error(s)?

  9. Hkan says:

    What prevents the 1% from stopping the collapse is simply their “greed”. The most powerful evil driving force wich still today causing yet another conflict.

    “we are civilized humans…we will not make the same mistakes previouos generations did”. Or?

    And we still havent recognized it as a “public enemy”. 1% is very much alive an kicking. 2017… kind still havent figured it out.

    • John M says:


      The 1% didn’t want to play fairly in 1790s in France so Monsieur Guillotine removed their heads. In fact that Era is almost identical to today. There were three groups back then. The Church the Nobility (1%) and the 99%. The 99% had no money to speak of but we’re paying their taxes. The Church and Nobility not so much. Now the moniker of the Nobility has morphed to the 800 NYSE corporations that have re-domiciled to Dublin Ireland and their “Double Irish Non-taxation” status. This doesn’t end well. Do Nukes end up flying? I don’t know but the world has too much debt.

  10. John Gerty says:

    Ok, I do believe the sky is falling scenario, just don’t know when. What can one do to preserve capital when we have a big bow off of the market? I also realize that this probably won’t be fully understood as it occurs. Mostly contemplating at what point one should just step off the escalator?

    • RD Blakeslee says:

      “…at what point one should just step off the escalator?”

      65 years ago?

      (My point is: start working on it NOW and get off as soon as possible.)

      • Paulo says:

        I have enjoyed reading all the comments, for sure. As I read them I kept thinking that now would be such a good time to sell out of a very high real estate market, reap the equity, place profit in term deposits, and hunker down; renting in a lower priced suburb if possible. Then, when the pot tips over pick up something else, perhaps somewhere else.

        Right now I have relatives laying down money for contractors to build them a new house. Inside I am wincing because I see they are paying top dollar at the height of the market, and the contractors are smug and expectant. This is what I feel to be true, but other than talking to my wife about it I have decided to keep my mouth shut. Not one person will thank me for my opinion, especially when they don’t ask for one. It reminds me of the Yukon gold rush; by the time the crowds hit the Klondike the best ground was already mined out. You have to be ahead of the rush, and not part of the rush.

        No, we don’t have a crystal ball that tells us the specific date of a correction into reality. But this article and graph explanation provided by Wolf seems pretty indicative to me. Connect the dots, family.

        People have the right to make their own mistakes. However, it feels very bad to see this unfold for family I care about.


    • John M says:

      John Gerty

      I had an acquaintance who was in the “Russian” market when it all went whoopsie in the 1990’s. He bought Russian lumber with his rubles and then exported that lumber which he sold into Europe. He made out and got his money back. That is why people like to park cash into hard assets not unlike gold and silver. Its not that you’re forced to own these safety nets forever but if you were a Venezuelan right now putting as much of today’s bolivars into silver coins will save “Today’s wealth” for tomorrow and your future.

  11. arbuthnot says:

    Wolf, three points: First, as you know, the S&P500 is not a company, it is an index and prices and earnings of its components do not move in lockstep over time. Consequently, the average performance of 500 moving parts can at times be largely noise. Consider Apple and IBM.

    Second, the definition of earnings has changed dramatically in recent years: think financial engineering – This now widely accepted practice of accounting legerdemain conjures up memories of a bull market in the 1960s that came to a sudden, violent end when an obscure college professor came up with a reality check known today as fully diluted earnings. That was a great market while it lasted, but…….

    And lastly, Wolf, I respectfully suggest that your analysis is simply not applicable to today’s “markets” which clearly are no longer “free” to reflect the risks and rewards associated with economic activity. Instead they they have become the tool of powerful, unelected politicians who really believe “that they know better.” Read: NIRP.

    So where does this leave us? My take, much the same as yours, I believe: On the brink.

    • Sonomendo Steve says:

      Rats! And just after I spent quite a bit of time at understanding the P/E compression/expansion econ model. ;)
      Oh well, I’ve stayed clear of stocks since 1250 pre crises, using my own money anyway…still follow all the econ I can…..hard to believe I once had a margin account with pattern day trader status….addictive stuff!….but as always, I like learning.

  12. Petunia says:

    The higher stock prices go, the higher executive compensation will be. Executive compensation is one of the biggest ways of siphoning wealth from the working class through their pension funds. It then becomes a self reinforcing cycle of high prices, create more stock buying to compensate executives, until the cycle breaks, like it did in 2008. The compensation wasn’t the trigger in 2008, but it was the reason most financial companies were hollowed out and couldn’t stop the declines.

    It will all happen again. Silicon Valley seems ripe for the prospect, this time around.

    • kitten lopez says:

      i looove your mind.

    • Meme Imfurst says:

      Here is a perfect example:

      Look at United Health Care, granted that ‘The Affordable Healthcare Act” put many dollars onto this companies pockes and thus the stock price zoomed upwards.
      Now look at the CEO compensation, from 34,000 per day to 243,000 PER DAY salary over the last 5 years, plus benefits.

      A Disgrace in no uncertain terms, no man or woman deserves this kind of compensation when my cost have zoomed right in line with his benefits.

      Fools, we are to the bitter end, looking for God to save us.

  13. cdr says:

    This will be the biggest bubble yet. The end is NOT in sight and won’t be until – I hate to put it this way – the costs of a rising market exceed the benefits.

    Oil broke because actual supply exceeded demand plus storage capacity. It took a massive oversupply to break the ETF traders who biased the price upwards.

    Oil is a real commodity with actual costs and actual uses. You can have too much available and that will affect price.

    Equities are an intangible. Rising prices begets even more rising prices, providing there is sufficient fuel to keep the market rising. Cheap rates to support margin and whatever HFT uses to finance itself. I suspect HFT competition for front running and other opportunities has diminished due to the numbers of firms all doing the same thing. That being said, buy the dip via machine is a proven winner. The recovery brings in more buyers which fuels the system even more.

    Greater fool speculation has been converted into something as sure as an old fashioned savings account due to HFT and low rates and the Fed’s ‘stable market mandate’.

    Basically, it will run until it can’t, and that day is a long long time off. By ‘can’t’ I mean until the costs exceed the benefits. This implies much higher rates, the Fed stating the ‘safety net’ is not there for something like this, or a structural change that outlaws front running done by algo.

    • economicminor says:

      I saw a chart yesterday that showed short interest declining dramatically. This suggests that short covering is what has been driving the market higher. When this ends and there are few shorts left watch out because there won’t be any one to catch a falling knife.

      • cdr says:


        As a former economic major (BS 1975), do yourself a big favor and avoid the mathy stuff as much as possible, unless you like math for the sake of math. Applied to economics, it’s as phony as it gets. Math econ provides cover for scoundrels. Understanding cause and effect is not only good, but will allow you to master your environment. You do not need math econ for that, even a little.

        Also, if you are so inclined, read about fraud since so much of the world depends on it. An old but great book, The Big Con, written in the mid 20th century, is quite relevant even today. The old games are still around, only some are played on a global scale now and involve several big stores. To some extent, the Establishment is running an obvious one.

    • Sonomendo Steve says:

      That IS a scary prediction…..this man made “system”, so evolved and complex that I honestly doubt anyone fully understands it, and that changes probably almost daily (financial “engineering” as they call it), and runs in nano seconds as you point out. All split up into countless compartments and specialties, and is ultimately based on and driven by what is probably only most beneficial to a very few people. Yet it strongly affects everyone. It sure did in ’08-9. Not to mention being the biggest lobby in DC by dollars spent influencing our very laws and who knows what else.
      And that’s just financials, our major money pipelines, and “maintenance” thereof……which is what?…….30+% of all, say, S$P endeavors by market cap?
      30+% of the endeavors going on to keep most of our whole country ticking, and like you say, are intangible, other than the huge buildings, etc.

  14. GSH says:

    The market is not moved by fundamentals (P/E) but by global liquidity. Increasing interest rates in the US will pull more money from the ZIRP/NIRP badlands. Add to that instability caused by Eurexit(s) and you have the recipe for DOW 25,000. I’d not short this market with a 10′ pole.

    • Bobber says:

      Saying stocks are supported by global liquidity gives me no comfort as global capital flow is largely mean-reverting. Capital flow into the US leads to higher USD, which results in lower future investment. We’ve already seen the dollar rise, so maybe that means its time for a fall and foreign investment will dry up.

      We’ve got crappy stock fundamentals and perhaps peaking global investment in U.S. That could be a deadly combination.

  15. Tone says:

    Entitlements to the haves
    Stagnant wages
    Rising personal debts
    Eroding benefits
    Rising interest rates
    Health care costs
    Government debt ceiling (due again)

    The new U.S. Administration is not inept.
    I believe they are fully aware that there is no viable way to get out of this mess.
    By going full throttle on it’s protectionist stance (the President even labeled terrorists as “Islamic” in his address this past Tuesday), they are inviting war.

    History is a bitch, and I believe we are a generation away from real growth.
    I am 90% cash.

    • Intosh says:

      War is great for the economy and a distraction for the desperate and upset Muppets. And Elites don’t have to take part in said war to reap most of the benefits.

      • Meme Imfurst says:

        Oh…you mean George Soros and son?

        • polecat says:

          Well … here in the States, that would mean most of CONgress … as well as, with few exceptions, their progeny !!

          I highly doubt that if the U.S. government tries wage a big war, as a cover for bad economic/geopolitical policy, the plebes will fight ….. their feckless masters ! …especially if the draft is brought back.

        • Smingles says:

          If you’re going to throw partisan political attacks out there, fine.

          George Soros had to flee the Nazis as a teenager in Nazi occupied Hungary.

          Trump had to flee… what was it, oh, “bone spurs” in his heels, despite being an athlete and playing football, tennis, and golf. That was one of his deferments. But then he had… oh, four more.

          Yeah. Something about taking the log out of your own eye before pointing out the speck in someone else’s…. these off-topic partisan political snipes are SO annoying, especially when they’re STUPID to boot.

      • economicminor says:

        We have had endless war for over a decade and all that has done for the economy has been to waste a lot of precious resources and lives.

  16. Lars says:

    Great chart and thoughts Wolf !!!
    We’re at 57 months, I predict between 69 and 84 months will be the run length of this bull market. That’s June of 2018 to Sept of 2019, for the market top to be apparent in hindsight from further on for when it crosses the Zero Line and plunges into negative territory.
    I think ‘d’ is on to something here. . . “There is a massive down channel in that chart that starts with the 97 low and the 2001 high.”
    If we ‘break out’ and surpass the upper downtrend line in the next 9 months, then the Trump Era may be a longer lasting phenomena than the Marxist funded Democrats can defeat, and I’ll be wrong about the coming market top and subsequent decline.
    Stabilization of a wildly rising real estate market, reducing irrational exuberance in stock markets, and the avoidance of negative interest rates, are what financial regulators and central planners must be most concerned with for a stable future society. Those who make their profits from chaos and war must be arrested and restrained. Those who make their profits from times of stability and peace need to be encouraged and rewarded.

    • Ed says:

      S&P 500 at 2,500 is a number I’ve seen.

    • MarkinSF says:

      “Marxist funded Democrats”?! On what planet are you living?

      • Sonomendo Steve says:

        He means Bernie Dems like me. Some day Watters will catch me protesting Trump and trick me into admitting to it on Fox for all to see. Cuba has more money than you think.

      • Lars says:

        Public University Pays Students to Take Courses On ‘White Privilege’ and ‘Black Lives Matter’

        College lavishes incentives in exchange for Marxist indoctrination

        An honors program at a public university gives students a scholarship and early course signup and lets them use laptops if they take classes on subjects like “white privilege” and Black Lives Matter, which both have community engagement components.

        Sam Houston State University in Texas (SHSU) offers a scholarship of up to $2,800 to students who take these courses or others as part of its Elliott T. Bowers Honors College. Students who gain admission into the Honors College can sign up for courses earlier than their non-Honors peers, obtain access to a special computer center, and “automatically receive the Bowers Scholarship upon acceptance into the college.” The Honors students also graduate with distinction and gain usage of cameras, video cameras, and laptops for their class projects.

        “Understanding Whiteness: Historic and Contemporary Viewpoints on Privilege,” asks SHSU Honors students “how might white people better understand white privilege and their potential role in dismantling systemic racism?” and requires students to “engage in personal self-reflection” and “educate others about white privilege through action research projects and community engagement initiatives.”

        The seminar examines “white privilege” from modern and historical perspectives, e.g., “the social construction of whiteness,” as well as “key historic events and movements advancing white privilege (eugenics, global colonization, holocaust).”

        What planet are YOU living on MarkinSF ?

        • MarkinSF says:

          I think you need to take this class.

        • Jerry Bear says:

          You are confusing Marxism with Political correctness which is quite antithetical to the goals of real Marxism. Marxists deal with issues of class and fundamental economics as it applies to the working class. These issues are completely ignored by the politically correct who much prefer to obsess on “identity politics” espousing the rights of assorted minorities. This has been the downfall of the Democratic Party which has abandoned the working class that was once the source of it strength. Real Marxists focus on bread and butter economic issues, not on trying to save the whales or the oppression of women in Bangladesh.

    • Smingles says:

      ““There is a massive down channel in that chart that starts with the 97 low and the 2001 high.””

      It’s very unlikely that technical analysis that needs to call upon chart dates for which half of the current traders on Wall Street were in middle school for is at all accurate or relevant.

      “Stabilization of a wildly rising real estate market”

      Which has happened how many times in the history of real estate? I’m guessing somewhere between -1 and 1.

      “reducing irrational exuberance in stock markets”

      Which has happened how many times in the history of stock markets? I’m guessing somewhere between -1 and 1.

      “Those who make their profits from chaos and war must be arrested and restrained.”

      Already the biggest military budget by far, and Herr Drumpf will be adding how many billions?

      • d says:

        “It’s very unlikely that technical analysis that needs to call upon chart dates for which half of the current traders on Wall Street were in middle school for is at all accurate or relevant.”

        Charts like that one, dont lie.

        Ignore at your own risk.

  17. Bobber says:

    There are clear limits to the QE insanity:
    -Retirements can’t be funded with 2-3% interest, and pension systems are already starting to fold.
    -Companies can put only so much buyback debt on their balance sheet
    -Companies that were glad to report profits in tax havens in the past are now restructuring into higher tax structures to avoid public scrutiny. Corporate taxes have reached a turning point. I know this first hand.
    -Politics has reached a turning point (for benefit of the masses)
    -Housing prices can grow has limits without wage growth
    -Rents have limits without wage growth
    -Wealth disparity has limits and is cyclical
    -The public is smartening up about economics. Look at the growth in websites like this. My 79 year old month (former nurse) is now talking about interest policy and wealth concentration.

    In the end, I believe the system will buckle because of citizen revolt, as opposed to other constraints on the system (debt levels, rates, demographics, etc.)

    • Sound of the Suburbs says:

      It’s a race between many things as a failing set of ideas has been kept in place far too long.

      Who will win?

      1) Demand side collapse
      2) Asset bubble collapse
      3) Social unrest
      4) Euro collapse
      5) China collapse
      6) Derivative implosion

      etc ……

      There are a lot of horsemen of the apocalypse.

    • william says:

      ‘Citizen revolts’ are taking many forms. Sometimes, mild themes like off-shore medical services don’t seem like a revolt, but they are indirectly. Across many industries – medical, education, food, housing, etc – these small revolts are making a difference. In my daughter’s high school, she is now hearing opposing views on more and more topics, which really deviates from their mind-hive intentions of education.

    • John M says:


      This free (Kindle) down load

      Tells the story of the 1790s and France. It went pear shaped then it will repeat now.

  18. james wordsworth says:

    The REAL missing piece:
    P/E ratios are interesting but historical comparisons hide one very important element … CHANGE. When you pay 30X earnings for a company you are assuming a 30 year stream of earnings at the current rate .. just to justify today’s price. Now of course we can assume some earnings growth, so the year number may be less … BUT … in today’s rapidly changing environment how many companies are likely to be doing the same thing or even in business in even 10 years.. Just think about how recent the internet has been and look at the casualties all around. I find it hard to justify paying more than 10 times earnings for any tech based company unless the play is purely a “I am sure it will get bought out”.
    The incredible pace of change in my mind makes historical PE ratio comparisons very suspect. Buyers beware at these levels. They make NO sense

  19. Shodan says:

    “This market (“Dow 30,000”) practically guarantees that the Fed will hike rates”

    My guess is tepidly. I don’t think that one 0.25% rate hike will derail this rally. My guess is a minor sell off then up to 30k. Credit is still dirt cheap and the US dollar is only strengthening.

    A rate hike will fuel the rally as traders see the worst is behind them. Yeah, next year there might be another 0.25%, but until then it’s party time. A whole generation of traders only know ‘buy the dip, the FED will deliver’.

    And who knows, there might be a crisis somewhere in the world that justifies a rate cut! After a raise, the market will be focused only on future cuts.

    The Fed is a true believer in asset price inflation and everyone in the market knows it. Wolfstreet has done an excellent job in pointing this out.

    This is new ground, and with Europe falling apart, China a big question mark and Japan awash in money, where is the investor to go but US stocks backed by a strong dollar?

    • Habeas Corpsesus says:

      Excellent post Shodun. After inheriting stocks in 2016 I had every intention of liquidating since the stock market is a spurious amoral creature. Now I find myself hesitating a bit after noticing my dividend checks are a bigger return than a safe investment. I’m kicking the hell out of my 60s and need more income!!

  20. Bobber says:

    I think the crash is built in, and it’s just a matter of when.

    I’m 60% long in CD’s earning 2%, 20% in short equity positions and put options, and 20% long on large commodity stocks and gold. I think you have to hold some hard assets in this market to protect against potential hyper-inflation. Let’s face it – our Fed is irrational.

    I’ll keep this allocation forever or until asset prices drop 40% or I see the Fed accepting inflation above 2% (which would be a policy change).

    If we see continued erosion of liberty and justice, including our right to save for retirement, education, and medical care, it’s time to get back in touch with our roots (established in 1776).

  21. Coaster Noster says:

    Paul Krugman has a professional take on the Markets:

    Good chart, good numbers

  22. NotSoSure says:

    Actually I know when this stock market will drop. It’s when David Stockman turns bullish.

    • MC says:

      Which is bound to happen approximately in 2690 AD.

      • NotSoSure says:

        He’s a closet bull, otherwise it’s unclear where his true income originates from :)

        He can’t have that many subscriber given that they will have lost a lot of money if they follow his thesis.

    • MarkinSF says:


  23. cdr says:

    The Fed’s real third mandate is to do no harm to financing the globalist’s dream of cheap labor, invisible borders, monetized sovereign debt that finances benefits for the underclass, and negative rates that function as middle class taxation.

    Academics provide cover with theories that support these objectives and anyone who objects is marginalized.

    The stock market is a laundering mechanism that gets cash to those who support globalization and those who don’t mind a little risk or, in the minds of the Fed, those who are astute enough to know how things work now.

    The market will rise until it can’t.

    • cdr says:

      or to put it another way, the market will rise until the world changes. When it falls significantly, it will signify a win over the globalist … who will regroup and plan their next assault.

      This will not happen soon.

  24. JB says:

    Possible inflection point in the stock market will be a debt ceiling crisis on or around March 15, 2017, which incidentally, just happens to be the same day that the Federal Reserve is supposed to hike interest rates: double whammy on the 15th. Buy the way government expenditures are around 1/5 of GDP. Here is link that explains debt ceiling details . don’t touch that dial

    • NotSoSure says:

      Impossible. The stock market is forward looking up to 6 months as they say. So the March 15, 2017 is a non event. And anyways, you are talking up David Stockman’s point, and he’s been WRONG big every time.

      Let’s hypothetically say that he’s right this time and there’s a 10% correction or so. The resolution of the debt ceiling crisis might actually take us to Dow 30K in a month, I would say. Remember the market is looking for any ammunition whatsoever to go big.

      Bad news, rise a bit. Good news, rise 1000 points.

      God Bless America.

  25. Howyadoin? says:

    P/E earnings ratio will, for a long time, have a much lower spread.
    Why? Diminishing returns is the future and will be for many years as trends like artificial intelligence and automation move faster and faster with fewer and fewer people with money.
    Get used to it investor class…demographics, especially related to all things financial, will all coalesce around less and less opportunity…
    HUNGER GAMES Anyone?
    We are all going to suffer expect for a few.

    • Sonomendo Steve says:

      RE: Hunger Games- When Carter got on TV during his big economic crises he simply made a plea for people to cool it on the excessive consumption and why. Political suicide in that America, and he knew it. Many things have been crammed down middle, lower class, throats over the years to make our masters (and lower wealth level wannabes) as rich as they are today, lately with little to no choice in the matter. And for far too many now….effectively zero choice..maybe even just homelessness or jail. Thanks a lot, big INC’s!….and growing PE.
      My rich DC lobbyist uncle hated Carter, saying, “What the hell is a SCIENTIST doing in the White House!” We liked him. He started several alternate energy/efficiency programs (which the Reagan-masters promptly trashed in their sociopathic self interest).
      I even totally enjoyed the 55mph speed limit days, although I had joined the 200 mph club about the same time. Body pilot. Lived in a van for 5 years to afford it. So what? Kids are kids! My generation had more choices than the later ones, (big exception-Vietnam) for which I am now both grateful and totally P’d off about, remembering how I never panicked about retirement, career, home, etc, very much till almost 30. THAT was the American Dream to me. Enjoying youth while I could.
      But, I have a pawn on my truck dash to remind me what say I have had in my overall society and culture.
      And science WILL have the last word, dear uncle, fossil fuel burning, for whatever clever reasons, leads to a miserable DEAD END for all.

      • Smingles says:

        Jimmy Carter was very much correct in his great malaise speech.

        Sad to see him totally vindicated all these decades later, and yet he’s still hated… while Saint Ronnie, who was trading advanced weapons to Iran for drugs to fund coups by nun-murdering rebels in South America is still celebrated. Sad.

  26. beadblonde says:

    This is simple. As Ritholtz claims, earnings are just one piece of data when you know you can get out of the market before the sky falls. The Fed has your back if you’re a big player. As the saying goes, if you don’t have a seat at the table you’re on the menu. Draghi can print, Bank of Japan can print, Switzerland can print and buy American, Yellen can print. Deflation is so profound that printing has little effect except to supply the helium.

    The 1% are counting on that tax cut, though.

    • NotSoSure says:

      Exactly, the game is probably over when one of the big players get hurt or the big players have a falling out.

  27. r cohn says:

    A little over a year ago the Dow traded hit an intraday low of 15450
    Was the world failing apart then ?Have things improved that much to propel the Dow almost %36 higher.The answer is NO to both questions
    Yes, commodity prices have improved .This has definitely helped the oil patch
    But the 10 year is now at %2.47 vs%1.57 over a year ago and the FED appears to have changed from very Dovish to much more hawkish
    Market expectations are that the Trump administration is going to be able to lower corporate profits significantly and increase infrastructure spending by large amounts.But these potential proposals come from an administration which is virtually %100 opposed by Democrats , has a number of opponents among the Republicans(like Graham,McCain,Paul),is embroiled in petty issues of Russian influence and is having a great deal of trouble changing the ACA.
    The probability is that the market will experience another scary correction sometime this year

  28. rutter says:

    Central banks infinite QE bubble blowing will never end. the whole idea that markets are free is complete BS and the world knows it. saying the market is going to crash is just BS. these people control the stock market and won’t let it crash. Wolf knows it and so does the world. if the scandals drop the market, it is because they planned it. whether you think it is good or not – that is where the world economy is today. everyone knows. old news.. next story please wolf.

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