A certain signal, created by a Nobel Prize winning professor from Yale University, is warning investors of coming danger.
As a result, market makers are getting nervous.
Many are predicting a massive market downturn is right around the corner.
Mark Zandi, chief economist at Moody’s Analytics said, “The stock market is due for a significant correction.”
Tom Forester, chief investment officer at Forester Capital Management elaborated further. He pointed out that the last two crashes were sparked by one industry’s failure. In 2000, the tech bubble burst. In 2008, the sub-prime mortgage fiasco brought the market to its knees.
Today, things look much worse. Forester fears almost every sector is overvalued. That is certainly true when it comes to the S&P. Nine out of ten of its sectors are more expensive today than their historical 10-year average.
Forester warns that the coming bear market is, “going to be agonizing.” He says, “There won’t be anywhere to hide on the way down.”
He’s not alone in his analysis. Famous Swiss investor, Marc Faber shares similar sentiments. He explains that, on the New York Stock Exchange alone, more stocks are being purchased on margin than at any time since the 1950s.
Investors keep borrowing money to buy because stock prices are out of control expensive. This gross overvaluation is a strong indicator of an imminent correction in the markets.
Faber says, “I think a realistic scenario is that asset holders will lose 50% of their assets. Some people will lose everything.”
Legendary investor, Jim Rogers (he founded Quantum Fund with George Soros) agrees and, adds that the coming crash is, “going to be the biggest of my lifetime.”
The market “omen” these titans of investing are looking at is called the Shiller P/E Ratio. This ratio was created by Nobel Prize Laureate and Yale University Economics professor, Robert J. Shiller. It measures the market’s valuation.
The historical mean of this ratio is only 16.8. Today, however, the Schiller P/E is 88.7% higher sitting at 31.7. The only other times the ratio was higher than today was in 1929 and in 2000. It is now 132% higher than its peak of 24.02 before the 2008 Financial Crisis.
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