{"id":21660,"date":"2024-12-05T20:18:23","date_gmt":"2024-12-05T18:18:23","guid":{"rendered":"https:\/\/www.liberalglobe.com\/?p=21660"},"modified":"2024-12-05T20:18:23","modified_gmt":"2024-12-05T18:18:23","slug":"everything-points-to-a-dot-com-type-crisis-and-crash","status":"publish","type":"post","link":"https:\/\/www.liberalglobe.com\/?p=21660","title":{"rendered":"Everything points to a dot com-type crisis and\u2026 crash"},"content":{"rendered":"\n<p>The stock market is flashing warning signs:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the \u201cmania\u201d that has gripped investors over technology stocks, and especially those related to artificial intelligence, seems to be slowly coming to an end\u2026 as liquidity dries up.<\/li>\n\n\n\n<li>If anything, recession concerns have all but disappeared, boosting investor confidence, causing the stock market to explode.<\/li>\n\n\n\n<li>Stocks, which are historically expensive, don\u2019t need an economic recession to undergo a correction.<\/li>\n\n\n\n<li>The relentless rally may be preparing for a reversal \u2014 without\u2026 a recession, because valuations are high.<\/li>\n<\/ul>\n\n\n\n<p><strong>\u0391. <\/strong>There are many ways to measure how expensive a market is:<\/p>\n\n\n\n<p><strong>1.<\/strong> <em>The weight of US stocks<\/em> corresponds to 70% of <em>the MSCI world inde<\/em>x.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"700\" height=\"343\" src=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-5.png\" alt=\"\" class=\"wp-image-21662\" srcset=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-5.png 700w, https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-5-300x147.png 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/figure>\n<\/div>\n\n\n<p><\/p>\n\n\n\n<p><strong>2.<\/strong> Another indicator is <em>the PE ratio of the S&amp;P 500 index for the next 12 months<\/em> &#8211; essentially an indicator of optimism. It appears below left.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"700\" height=\"254\" src=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-6.png\" alt=\"\" class=\"wp-image-21663\" srcset=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-6.png 700w, https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-6-300x109.png 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/figure>\n<\/div>\n\n\n<p><\/p>\n\n\n\n<p><strong>3.<\/strong> The chart on the right above shows <em>the Shiller CAPE index<\/em> &#8211; it shows that the market is as expensive as it was near the top of previous bubbles.<\/p>\n\n\n\n<p>But it is also very expensive relative to European stocks, which have historically traded at similar valuation levels to US stocks.<\/p>\n\n\n\n<p><strong>\u0392.<\/strong> Liquidity is running out as the Fed reduces its balance sheet, which can be bad news when valuations are high.<\/p>\n\n\n\n<p><strong>1.<\/strong> <em>CrossBorder Capital\u2019s Global Liquidity Index<\/em>, shown in black, has declined on a six-week basis. It suggests that Bitcoin, a speculative asset, is expected to decline in price compared to six weeks ago.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"700\" height=\"362\" src=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-7.png\" alt=\"\" class=\"wp-image-21664\" srcset=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-7.png 700w, https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-7-300x155.png 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/figure>\n<\/div>\n\n\n<p><\/p>\n\n\n\n<p><strong>2.<\/strong> <em>The rise in 10-year Treasury yields<\/em> could also cause a liquidity crunch, as investors holding the asset would suffer a loss by selling it. Higher yields also attract capital away from stocks, as Treasurys are risk-free. Rising yields will eventually stifle the stock market, especially as valuations continue to rise.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"700\" height=\"335\" src=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-8.png\" alt=\"\" class=\"wp-image-21665\" srcset=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-8.png 700w, https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/12\/image-8-300x144.png 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/figure>\n<\/div>\n\n\n<p><strong>C.<\/strong> To be fair, bear markets (-20% or more) usually only occur in recessions, when both earnings and valuations collapse. Alternatively, a sharp rise in bond yields can cause problems for stocks in a high PE environment \u2013 \u200b\u200bas is the case now. This is a case of a rubber band being stretched until it breaks \u2013 the 1987 stock crash would be a good example.<\/p>\n\n\n\n<p>At some point, rising bond yields will surely start to hurt stocks.<\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The stock market is flashing warning signs: \u0391. There are many ways to measure how expensive a market is: 1. The weight of US&#8230;<\/p>\n","protected":false},"author":1,"featured_media":21661,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,961],"tags":[1053,5504,5259,1538,965,1054,948],"class_list":["post-21660","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economic","category-financial-economics","tag-bonds","tag-crisi","tag-financial-crash","tag-liquidity","tag-recession","tag-stocks","tag-yields"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/21660","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=21660"}],"version-history":[{"count":2,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/21660\/revisions"}],"predecessor-version":[{"id":21667,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/21660\/revisions\/21667"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/media\/21661"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=21660"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=21660"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=21660"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}