Friday, July 1 2022

Recently renamed investor Jeremy Grantham has warned that the US is now in a stock market superbubble with indicators already suggesting a major market correction is ahead. Economist Harry Dent told Express.co.uk he also foresees a major crash which, initially, could wipe markets 54-58% off. Mr Dent said: ‘This bubble has to crash, it will crash, it will be the crash of your life, it’s just a question of when will it crash.’ He further warned that it could be “such a blow to investors that they won’t buy next time, they won’t come back and buy the dip.” He said, “They’ll say something’s wrong.”

Dent said his main indicator was demographic cycles related to when people spend money, which he said peaked at 46 or 47 years.

He had previously predicted the financial crash of 2007 on the assumption that baby boomers would then have peaked in their spending.

Comparing 2007 with the Wall Street crash of 1929, Mr Dent said it was “the same cycle”, but this time around “central banks realized they had a they didn’t at the time and they just took out the guns”.

He added: “So we’ve been living off printed money ever since.”

According to Dent, this reliance on printing money has made the economy fundamentally weaker, with companies also taking on more debt.

He said: “23% of public companies in the United States can’t pay their debts, they’re called zombie companies, it’s not healthy.

“We have a great account to render here.”

Debt levels are also a key indicator for economist Ann Pettifor, who previously predicted the 2007/2008 financial crisis in the book The Coming First World Debt Crisis, published earlier in 2006.

Speaking to Express.co.uk, Ms Pettifor warned that the world had racked up a “mountain of debt” thanks to a combination of low interest rates and GDP.

Global debt now stands at £168.47 trillion ($226 trillion), more than global GDP and the value of listed companies.

Although central banks are now starting to act on interest rates and reduce quantitative easing, Mr Dent warned that it was happening too slowly and too late.

He said: “They know that if they don’t keep pumping more and more, everything falls apart.”

Debt is not the only harbinger of underlying economic problems, however.

Ms. Pettifor pointed to current stock market volatility as a key indicator to look at.

She said: “We know that the great financial crisis was triggered by investors asking whether assets were really worth what they said they were worth.”

Pointing to the rising value of stocks such as Tesla, she questioned whether the assumption that they would rise forever could really hold, arguing that too much money had been invested in “speculative betting”.

Rapid gains in some stocks were also recently cited by Jeremy Grantham as an indicator of a bubble about to burst.

Mr Grantham singled out meme stocks such as GameStop which made huge gains last year as investors piled in, but has since slumped.

Ms Pettifor also pointed to similar trends for cryptocurrencies, describing Bitcoin as a “Ponzi scheme”.

Another key indicator to watch according to Ms Pettifor is the Baltic Dry Index (BDI) which measures the average prices paid for transporting dry bulk materials.

The index is widely used as a gauge for the shipping industry and gives an indication of global supply and demand.

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According to Ms. Pettifor, the recent declines in the index reflect the decline in Chinese demand.

China has tried to reduce the debt of many of its big companies, but for the real estate sector in particular, this is starting to lead to a drop in economic activity.

She said: “If China is not exporting stuff and importing more stuff, then less stuff is happening.”

Although a number of warning signs were there, Ms Pettifor said it was not yet clear what spark would trigger a financial crash.

Mr Dent warned: ‘The clearest sign in retrospect, and it will be too late, will be that we are down from 45% to almost 60% in less than three months.’

He added: “This financial asset bubble is global, it’s going to have to come back to reality, which means it’s going to have to drop about 50% when you count all the stocks and bonds and everything…it’s a good thing to happen but it will be painful.”

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