The drumbeat of warnings about an imminent market crash continues to rise in volume — which is probably only to be expected five years after the Lehman Brothers crash, during which time the market’s value has increased by more than a third of its 2008 value.
While market watchers share the same high anxiety, the reasons given often vary widely. Robert Wetzel of EconomicPolicyJournal.com interposes market valuations this summer with the summer of 1987, before the historic crash of Black Monday in October of 1987. Needless to say the charts matched up pretty closely. Wetzel’s explanation: the move from savings to consumption coinciding with a collapse in the money supply in both periods.
And apropos of that 1987 crash, Swiss investor Marc Faber, whose claim to fame is warning investors to exit the market before that event, also advocates selling out of the current market because of emerging-market upheaval, chaos in the Middle East and rising U.S. interest rates.
Portfolio manager John Hussman (right) has been expecting a market correction for some time, but recently has added the warning that the impending crash will be with us for a decade. His primary reason is that, because of quantitative easing, investors have been lax in demanding a risk premium for their equity ownership. “Once the risk premium is beaten out of stocks, there is no way out, and nothing that can be done about it. Poor subsequent returns, market losses, and the associated destruction of financial security are already baked in the cake.”
While short-term market swings do not typically coincide with broader economic news, nevertheless those long-term trends seem to be mainly negative and gaining force. The latest jobs report showed unemployment falling from 7.4% to 7.3%, resulting from an increase in 169,000 jobs.