“ … the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse”
Says Jeremy Grantham about todays current stock market. Grantham is founder of GMO a Boston-based global asset management firm with $112 billion under management, making him one of the largest asset managers in the world.
It’s easy to dismiss his prediction as just another pundit spouting off, but betting against this guy is financial suicide. His track record as a market timer is second to none. Many consider him the greatest market timer of all time.
Not only did he accurately call the dotcom bubble in 2000 warning investors to sell stocks, he then went on record in March of 2009 urging investors to buy stocks.
However, his prowess as a market prognosticator gets even better. When he issued his sell signal on stocks in 2000, he also predicted how virtually every asset class would perform over the next seven year period and then ranked them in order of performance. He only missed on one market.
Some might say he was lucky, but the probability of picking each asset class and ranking them in order of performance is 1 in 900, so it pays to listen when Jeremy Grantham shares his opinion about where the stock market is headed.
Even though he’s predicting a looming crash, Grantham feels the S&P 500 could hit 2250 before the crash begins. That’s 13% higher than today’s prices.
Grantham’s not alone in his dire forecast for stocks. Billionaire hedge fund manager David Tepper recently opined that markets were “dangerous” and made him “nervous”. He wasn’t telling investors to sell everything and move to cash, he said “just don’t be too fricking long”.
Even Warren Buffett’s favorite measure of market valuation, the total market cap (TMC) divided by gross domestic product (GDP), says stocks are more overvalued today than at the 2007 peak, right before a devastating -54% market crash.
Buffett doesn’t necessarily believe a -50% market crash is weeks away, but he’s certain another bubble will form and ultimately pop.
“The world is given to excesses which have consequences. What happened in 2008 will happen again, but the cause will be different. It is the cycle of things.”
With a Federal Reserve hell bent on printing money to keep interest rates at historically low levels, distortions in financial markets are inevitable.
With so much liquidity injected into the financial system over the last several years, individual investors are using more leverage than ever to buy stocks.
Today Margin debt is higher than it was at both the 2000 and 2007 market peaks. The most ominous sign of an immediate market crash is the fact that in the two previous crashes, margin debt turned down several months prior to the market imploding.
As can be seen in this chart, margin debt has already turned down.
Chart provided by dshort.com.
There is plenty of cause for concern, and to warrant a more cautious stance when it comes to risking your hard earned money in the stock market, but the big question on investors minds is, do you stay long stocks to potentially earn another 10% to 13% or go to cash?
Guys like Grantham, Buffett, and Tepper manage billions of dollars and have access to information and insight the average investor can never get his hands on to better time their investment decisions.
However, we have come a cross a unique timing tool that has an equally impressive track record to that of Grantham or Buffett and is available to the average investor at no cost. It accurately predicted 22 of 24 major market turns since 1970. That’s an astonishing 91.6% accuracy rate.
In fact, it said to sell stocks and move to cash in both 2000 and 2008 saving investors the agony of watching their savings vanish during both the dotcom and real estate busts.
This tool then said to buy stocks in 2003 positioning investors to profit from a market that would rise 59% before warning investors to move to cash in order to avoid the 2008 meltdown.
It then signaled investors to buy stocks again in 2009 where they could have enjoyed a 79% rise through today’s current level.
Imagine how much closer you would be toward your retirement goals had you moved to the safety of cash during two of the worst market crashes in history, then bought back into stocks near both bear markets lows.
You would have trounced a buy-and-hold approach which gained a measly 2.3% per year over the same 14 year period…not even matching true inflation.
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