If you’ve been following this blog, you know that we’ve been warning of a stock market collapse for more than a year now. We said you could fill-in-the-blank as far as an excuse for the cause, because any excuse would do, however Covid-19 stole the stage and rightly so. But this remains a systemic failure, facilitated by a hapless Fed, delirious administration, and desperate but delusional investors. The stock market collapse was inevitable, but if you think it’s already happened, then I’m afraid that you’re sadly mistaken. We suggested the market would drop 50% – 70%, but it didn’t achieve that before the economic minions rushed in to apply cosmetics, prosthetics and duct tape, none of which is going to prevent the DJIA from seeing 15,000 long before it sees 30,000.
In a December 2001 Forbes Magazine article, Warren Buffet the “Oracle of Omaha,” billionaire investor, and Chairman/CEO of Berkshire Hathaway described what’s been called the “Buffett Indicator” and “probably the best single measure of where valuations stand at any given moment.” It’s most effective use is as an indicator to gauge whether the stock market is overvalued or undervalued relative to the size of the economy. Essentially, it divides the total value of publicly traded stocks by the quarterly GDP. The system has its imperfections, by not counting income earned overseas and U.S.-listed companies that are not necessarily contributing to the U.S. economy. But when the indicator exceeds 100%, financial calamity and a dramatically falling market is only a question of time.
The indicator surged to 118% just prior to the dot com bubble burst in 2000 and topped 100% just prior to the 2008 financial crisis. The Fed’s interest rate manipulations, Administration’s policy bloviations, and misguided investor excitement has no chance of avoiding the fallout indicated by the fact that the Buffett Indicator hit an all-time high last Thursday. Zero interest rates, more money printing, and buyback induced stock profits which contributed to this economic fiasco can do nothing toward providing a solution. Outside of a few defensive or opportunity-rich stocks, investors will find stock market participation, far more dangerous than manageable. Great Depression-era unemployment, a rapidly growing recession, and an incoherent return-to-work recommendation by the Administration will only add to the severity of the coming collapse.
There may be several methods available to protect wealth at this point, but certainly at the top of the list are physical precious metals. Gold for obvious reasons, but silver has been ignored for far too long. A combination of the two could provide a serious financial foundation, during the trying economic times ahead. Not only will the economy suffer, due to Great Depression-style unemployment and a growing global recession, but also the inevitable dollar devaluation and inflation we’ve been able to avoid thus far. Don’t get caught without a chair when the music stops, call the experts at American Bullion, now! Call (800) 653-GOLD (4653)!