I often disagree with energetic TV stock analyst Jim Cramer. However, I do agree with his saying that bulls can make money and bears can make money, but pigs get slaughtered.
I’ve got a lot on my plate this week, so I’m just going to offer this simple reminder: US stocks are overpriced to a level that always ends badly.
The only times equities in general have been at such nosebleed altitudes were during the dot-com bubble era and after the crash of 2008. The latter, however, is a different beast, as it was the collapse of earnings, and not soaring prices that caused the ratio to reach for the stars.
Now, one could look at this chart and say: “Look—it could go higher before it crashes!”
And there’s even a pseudo-fundamental case for this, with the Fed feeding Wall Street unlimited easy money.
But to buy in any big way, one has to ignore the fact that no one can predict the “before it crashes” part of this statement. Stop-loss orders may help—but they can also trigger the waterfall event that wipes fortunes out.
This brings up Mr. Cramer’s observation about pigs.
What would the slaughter look like? The vertical drops after the previous peaks in share prices tell us all we need to know.
Gamblers piling in now may or may not make a lot of money. I don’t pretend to know the future. Indeed, with the fear of COVID-19 on the decline and a post-COVID-19 boom in economic activity visible on the horizon, I can’t say that a stock market crash looks imminent.
But one thing I’m sure of is that the party will end at some unpredictable point.
I think the slaughter will be breathtaking in its initial speed and fury. It may then turn into a long, painful, multi-year bear market more in step with a damaged global economy.
This threat, if not decades of training in disciplined speculation, keeps me from throwing caution to the wind and joining the party.
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