{"id":8301,"date":"2015-05-20T06:14:01","date_gmt":"2015-05-20T11:14:01","guid":{"rendered":"http:\/\/olduvai.ca\/?p=8301"},"modified":"2015-05-20T06:14:01","modified_gmt":"2015-05-20T11:14:01","slug":"stocks-and-bonds-are-due-for-a-generational-crash-of-75","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=8301","title":{"rendered":"Stocks and Bonds Are Due for a Generational Crash of 75%"},"content":{"rendered":"

Stocks and Bonds Are Due for a Generational Crash of 75%<\/a><\/b><\/i><\/span><\/h3>\n

From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target.<\/i><\/span><\/p>\n

If we look back to 1981 valuations of stocks and bonds as a guide to valuations at the next generational low, we find stocks and bonds are due for a 75% drop.<\/b>\u00a0The Great Bull market in bonds and equities took off after 1981, and has run higher for 34 years (notwithstanding a spot of bother in 2000-02 and 2008-09).<\/p>\n

Before credit bubbles became the New Normal, the stock market was valued at less than 50% of GDP.<\/b>\u00a0Now stocks are valued at over 200% of GDP, as are bonds. Together, the total securities valuation is over 400% of GDP:<\/p>\n

\"\"
\nData courtesy of\u00a0Doug Noland<\/a><\/i><\/p>\n

Bonds would have to experience a similar decline to reach pre-credit-bubble levels.The GDP (gross domestic product) of the U.S. was around $17 trillion in 2014.<\/b>\u00a0If valuations returned to pre-bubble levels of 50% of GDP, stocks would have to drop from $36 trillion to around $8 trillion–a decline of 75%.<\/p>\n

A drop back to the rich valuations of 100% of GDP would require a decline of 50% from current levels.<\/b>\u00a0In other words, the S&P 500 would be around 1,000, not 2,000.<\/p>\n

To provide some context for the extreme valuations of present -day stocks and bonds, I have shown what the stock and bond markets would be worth in current dollars if they had simply tracked inflation since 1981.<\/b>\u00a0According to the Bureau of Labor Statistics Inflation Calculator, $1 in 1981 is now worth $2.60 in 2014 dollars.<\/p>\n

If stocks had risen only with official inflation, the S&P 500 would be worth 10% of its current valuation: $3.6 trillion versus $36 trillion.<\/p>\n

The bond market (Treasury, corporate and Municipal bonds and agency securities) would be worth 15% of the bond market’s current valuations.<\/p>\n

…click on the above link to read the rest of the article…<\/div>\n","protected":false},"excerpt":{"rendered":"

Stocks and Bonds Are Due for a Generational Crash of 75% From the point of view of history, a reversion to generational lows is inevitable, and a valuation level around 50% of GDP for stocks is a fair target. If we look back to 1981 valuations of stocks and bonds as a guide to valuations […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[127,353,501,4924,3783,2731,5537],"class_list":["post-8301","post","type-post","status-publish","format-standard","hentry","category-economics","tag-charles-hugh-smith","tag-gdp","tag-market-crash","tag-oftwominds","tag-stock-market-collapse","tag-stock-market-crash","tag-stock-valuations"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/8301","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8301"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/8301\/revisions"}],"predecessor-version":[{"id":8302,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/8301\/revisions\/8302"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8301"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8301"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8301"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}