Market Watch: A 'Shocking, Spectacular and Disorderly' Market Crash Looms, Investor Warns

September 09, 2020

Article by Shawn Langlois in Market Watch

‘When and how this ends is impossible to say. But with the Fed pursuing thunderous asset purchases and getting ever softer on its 2% inflation target, the bubble is firmly on track to be one of biggest in stock market history.’

That’s Andrew Parlin, founder and chief investment officer of investment advisory Washington Peak, joining the growing chorus of bearish pundits in a recent op-ed for the Financial Times.

“The author was a Japanese investor in the late 1980s. The implausibility of current valuations and narratives to justify those extreme valuations are strikingly similar... and so too will the result. Solely counting on the Fed will ultimately fail.”

As an investor who navigated the historic bubble in Japan decades ago, Parlin said that he’s “experiencing déjà vu” in the current top-heavy climate.

“Back then, anything with a whiff of exposure to real estate was at the center of speculation,” he explained. “Now, the hottest sectors in America are nearly all disruptive technologies.

“Bubbles are formed around individual stocks and sectors. As the concentric circles of excess widen, more and more stocks are infected,” he said. “Wildly exaggerated stock stories force a delinking between fundamental analysis and share prices.” 

This metric, he explained, tends to be fairly stable, and it is rare to see a stock trading at a price-to-sales ratio over 10 times. But that’s most definitely not the case these days.

According to Bloomberg data cited in the op-ed, 530 out of 8,513 listed common stocks in the U.S. trade at more than 10 times sales. Parlin pointed out that only once in history have we seen a larger percentage of stocks trading in excess of 10 times sales.

When was that? You guessed it: March of 2000.

“The point is that price-to-sales ratios in the stratosphere do not stay there, any more than a tulip bulb in 17th-century Holland was able to maintain a price of $100,000,” he wrote. “This gets at the troubling thing about bubbles. They do not simply undergo smooth and endogenous shrinkage until they disappear. Instead, they continue to expand until they burst. This is why their bursting is ...

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