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February 2, 2018 | The 1% Gets A Scare — More To Come?

John is author or co-author of five books, including of The Money Bubble, The Collapse of the Dollar and How to Profit From It, Clean Money: Picking Winners in the Green-Tech Boom and How to Profit from the Coming Real Estate Bust. A former Wall Street analyst and featured columnist with TheStreet.com, he currently writes for CFA Magazine.

Most Americans have spent the last few years pressed up against the proverbial bakery window, watching the 1% enjoy a life of ever-increasing wealth and seemingly total indifference to the multitudes who aren’t favored by zero interest rates, big trust funds and political/corporate connections.

The one consolation for the have-nots has been that, by owning few stocks and bonds, they would suffer less when those bubble markets did what bubbles always do, which is burst. Today was a small but satisfying taste of that eventuality. From Bloomberg:

World’s Richest People Lose $68.5 Billion in Stock Selloff

The fortunes of the world’s 500-richest people dropped by $68.5 billion Friday as equity markets swooned with investor worries about the pace of interest rate hikes in the U.S. Warren Buffett led the declines, shedding $3.3 billion to end the day at No. 3 on the Bloomberg Billionaire Index with $90.1 billion.

 

The chart shows about $100 billion of play money evaporating in the past week. Not enough to seriously inconvenience most of the people on Bloomberg’s billionaires list, but still a nice reversal of fortune versus the average person with a house, small bank account and not much more – who didn’t lose a thing.

As for whether Friday was just a blip in an ongoing “secular bull market” or a sign that fundamentals are at last gaining the upper hand on “liquidity,” that remains to be seen. Longer-term though, there can’t be much doubt that today’s stock and bond valuations are higher than they’ll be during the next downturn.

Here’s a chart from John Hussman’s latest (Measuring the Bubble) that illustrates the point. The adjusted price/earnings ratio on US stocks is now higher than before both the Great Depression and the dot-com bust.

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February 2nd, 2018

Posted In: Dollar Collapse.com

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