Newsmax Finance Insider and former White House budget director David Stockman is quite blunt about his distrust of the current stock market: "It's a huge disaster waiting to happen."
"I think it's pretty obvious that the top is in," the Reagan administration's OMB director
told CNBC. "It's just waiting for the knee-jerk bulls, robo traders and dip buyers to finally capitulate."
And upon closer inspection, Stockman’s theory seemingly has a point.
Yes, the S&P 500 isn’t all that far from its recent record high. But the S&P 500 hasn't suffered a 10 percent correction since October 2011. Since 1946, the average period between corrections has been about 18 months.
And more than half of the Nasdaq Composite's more than 6 percent gain in 2015 comes from just six stocks — Amazon.com, Google, Apple, Facebook, Netflix and Gilead Sciences, according to brokerage firm JonesTrading.
And for the S&P 500, Amazon, Google, Apple, Facebook, Gilead and Walt Disney have provided more than all of its 0.3 percent climb.
This could presage a sharp drop for the market as occurred after the peaks of 2000 and 2007, periods that also saw the late gains sparked by only a few stocks, other experts have warned.
So it's actually pointless for investors to keep worrying about monthly employment data and losing sleep over when, and if, the Federal Reserve will finally start hiking interest rates. "The larger picture has nothing to do with the jobs report [Friday] or even the September decision by the Fed," he said.
"It has to do with the fact that the world economy, including the U.S., is heading into what is clearly going to be an epochal deflation to the likes of what we have never experienced in modern time."
Stockman warns that the collapse in China’s stocks must eventually trickle down to other global markets.
"The whole global economy since 2008 has been driven forward by this massive investment and construction and borrowing spree in China," said Stockman.
"The point that I'm making is that it's over."
Stockman also said the artificially inflated bubbles created by the Federal Reserve have helped created this disaster scenario.
"I think what we are seeing is the beginning evidence that the central bank-driven credit economy is over and we are in a new era," said Stockman.
"It's a huge disaster waiting to happen."
Other economic experts echo Stockman’s deflation warning.
Bill Gross, money manager at Janus Capital Group Inc., told Bloomberg Radio that the global economy is “dangerously close to deflationary growth.”
Once there is a “whiff of deflation, things tend to reverse and go badly,” Gross said Friday in a
Bloomberg Radio interview with Tom Keene.
Gross pointed to how the CRB Commodity Index isn’t just at a cyclical low, but lower than in 2008 when Lehman Brothers Holdings Inc. went bankrupt.
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