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David Stockman: Stocks Set to Plunge 50 Percent in 'Daredevil Market'

By    |   Wednesday, 06 June 2018 05:24 PM

Investment guru David Stockman warns savvy investors that the seemingly endless bull-run stock market could be charging straight ahead into a brick wall.

"I call this a daredevil market. It's all risk and very little reward in the path ahead," Stockman recently told  CNBC. "This market is just way, way over-priced for reality," said Stockman.

Wednesday on Wall Street, indexes rallied with help from financial stocks as investors eyed strong economic data and trade war fears took a back seat while Nasdaq registered its third straight record closing high, Reuters explained.

The Dow Jones Industrial Average rose 346.41 points, or 1.4 percent, to 25,146.39, the S&P 500 gained 23.54 points, or 0.86 percent, to 2,772.34 and the Nasdaq Composite added 51.38 points, or 0.67 percent, to 7,689.24.

However, Stockman, the former budget director for President Ronald Reagan, said he isn’t impressed and doesn’t believe the hype.

"The S&P 500 could easily drop to 1,600 because earnings could drop to $75 a share the next time we have a recession," Stockman warned. "We're about eight or nine years into this expansion. Everything is crazily priced. I mean the S&P 500 at 24 times at the end, tippy top of a business cycle," said Stockman, who was the Director of the Office of Management and Budget (1981–1985) under Reagan.

One of his biggest gripes with the bulls is the notion that President Donald Trump's tax cuts are providing a fundamental lift to stocks, CNBC.com explained.

"These tax cuts are going to add to the deficit in the 10th year of an expansion. It's just irresponsible crazy," he said. "It's all going to stock buybacks and M&A deals anyway. That doesn't cause the economy to grow. It's just a short-term boost to the stock market that doesn't last," said Stockman, who served as a Republican U.S. Representative from the state of Michigan (1977–1981).

"There are some huge surprises lurking out there because we've had eight years of monetary expansion that is just off the charts of history," he said, without giving an exact ballpark timeframe of the looming calamity.

"When the catalyst finally comes, it's hard to say," Stockman said. "No one can ever define what the black swan is because that is why it's called a black swan."

Stockman isn’t alone in his dire predictions for the economy.

A group of top business economists believes the major tax cuts Trump pushed through Congress will give a significant boost to economic growth this year and next year. But they worry that by 2020, the country could be entering a new recession.

The National Association for Business Economics says in its latest quarterly outlook that its panel of 45 economists expects the economy, as measured by the gross domestic product, to expand 2.8 percent this year. That is down slightly from the panel's March forecast, which put GDP growth this year at 2.9 percent.

The NABE economists are "slightly less optimistic about the U.S. economy in 2018 than they were three months ago," says NABE vice president Kevin Swift, chief economist at the American Chemistry Council.

Part of the drop-off in optimism reflects growing worries about what Trump's get-tough approach on trade might do to U.S. growth prospects.

Three-fourths of the NABE panel believes that current trade policies will have a negative impact on the economy. Trump last week imposed penalty tariffs on steel and aluminum imports from major U.S. trading partners — the European Union, Canada and Mexico — and he has threatened tariffs on up to $200 billion in Chinese imports, moves that could trigger a global trade war as the targeted nations pledge to retaliate.

For his part, Trump has touted economic accomplishments on Twitter.

"The U.S. has an increased economic value of more than 7 Trillion Dollars since the Election. May be the best economy in the history of our country. Record Jobs numbers. Nice!" he wrote.

(Newsmax wire services contributed to this report).

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Investment guru David Stockman warns savvy investors that the seemingly endless bull-run stock market could be charging straight ahead into a brick wall.
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Wednesday, 06 June 2018 05:24 PM
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