The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

The “Everything Bubble”

That is what economist John Hussman calls it. Here is the chart he uses, which includes most of the major categories of the S&P 500 index.  It doesn’t include the rise this year, which has now brought the market to the edge of a “Super Bubble.”

Hussman’s chart is the ratio of ‘price vs. revenues (sales),’ not profits. It is also called the ‘Price to Sales ratio.’ Because revenues (sales) have been weak for the past two years while stock prices continue to rise, the rise in the chart is getting very steep.

As you know, declining revenues are not bullish. But we could see even further highs in the chart as sales lag stock prices. That would mean a larger bubble.

Note how the chart is now well above the prior bubbles of the last decades, even the internet bubble of the year 2000. And we think it will get even bigger. This fits into our scenario for the future.

However, no bubble inflates forever. And the bigger it gets, the more painful the collapse. We will give you a road map in the near future in our award-winning WELLINGTON LETTER, now in its 40th year of successfully calling the big market turns.

Of course, if the new Administration in the WH is successful in boosting corporate sales, the chart would not rise as much (if sales rise faster than stock prices, the chart would decline).

However, the proposed border tax, tariffs, and potential trade conflicts would put a dampener on sales because of higher prices for goods. That could be one of the unintended consequences of “America First.” No, it’s not easy trying to control the world, while repairing neglect of three decades.

CONCLUSION: Americans love the 180 degree turn the country has taken. Washington will now clean the sand out of the ball bearings of the economy and replace it with clean grease. Unless the radical left is allowed to be successful in its sabotage efforts, prosperity should be the result. The President just has to be careful in whose advice he takes on important issues, such as the border adjustment tax.

You can read more of our current analysis and forecasts on the global stock markets, bond markets, and global economies in our award-winning WELLINGTON LETTER, now in its 40th year.

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