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I invested in that first bubble of 1968 and managed to make a small fortune and lose it and after that I became a completely DieHard value the stock market might be in for a colossal crash billionaire investor Jeremy gram is sounding the alarm warning that the market is not just a bit overpriced it's shockingly overpriced he's even suggesting that we could be facing a 60% drop from current levels if his prediction comes to pass this crash could rival the devastation of the Great Depression if anyone is to be trusted regarding Market crashes it is Grant Tam and he has built a career and a massive Fortune by accurately forecasting Market crashes he's warning everyone that the market is like a huge bubble that's about to burst and it's bigger than any bubble he's ever seen before the scariest part he might just be right cranum explains his view on the stock market hopefully we'll settle around 3,000 on the SNP if every everything goes well and my additional concerns don't hit too hard but if those concerns do hit hard which is unfortunately quite likely that we could see the market drop closer to 2,000 and 3,000 let me remind you the market hit 666 last time so even at 2000 it's come a long way since 2009 hasn't it or maybe it'll split the difference and settle around 2,500 but I think it's safer to count on 3,000 so the market may be significantly lower Grant M's warning is clear he believes there's a real chance that the S&P 500 could plummet possibly even below 2,000 investors should be prepared for a potential major downturn in the market it is safe to say the economy is not looking good there's a strong chance we're heading for a significant downturn profit margins are likely to shrink and the road to recovery might be much longer than we'd hoped Grant's analysis of past bubbles paints a pretty Grim picture he's puzzled by how people can claim they never saw these crashes coming when the signs were so obvious high priced to earnings ratios in 1929 1972 and 2000 were clear red flags this time it's no exception despite being labeled as a Perpetual pessimist history shows that bubbles always burst if we're likely the S&P 500 might settle around 3,000 eventually but brace yourself because the aftermath of such a burst could be long and painful all too similar to Japan's stock market which is yet to recover from its 1989 Peak the recovery in land and real estate prices has been sluggish taking over 30 years and counting to reach their previous highs in nominal terms this pronounced lag in reaching old high marks the longest and most painful recovery from a peak ever recorded the symmetry of this recovery pattern mirrors the magnitude of the bubble it follows the current bubble which includes real estate and bonds surpasses the 2000 bubble in size comparing the pain felt in the aftermath of the 2000 bubble burth first where the economy experienced a gentle recession with no real estate or debt issues highlights the potential severity of the current situation back then despite favorable conditions the NASDAQ plummeted by 82% with Amazon dropping by 92% and the S&P 500 by 50% this time around the setback is unlikely to be as gentle as in 2000 indicating that the market may be in for a tough ride the S&P 500 is a market cap weighted index comprising the 500 largest publicly traded companies in the US it's often used as a gauge for the overall US Stock Market the denominator of the Schiller PE ratio is the average inflation adjusted earnings of these companies over the past 10 years this method helps to smooth out fluctuations and earnings that occur during different phases of the economic cycle the Schiller PE ratio dating back to 1871 is currently at nearly 39.8 surprisingly this figure is higher than the p before the 1929 stock market crash the one that triggered the Great Depression during that crash the stock market plummeted by 90% over 3 years it took until 1954 a staggering 25 years later for stocks to return to their pre-crash levels as concerning as this comparison is it only scratches the surface let me start with a simple explanation of this Shiller PE ratio before diving into the details the Shiller PE ratio is a way to measure if the stock market is is overvalued or undervalued it's calculated by dividing a price of the stock market index like the S&P 500 by the average earnings of the companies in that index over the past 10 years adjusted for inflation this helps smooth out any short-term fluctuations and earnings that might distort the true value of the market let's delve deeper into how the sherp ratio is calculated in simpler terms businesses have both good and bad years in terms of profitability during strong economic periods companies tend to earn more while during economic downturns profits decrease by averaging earnings over 10 years we get a more accurate picture of a company's typical profitability accounting for both highs and lows adjusting for inflation is also crucial as it ensures that earnings aren't artificially inflated due to changes in the value of money over time in recent years the United States has provided a clear example of how inflation can distort a company's profitability when inflation and a company's profits will increase by 9% in a year the apparent rise in profits is simply a result of everything costing more due to inflation instead of just looking at the earnings from the past year which short-term factors can influence the Schiller PE ratio takes the average inflation adjusted earnings from the past decade this helps us see through the ups and downs of the market and get a more stable view of its value so how do we calculate this ratio well first we gathered the annual earnings of all companies in the S&P 500 index for the past 10 years then we adjust each of these earning figures for inflation using the Consumer Price Index next we calculate the average annual earnings for the entire 10-year period and finally we divide this average earnings figure by the current price of the S&P 500 Index by following these steps we get a clearer picture of whether the market is overvalued or undervalued helping us make more informed investment decisions grantom Stark warning about the stock Market's true condition is as alarming as it is revealing he argues that beneath the surface of record high profits lies a looming threat an inflated stock market bubble ready to burst however Grantham contends that these seemingly robust earnings are artificially inflated and unstable if we were to adjust these earnings down by just 25% to a more realistic 110 the Shiller PE ratio with Skyrocket to a staggering 45 this would Mark the highest level in the history of the US Stock Market painting a grim picture of an overheated Market on the brink of collapse grantom skepticism is rooted in this potential scenario where the Market's True Value is obscured by inflated earnings leading to a bubble that is destined to burst Gram's concern goes beyond the current Schiller PE ratio which is already alarmingly high he also points out that the corporate profits are at a level that are unsustainable by historical standards he believes that sooner or later this bubble will have to burst as it always does eventually this concentration of the stock market bubble in the US is precisely what grantom is warning about while grantham's views are not universally accepted with some labeling him as a Perma bear his track record demands attention as history shows markets can surprise even the most seasoned investor so do you agree with him or not it's wise to he these words do you agree or disagree with grantom let us know in the comments below also hit the Subscribe button but for more engaging content like this until next time
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