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Much Further to Fall
00:02:58
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| Do you hear from the experts on what's going to happen with the market? | |
| I do, Jim, and it has much, much farther to fall. | |
| Already, globally, we've seen $5 trillion of wealth wiped out. | |
| Already, we've seen all the gains here in the U.S. stock market since the end of 2013 already been wiped out. | |
| So we've already seen this decline here in the United States. | |
| And keep in mind that Jonathan Kahn has always said that we're not just looking at a single day with a Schmidt. | |
| For example, in 1987, Black Monday, the greatest percentage crash in U.S. history, happened almost 30 days after the end of the Schmita. | |
| So we haven't even gotten there this time around. | |
| We still have a couple weeks to go before we even get to that point. | |
| So so much more could happen coming up. | |
| But in terms of where the stock market's going down, what we want to look at is stock market valuations. | |
| And last time I was on, you mentioned a stock market bubble. | |
| Right now, stock market prices have, even after this crash, they're at completely irrational levels. | |
| Now, for example, one of the measurements we look at is called a price to earnings ratio. | |
| In other words, how much money you have to pay for a stock related to how much the corporation is actually earning, bringing in. | |
| And people calculate this different ways, but one of the most popular, there is a professor at Yale. | |
| His name is Robert Schiller. | |
| He's won a Nobel Award. | |
| He's written many books. | |
| But he's calculated what's known as the cyclically adjusted price earnings ratio. | |
| And historically, the long-term historical average is 15. | |
| Now, at the peak of the market, we were at 27. | |
| And so in order to get back to just the long-term average, to what is normal, to what is rational, where stock prices would actually make sense and not be completely outrageous, the stock market would have to fall more than 40% to get to that level. | |
| Now, we've fallen about 10% already. | |
| We've got to go down another 30% just to get to levels that are normal, much less of what the coming crash is going to take us at. | |
| So stock prices are still in this, even though we've seen this huge drop here at the end of the Schmidt year, stock prices have so far to go just to make sense, just to be normal, they have so far to go down. | |
| But it's going to be a lot worse than that because we're starting to see financial institutions all over the world start to come apart. | |
| For example, just within the last week, Glencore, many of your listeners may not know who Glencore is. | |
| They've been known as the largest commodity trader in the entire world. | |
| At one time, they were the 10th largest company in the entire world. | |
| If they were to implode, it would be a global event much worse than the collapse of the Lehman Brothers in 2008. | |
| Well, the stock of Glencore fell almost 30% on a single day. | |
| Just this past week, people aren't paying attention. | |
| But this firm is collapsing. | |
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Banks Imploding?
00:01:54
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| And it's because of the collapse in commodity prices, just like we saw in 2008, where we've got things like copper and iron ore and tin. | |
| And those things are crashing. | |
| And so what's happening is Glencore, and there's also a firm called the Noble Group, the largest commodity trader in Asia. | |
| Their stock is collapsing. | |
| All these firms are starting to collapse, to implode. | |
| And the problem with that is when they go down, they're going to take a lot of people with them. | |
| Because I talked about derivatives the last time I was on. | |
| These giant firms, Glencore and the Noble Group and others, they're tied to trillions of dollars of derivatives trades. | |
| And so if they go and they can't pay on their derivatives, these bad bets that go bad related to commodities, then the banks they owe the money to aren't going to be paid. | |
| They're going to be in trouble. | |
| So it's a domino effect. | |
| So there are financial institutions all over the world that are deeply, deeply troubled. | |
| Just since I was on last, I wrote about the troubles at Deutsche Bank, the biggest bank in Germany. | |
| At one time, they had exposure to derivatives of approximately $75 trillion. | |
| So you believe banks are going to start coming apart. | |
| We're already starting. | |
| Yeah, that's two big-to-fail banks are going to start to come apart. | |
| And particularly, watch Germany. | |
| Not only Deutsche Bank, but the three biggest banks in Germany are all deeply troubled. | |
| Deutsche Bank, they recently dismissed their co-CEOs. | |
| They recently laid off 23,000 workers. | |
| In terms of a too big to fail bank in Europe, there's hardly any that are bigger. | |
| And so they're in very, very deep trouble. | |
| But it's all over the world. | |
| Banks, big financial institutions, they're getting into trouble because when the markets move up, when things are going good, They're highly leveraged. | |
| They make money things are going great. | |
| But when things start to turn down like we saw in 2008, they're not designed to withstand a crash. | |
| And so we're not just going to see a couple banks fail. | |