Authored by Craig Wilson via The Daily Reckoning,
David Stockman joined Fox Business on Varney & Co. to discuss why he believes the current markets are setting up investors for a big drop.
Asked for an explanation regarding his call that the S&P 500 faces a 35% fall and whether the market was seeing the start, Stockman fired away at his logic and reasoning. “I think it will happen any day. Because we’re a country that’s out of control.”
Varney, quick to draw conclusion noted that the economist had been making such claims for years. Stockman rebutted, “I could have said that in February 2000 and the market dropped by sixty percent. I could have said that in November 2007 and the market crashed. I am old enough to remember October 1987.”
“Markets go up on an escalator, they come down on an elevator. This is the most hideously overvalued market in history.”
David Stockman is a former Cabinet member where he served as the Director for Office of Management and Budget under President Ronald Reagan. Ranging from 1976 to 1981 Stockman also served in the U.S Congress. He went on to be a senior managing director of The Blackstone Group. The economic and financial analyst is now a best-selling author where his most recent book, Trumped! A Nation on the Brink… And How to Bring it Back explores what he believes the current White House must do to correct the economy.
Stockman carried on with his call to the markets, and in particular his focus on the S&P 500, noting, “It is trading today at twenty-five times the hundred dollars a share that the S&P 500 earned in the period ending in March. Now, I go back ten years to June 2007 and the S&P 500 earned $85 dollars a share. That’s 1.2% growth, nominal in ten years.”
“You want to pay twenty-five times earnings going into a world where the Fed yesterday said ‘we’re going to shrink the balance sheet by $2 trillion over the next several years?’
Where we have a government that is in total chaos. A president that they’re trying to unseat. A debt ceiling that can’t be raised. A tax bill that will never pass. Going into all of that, to say nothing of the red Ponzi in China that one of these days will spill its guts all over the world economy.
And you want to pay twenty-five times earnings for today’s stock? Be my guest. This is a mania.”
Varney, in rare form, then offered a compliment to the former Reagan official saying that he made a very intriguing position. However, the Fox Business host then took to asking about market reaction following financial crisis noting that, “In 1989 and in 2009 the markets bounced back very quickly.” David Stockman then targeted his sober analysis highlighting, [that’s] “because the Fed opened up the stimulus shoot and printed money like there was no tomorrow.”
“Seven weeks after the Lehman bankruptcy [former Federal Reserve Chairman] Bernanke doubled the size of the balance sheet [of the Fed] from $900 to 1.8 trillion. He did in seven weeks what the Fed did in ninety-four years. My point is, they can’t do it again. They’re out of dry powder.”
Varney then let out, “I’m listening to you but you’ve got all of our viewers worried still.”
Stockman urged, “they should be! Any of them that are in the market today need to get out of the market and out of harm’s way.”