The market will tank hard

May 25, 2017 02:43 PM

The market cap of the NASDAQ has reached a new all-time high of $8.705 trillion recently, which is equal to 45.8% of U.S. GDP. The long-term median NASDAQ market cap/GDP ratio is only 24.91%. 

The current NASDAQ market cap/GDP ratio of 45.8% is the highest since October 23, 2000. At that time, the NASDAQ was trading for 3,469 and over the following 11 months, the NASDAQ declined by 59% to 1,423.

Out of the last 6,162 trading days, going back to the beginning of 1993, the NASDAQ has only been more overvalued than today, with a market cap/GDP ratio exceeding its current level of 45.8%, on a total of just 201 trading days, or 3.26% of the time. This means the NASDAQ's valuation is currently at a percentile of 96.74%—it's extremely overvalued and in a crash warning zone.

I'm certainly not the only one that thinks the U.S. markets are headed towards a nose dive—Ray Dalio, the largest hedge fund manager in history, and Warren Buffett, the greatest investor ever, share this exact view. When it gets messy, these chaos hedges will be critical.

Wealth Research Group doesn't see this crash yet, though!

While I know markets are very expensive, last week's 2% decline, which caused immense trader fears, showed me that we're not in bubble mania yet. Investors don't believe the bull market yet, and they sell at any slight news of trouble. This means the "melt up"—a stock market bubble fueled by central banking intervention—is still the major theme in investors' minds.

The markets are hitting 52-week highs, and the one-year historical outlook is clear-cut: the market is headed higher from here, as contrarian and foolish as it sounds. Retail amateurs are still not convinced of buying stocks, therefore the market will get even more expensive so that they'll believe they're missing out, and then pros will let them have the leftovers before the market rolls over on them like a great Hawaiian wave. 

The professionals are monitoring global markets at the moment and seeing opportunities in cheaper Europe and in strengthening China. 

They're also looking at the Fed rate hike policies.

As you can see, after one-year highs, the markets perform well, so shorting them isn't smart at all.

If the Fed raises rates again this June, traders would go all-in on commodities because China and India are taking care of their problems relatively successfully.

Page 1 of 2
About the Author