Valuations are now more expensive than even 1929

This is a MAJOR warning sign for long-term investors

A thread 🧵 2/ The price of pretty much everything in the economy generally goes up over the long run

A home that cost $12,000 in 1960 now costs $400,000

The cost of a loaf of bread went from $0.2 in 1963 to around $2.2 today

Yields have just spiked aggressively

Last few spikes led to market corrections

Is this time different?

A thread 🧵 2/ In previous corrections (April 2024, Oct 2023, Aug 2022), rising government bond yields caused the pullback

Today, we’re seeing the same setup again

The 10-year Treasury yield is climbing rapidly

The Sahm Rule has been triggered

It's predicted the last 9 recessions

With 0 false signals since 1960

This won’t end well

A thread 🧵 2/ 2007 → Unemployment rate rose by 0.5% in the 6 months leading up to the 2008 Financial Crisis

The unemployment rate also rose 0.5% in the 6 months before the 2001 recession

Profit margins have 2x since the 1980s

But valuations have 4x during this period

This is NOT sustainable

A thread 🧵 2/ The market has reached quite expensive valuations

The Shiller price-to-earnings (P/E) ratio gives us a clearer picture this

It compares the S&P 500 to earnings

And provides a measure of the stock market’s expensiveness

S&P 500 has surged +40% in just 1 year

This also happened before the 1929 and 2000 crash

Is history about to repeat?

A thread 🧵 2/ Lately, the term “stock market melt-up” has been popping up more frequently in news

Some are getting excited, while others are warning that this could lead to disaster

This is one of the most expensive markets in 100+ years

It is more expensive than even the pre-1929 crash

And almost as expensive as the Dot Com bubble

The next crash will be very painful

A thread 🧵 2/ Understanding market valuations is tough for many investors

This is because the S&P 500 has a history of only moving up

Over time, stock prices rise, largely driven by increasing earnings

And this can make it seem like the market will always trend higher

This chart is making a lot of investors panic

But the data tells a different story for now

A thread 🧵 2/ Recently, some people have been comparing today’s market to the 1970s

If we overlay a 1970s chart on today’s interest rates, the similarities stand out

It’s easy to see why people get nervous when rates jump

But the data tells a different story

Everyone is now betting on a soft landing

This also happened in 2000 and 2008

We all know how they ended…

A thread 🧵 2/ In Feb 2007, the Federal Reserve Chair, Ben Bernanke, predicted a "soft landing" for US

Even the International Monetary Fund shared this optimistic outlook at the time

Both predictions came just before the Great Financial Crisis

Gold has just made new all-time highs

History shows this is a MAJOR warning signal

A thread 🧵 2/ Oct 2007:

Gold made a new ATH aftr 1.5 years

Soon after, the unemployment rate began rising rapidly

And economic growth slowed down

This ended in the 2008 Financial Crisis

Unemployment rising + economic indicators sending WARNING signs

This also happened before the 2008 Financial Crisis collapse

A thread 🧵 2/ In Sept 2007, the Fed cut rates by 50 bps

And people were calling for a soft landing

Even the market made new all-time highs

But this was followed by the Financial Crisis decline

2007 → Fed promised a soft landing just before the economy collapsed

Today → Fed anticipates a soft landing despite MAJOR warning signs

This could get ugly

A thread 🧵 2/ In Sept 2007, the Fed cut interest rates by 50 bps

This came after a full year of maintaining rates around 5%

The cut was in response to increasing signs of economic weakness

After a rate cut in Sept 2007, market hit ATHs before crashing

Are we seeing the same dangerous setup today?

A thread 🧵 2/ In Sept 2007, the Fed cut rates by 50 bps

This cut was in response to increasing signs of economic weakness

WARNING: Savings are now contracting

This is getting BAD for US consumers

A thread 🧵 2/ From 1940s to 1970s, US consumers used to save around 10% of their annual income

This number started steadily declining since 1980

And has recently entered contraction territory (below 0%)

Yield curve inversion is an accurate recession predictor

But, how does this signal work?

A thread 🧵 2/ The yield curve just steepened by 1%, on its way to un-inverting

The last time this happened was prior to the 2020 recession

Yield curve steepening has always ended in recessions

But the market can keep rising until the last moment

This is exactly what happened before the 1929 crash

A thread 🧵 2/ The yield curve just steepened by 1%, coming out of an inversion

The last time we saw this was in 2020 during the COVID-19 recession

The bond market is flashing red

But stocks are near all-time highs

Which market is lying?

A thread 🧵 2/ As the yield curve steepens before a recession, jobless claims typically start rising

But recently, jobless claims have remained low, despite the yield curve steepening

That’s unusual…

Investors turn to Gold when they fear the worst

Is Gold flashing a major WARNING sign?

A thread 🧵 2/ In Jan 2007, a year before the financial crisis, gold began trending higher

By Jan 2008—when the recession officially started—gold prices had surged 50%

This was as an early warning to investors that an economic storm was brewing

Gold has hit new all-time highs

History shows this is a MAJOR warning signal

A thread 🧵 2/ In Jan 2007, a year before the financial crisis, gold began trending higher

By Jan 2008—when the recession officially started—gold prices had surged 50%

This rise served as an early warning to investors that an economic storm was brewing

Gold tends to rise before recessions hit

Is history about to repeat itself?

A thread 🧵 2/ Large moves up in gold are usually tied to sharp economic declines

This is exactly what happened leading into the 2008 and 1974 recessions

This signal has a 100% record for anticipating recessions

And it has just flashed a WARNING sign again

A thread 🧵 2/ Major market corrections typically coincide with a rising unemployment rate

Most market crashes of 30% or more have happened with a rising unemployment

Insider selling has hit levels unseen since the 2021 top

And retail sentiment is now hitting new all-time highs

This is a MAJOR warning signal

A thread 🧵 2/ Warren Buffett recently sold $6 billion worth of stock holdings

Meanwhile, Michael Burry—famous for predicting the 2008 financial crisis—also cut a big chunk of his portfolio

When investors of this caliber make big moves, it’s worth paying attention

But they’re not the only ones selling