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“The Stock Market Is In One Of The Greatest Bubbles of Financial History”

“The headline unemployment rate has “dramatically understated” the true damage, [to the economy] including the biggest 12-month drop in labor force participation since at least 1948.”

Without misclassification errors that have plagued the Labor Department since the pandemic began in March, the unemployment rate would be closer to 10%.”

“Despite the surprising speed of recovery early on, we are still very far from a strong labor market whose benefits are broadly shared.”

These are all quotes from United States Federal Reserve Chairman Jerome Powell when he spoke on Thursday via CNBC.

Emphasis above is mine.

Over the last several month’s I’ve told you that this was the worst economic drop and unemployment we’ve seen since either right after World War 2 or during the Great Depression depending on which metric you’re looking at.

Chairman Powell’s now confirmed that.

I’ve also warned about the “true” unemployment rate being higher than what’s being reported… And that we’re a long way off from a “healthy” economy.

Here’s what I’ve said about both these things in the last few weeks.


Weekly jobless claims were 779,000 which is down from the 900,000 + from the last few weeks… But it’s still at record levels compared to the pre pandemic period.

17.8 million Americans are still claiming some form of unemployment benefits.

The “official” unemployment rate is now down to 6.3% from a high of 14.8% in April 2020.  Which again is great, but it’s still at levels we haven’t seen since May 2014 as the US continued its slow recovery from the Financial Crisis.

And the unofficial – true – unemployment rate is still in the 10% range.  I call this the true unemployment rate because this includes people who have stopped looking for work… While the “official” unemployment rate doesn’t count these people.

Last week… Things got even worse as weekly jobless claims surprisingly jumped.

Economic Issues…

This was proved even more when the US government released full year 2020 GDP numbers that showed the US economy grew at its slowest rate since 1946 – 75 years ago.

How bad were things in 2020 for the US economy?

It shrunk at a 3.5% rate for the full year.

9.8 million jobs are still gone.

And 23.8 million adults are struggling to feed their kids.

This is from the US economic data and The Washington Post.

This is bad enough…  But here’s what David Wilcox Senior Fellow of the Peterson Institute for International Economics and the former director of the domestic economics division of the Federal Reserve said about last year’s economic numbers.

“2020 has no precedent in modern economic history,” “The influenza of 1918 and 1919 predates our modern system of economic statistics, and since World War II, there’s never been a contraction that even remotely approached the severity and the breadth of the initial collapse in 2020.”

More context…  This is only the 14th year since 1944 that US economic output was negative.

The other times were during World War 2 and the immediate aftermath, 2 brief crashes in the 1950’s, the Stagflation era of the mid to late 1970s, the 1987 crash, and the financial crisis from 2007 and 2008.

That’s it in the entire modern history of the United States.

How bad were things for individual small business owners?  The National Restaurant Association estimates more than 110,000 restaurants closed their doors forever in 2020.

And this doesn’t include the so far unknown tens of thousands of other businesses that closed forever lats year.

Even worse news, with new Covid cases and deaths still exploding – yes I’m sure you’re tired of hearing me say this but it keeps happening every week – we’re still in ecnomic trouble going forward.

“There has been a broad recovery but, economically speaking, we’re not out of the woods yet,” said Ben Herzon, executive director at IHS Markit.

Again, I’ve been talking about this for weeks… But Chairman Powell – who is one of the most powerful people in the entire world when it comes to economics… Just confirmed things.

Because of this, he said that the Federal Reserve expects to keep interest rates near zero until potentially 2023.

This will continue to destroy any money you have in your savings accounts.

And will also continue to inflate the stock market bubble that’s been building for years.

A bubble that is now so big the stock market is now either the most overvalued or the second most overvalued its ever been depending on which metric you look at.

Here’s what I tell you every day about stock valuations…

These show that Logitech is overvalued right now.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning it going forward.

Because Logitech is overvalued, it makes owning its stock enormously risky.  And for this reason, I recommend you avoid buying it for now.

But this isn’t just true for stocks… It’s also true for entire markets as well.

Meaning, that because the stock market is so overvalued right now it makes it enormously risky… And it also means you should expect lower returns owning stocks if you buy at today’s prices.

But this isn’t just me talking… Here’s Jeremy Grantham of famed investment firm GMO…

“The current stock market is “one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.”

“These great bubbles are where fortunes are made and lost — and where investors truly prove their mettle…Make no mistake — for the majority of investors today, this could very well be the most important event of your investing lives.”

These bubbles and then crashes were some of the worst in world financial history.

According to some estimates, at its height the South Sea Company was worth $4 trillion in today’s money after factoring in inflation.  Making it by some estimates the most valuable company ever.

As you can see in the chart above shares, in the South Sea Company rose from £100 in 1719 to more than £1,000 in August 1720… Only to spectacularly crash after the speculation ended.

The company never fully recovered.  And many of its directors went to jail and were accused of treason.

This according to Beth Daley of TheConversation.com.

The same thing happened before the Great Depression in 1929…

This led to the greatest and longest recession in world history.  And transformed an entire generation and how they thought about the stock market.

Many never invested in stocks again.  And it took 25 years for the stock market to reach another high.

The same thing happened again with the 2000 Tech Bubble Grantham mentions…

It took almost 20 years for the NASDAQ to reach another high after this crash.

We’re repeating history again today…  In both my estimation and Grantham’s.

This makes investing in stocks riskier now… And it also means you should expect lower returns owning stocks – if you buy today – for potentially decades going forward.

But what should you do about that with your retirement portfolio?

I’m not advising you sell everything unless you want to lock in profits.  What I am advising here – and do daily – is advise caution… And only investing in the best.

Because if you invest in undervalued stocks that have huge competitive advantages, leading to large profits and cash flows, and little to no debt… The best… You’ll earn higher and safer returns no matter whether the market crashes tomorrow or 10 years from now.

If you’re looking for the best way to protect your portfolio as the economy hangs in the balance…

Make sure you’re in great stocks that have the following traits…

  • They’re cheap.
  • They have little to no debt compared to a lot of cash.
  • They produce large profits and cash flows.
  • And make sure they aren’t in industries that could be hammered by Covid.

To see some of those kinds of stocks that will help protect your retirement portfolio – Click the links below.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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