The next massive market meltdown may be just around the corner — at least according to a set of ominous warning signs that historically speaking, have always preceded the world's worst financial crises. On today's show, Glenn broke out the chalkboard to detail exactly what these economic warning signs are, and why we just might be on the verge of a global economic upset that would rival America's Great Depression or Japan's Lost Decade.
What are the warning signs?
1.) Market Melt Up — The Dow Jones Industrial Average is well on it's way to hitting the 30,000 mark, and is even predicted to surpass 50,000 plus by some financial forecasters. This is a good thing, right? Actually, this is what is known as a market melt up, a sudden dramatic improvement in the stock market, which is at least partly driven by investors who are afraid of missing out on the rising tide, rather than actual improvements in the economy. Melt ups are often followed by meltdowns.
2.) A significant spike in property value, mortgages, investment and credit caused by the melt up.
One example of a historical melt up in America is what happened during the Roaring 20's. In 1925, the stock market was soaring at an unprecedented rate. Fear of missing out on the greatest market gain ever known spurred legions of new investors to jump on the stock market bandwagon, even if that meant having to take out a loan (or several) in order to invest. As a result, credit spiked, property values shot through the roof and mortgages increased across the board.
Then came The Great Depression: In October 1929 the market crashed, causing a severe worldwide economic depression that continued well into the next decade.
3.) Stock Market Meltdown
In the 1990's, Japan experienced a massive economic meltdown which they called The Lost Decade. Like the Great Depression, Japan's market collapse followed on the heels of a period of never-before-seen financial growth.
4.) Price-Earnings Ratio — the amount investors are willing to pay for one dollar of a company's earnings.
“Price-earnings ratio is way out of whack, equity prices are inflated, property values are beginning to escalate again and everyone is jumping on board a stock market that appears impossible to stop," explained Glenn. “The last time a price-earnings ratio approached these levels was during the 2008 financial crisis … every time this level is hit, there's a massive correction that occurs."
Watch the clip above to get Glenn's take on why we could be looking at a massive economic crisis in the near future.