Whenever excessive debt has enabled market multiples to distort to unsustainably excessive heights…
A year ago, macro strategist David Hunter predicted a massive melt-up in financial assets, to be followed by an equally tremendous market crash.
Well, he’s certainly been right so far on the melt-up prediction.
All major stock indices are trading at record highs. And valuations have never been more stretched.
Market Cap to GDP (the famed “Buffet Indicator”) has never been higher. Nor has the market’s price-to-sales ratio.
As analyst Sven Henrick puts it “everything has gone vertical”.
So, having correctly called the current melt-up, will Hunter’s prediction of a 65-80% crash in prices this year also come true?
Time will tell. But as extreme as that kind of drop may seem, history is on David’s side.
Whenever excessive debt has enabled market multiples to distort to unsustainably excessive heights — which is what’s happening now on an unprecedented level — a painful correction to clear out the bad debt and malinvestment has always occurred.