The Guardian reports this today, reflecting the fact that my opinion that stock exchanges are overvalued is now shared by the Bank of England:
Stock markets are too high, and are going to drop back at some point due to the many risks facing the global economy, one of Britain's top central bankers has warned.
Bank of England deputy governor Sarah Breeden has issued the prediction to the BBC, at a time when the US stock market has risen to record levels despite the Middle East conflict.
She points out:
"There's a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.”
For "adjustment" read "crash".
It can almost be argued that this is a statement so obvious that it hardly needs to be said, and yet the absurd, and near record high, valuations of stock markets, not just in the UK but also in the USA, suggest that what might be colloquially called the bleedin' obvious does, it seems, need to be pointed out.
Just as many politicians are deceiving themselves that the ongoing war between the USA, Israel and Iran will be resolved soon, and that the Strait of Hormuz will be reopened before an oil crisis really occurs, so too are stock markets persuading themselves that the impact of this conflict will have little consequence for the future profitability of the companies in which they supposedly invest funds.
The truth, however, is fundamentally different from these naive beliefs in both cases.
The reality is that, as I explained yesterday, there is little or no current prospect of any resolution to the conflict between these countries. Although the USA, and by extension Israel, no longer has the capacity to wage war on its own without prejudice to its stock of strategic military reserves, the Trump administration cannot admit this fact.
That means that a perpetual round of supposed peace talks, interrupted by occasional small-scale attacks on shipping, is the most likely outcome of this war for some time to come. These will be sufficient to ensure that no significant quantities of oil or other raw materials flow through the Strait of Hormuz for.
The result will be ongoing and significant economic disruption. The Iranian regime will, however, be quite content with this, because the longer these hostilities continue, the more likely it is that they will achieve the outcome they desire.
In that case, the Bank of England has come to its senses and recognised the risks posed by excessive stock market valuations, and the associated risks from high degrees of bank leverage secured on shares. It can now foresee that a crash is inevitable, and with it a possible banking crisis.
I keep saying that 2026 is going to be bad, but it has the potential to be very much worse than even I expect.
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The areas most affected by the closure of the straits are south Asia and Japan. China has reserves but will be affected. Africa is losing fertilisers and higher prices. And Europe is also suffering.
If ever there was a case for these countries to speak as one, this must be it. If they took the opportunity, it would alter the power structure of the world but IMO the time has come for that to happen.
Any politicians we have who have the ability to address this, are not in power.
A good quote from Charles Hugh Smith, from 17 April. He isn’t claiming foresight, but what he says below chimes with my view of “what to do”.
“I ended with this simple advice: sell now. Sell whatever it takes to liquidate debt, because it’s harder for bad things to happen when you have no debt, and greed is a wonderful motivator but fear works much faster. (Put another way: fear moves fast enough to get inside our OODA loop–observe, orient, decide, act–so we decide and act only after the damage has been done.)I shared the personal experiences that inform my context / orientation: “I was living on fumes in 1973-74 and only survived 1980-83 because I had no debt and a low-cost of living.”In summary: sell now because:
1. It’s harder for bad things to happen when you have no debt.
2. Greed is a wonderful motivator but fear works much faster.
3. Fear moves fast enough to get inside our OODA loop–observe, orient, decide, act–so we decide and act only after the damage has been done.
What happens in a recession / financial crisis is greed is quickly replaced by fear. This is one of our core survival instincts. That transition is the door slamming shut: everything that was possible in the risk-on euphoria of greed becomes impossible in the risk-off wilderness of fear.”
Agreed
And those of us with savings are expected to ‘invest’ our financial security in THAT eh?
No way.
And – so who will get bailed out next time then?
Trump and the US elites are either oblivious to the impact of the military actions against Iran on the global economy. Or perhaps they expect to be buying up, for example UK, assets on the very cheap during the coming economic crisis.
I did not realise that Iraq’s oil income from oil exports is not received direct by Iraq. Instead the dollars are paid to the New York Federal Bank. Which in turn, at the behest of the US federal government, drip feeds it to Iraq, with conditions about eg who can be in the Iraq government.
A conspiracy theory on my part but is the US planning to control the production of oil, then control other countries, through the dollar?
As pointed out in another of your blog’s today ,the UK population can expect severe austerity as the price payable for survival.
Hence why they want payment in yuan from China to avoid that system.
“A conspiracy theory on my part but is the US planning to control the production of oil, then control other countries, through the dollar?”
No conspiracy. What do you think finally did for Saddam – WMD? Nope, in 2002 he flirted with the idea of selling Iraq’s oil in the new-fangled €. Oops! That was his death warrant, right there. Next, who has the US attacked in the 21C? Apart from the spasm of rage 2001 attack on Afghan, it’s Venezuala, Iraq, Iran. Now look at the countries with the top 5 proved oil reserves: Venezuala, Saudi, Iraq, Canada and Iran. Saudi is a US vassal and Canada has been subject to extraordinary threats of sequestration by the US.
It’s not “the economy, stupid”, it’s the oil. It all belongs to America. Why do you think they keep that vast military machine?
As I see the current situation: the aims of Israel are immutable, destruction of Iran; the aims of US are to take over and own the oil wealth of Iran. Israel’s lobby in US won’t tolerate US backing away now they’ve started fighting. US probably feel they have to be seen to be doing something and the blockade is the minimum at the moment. So the Strait of Hormuz stays closed for most/all shipping. I feel gloomy about it. The US will be rebuilding stocks of weapons as will Iran, and the fighting will start again sometime, but not soon enough for the rest of the world. Its sobering to think that I was born into rationing and now I may well see rationing again.
Remember, “The Stock Market is Not the Economy.”
I re-iterate, pay off debt if you can; the situation in the US, according to the Fed is: –
Household Debt Balances Reach $18.8 Trillion in the Fourth Quarter
Total household debt increased by $191 billion to hit $18.8 trillion in the fourth quarter, according to the latest Quarterly Report on Household Debt and Credit. Mortgage balances grew by $98 billion to total $13.17 trillion at the end of December. The pace of mortgage originations continued increasing, with $524 billion newly originated in the fourth quarter. Credit card balances rose by $44 billion from the previous quarter and stood at $1.28 trillion, while auto loan balances increased by $12 billion to $1.67 trillion after holding steady last quarter. HELOC balances increased by $11.6 billion to $434 billion, while HELOC limits rose by $25 billion, continuing an expansion that began in 2022. Student loan balances rose by $11 billion to $1.66 trillion.
What is a trillion? Hard to imagine, but…
How much space would 1 trillion dollars take up?
A trillion dollar bills would reach 67,866 miles into space. A trillion dollar bills, laid end to end, would stretch 96,906,656 miles—further than the distance of the earth to the sun. A trillion dollars laid side to side, would cover more square miles than the states of Rhode Island and Delaware combine
Thank you
Many of here will remember the late 80s early 90s problems in the housing market as set out here the_1985_93_housing_market_in_the_uk_1994.pdf
I remember the TV ads for The Mortgage Corporation with Barry Norman and had a mortgage with Citibank myself – not good, at all, at the time (see text attached).
In my village, someone is asking £1m for their house. That attracts 10% Stamp Duty, whereas £900k attracts 5% – I know what I would do if I was desperate to move house.
I’m not saying that history repeats, exactly, but…
Yes, but…and but is doing a lot of work there
Richard – may I humbly request that if you refer to the “Iranian regime” that you match it with the “Zionist regimes in America and Israel (or Occupied Palestine)”?
I do call both regimes.
Some rather fancy prices out there; ARM (remember them?) well they are quoted on one of the yankee markets – early Feb: $100, now north of $220 with a PE of… 222. Net sales 2026 $5bn 2027 $6bn. Looks mad to me & there are plenty of others like that. This smacks of 1999 and the dot.com crash. Not everything is over priced, the problem is a crash tends to pull everything down. To give people a feel: utilities have P/Es of perhaps 16 to 20. Ditto some mfus. Stock markets are for the most part irrational.
Agreed
Richard S the US is not able to re-arm quickly neither is Israel especially as the US supplies Israel.
The US and Israel have depleted 70% of their attack and defence missiles. The US has not been “bombing” Iran it has concentrated on high tech missiles. Production is outsourced and the production rate is miniscule compared to the attrition rate.
There is no “blockade” of the Straits by the US. The battle fleets are in the Indian Ocean.
The reason very few ships are going through the Straits is the threat of Iran attacking them and no insurance for the ships.
The US troops in the Indian Ocean are on short rations and are reportedly not happy about this.
The US financial elites don’t care because they know that the US Federal government will bail out any collapsing financial institution when the markets crashes and there are US bank failures due to this war.
The long term economic fall out from the war started by the US and Israel for the rest of the world is very scary bad.
Thank you
The US is actively moving against its so-called allies.
https://www.bbc.co.uk/news/articles/cde51y0zgjyo
Remember, Trump is vindictive. Everyone who defies him must be punished, in his mind. And the Trump regime is tied to the Argentinian one. They bailed them out to the tune of 80 billion dollars. A financial crash is only going to make them more vindictive, although the silver lining is that it may bring down some of the AI companies.
And to add to the bleak outcome, a prominent journalist specialising in geopolitics and military affairs pointed out that one of the few options available to the Israelis and Americans to get out of Iran is nuclear. Just a small detonation, somewhere in the Iranian desert. A demonstration of strength by a collapsing regime.
Maybe, but I still doubt that.
Me too. I think the US military would find a way to avoid it, even if Trump ordered it, and if Israel did it, it would be the end of them as a state, I think. But it’s a closer likelihood than it was, and that’s too close for comfort.