The Coming 2011 Stock Market Crash
Research says the S&P 500 will make a summer of 2011 run at the 2007 high of 1,565 but hit a “Mid-Year Peak” and then the “Stock Market Will Crash in 2011” and the midyear peak will probably mark the end of the cyclical bull market that began in March 2009 and the start of a new cyclical bear market.
The prediction of a bear market will soon be a painful reality as the inflated S&P 500 will be worth just 910 — get out before it tops over 1,500 on the charts as there is not much reason for it to climb higher with Bernanke’s low interest rate policy which is rapidly vaporizing and when it does — interest rates will rise and the United States stock market will crash.
With the 2012 elections right around the corner, there is one scenario the politicians don’t want to contend with — there is a high probability that a new cyclical bear market will begin this summer. Inflation jitters are spreading through the emerging markets, prompting China’s central bank to raise interest rates and a drought threatening the United States wheat crop will put further pressure on global food prices.
Grantham sees inflation and rising interest rates killing the lies, popping the bubble and ending the rally: “As a simple rule, the market will tend to rise as long as short rates are kept low. This seems likely to be the case for eight more months and, therefore, we have to be prepared for the market to rise and to have a risky bias.”
With $107 billion at stake Grantham better be concerned. He predicted the 2008 meltdown, now sees a repeat dead ahead: “Be prepared for a strong market and continued out-performance of everything risky, but be aware that you are living on borrowed time as a bull.”
Yes, the bubble will pop this year says Grantham: “If the S&P rises to 1,500, it would officially be the latest in the series of true bubbles. All of the famous bubbles broke, but only after short rates had started to rise.”
So keep a close watch on those two tipping points in your planning, interest rates breaking to the upside and the S&P closing near 1,500. When inflation pushes interest rates up they’ll choke off this bull market. If you’re active, better stop chasing higher returns, especially emerging markets.
Bottom line: In what sounds like a direct shot at super-bull Jeremy Siegel, Grantham says that GMO’s research warns that “the market is worth about 910 on the S&P 500, substantially less than current levels” just above 1,300 today.
The speed with which you should pull back from the market as it advances into dangerously overpriced territory this year is more of an art than a science, get the heck out of Wall Street’s stock market soon — maybe as early as July 4th but by October 1st you should probably be thinking much more conservatively because a stock market crash will happen in 2011.
Tags: Stock Market Crash, Bear Market, S&P 500, Wall Street, Bubbles, 2011 Stock Market Crash, 2012 Elections, Mid-Year Peak, Stock Market Will Crash in 2011, 2008 Meltdown, Bernanke, Grantham, July 4th, Emerging Markets, Short Rates, Interest Rates