Stock Market Crash: If This Happens, Brace for a Stock Market Crash

Stock Market CrashThe S&P 500, which breathed a sigh of relief on Friday when it erased all its 2016 losses, may crumble by more than one-third by the end of the year because of Federal Reserve policies, says renowned businessman and politician David Stockman, a long-time believer in an imminent stock market crash.

The Contra Corner founder predicts the gauge to touch 1,300 by the end of this year or during next year. The measure closed at 2,049 on March 18, nearly 13% higher than its February 11 low of 1,829. It had ended 2015 at 2,043.

“I would liken the Fed to a blindfolded arsonist: armed, dangerous and lost,” the former director of the Office of Management and Budget told CNBC Monday.

“They can’t possibly believe that they’re going to wait out this cycle at zero interest rates at an economy that’s at peak debt,” he said. “I think they’ll hike one more time this year or they’ll make an excuse why they can’t.” (Source: “As soon as this happens, it’s ‘over’ for stocks: Stockman,” CNBC, March 21, 2016.)

On March 16, the Federal Reserve decided to leave its benchmark interest rates in the range of 0.25% and 0.5%, and said it will introduce 0.25% hikes two times this year, instead of four.

Stockman said a drop in earnings growth, global headwinds, mismanagement by the European Central Bank (ECB), and lack of leadership from the Fed have led to a market skating on thin ice.

On March 10, the ECB announced a cut to its key interest rates and an expansion of its asset-purchase program, and said it may not reduce rates further.

“As soon as the markets realize that the Fed and the ECB are out of ammunition, it’s over,” Stockman said. “I think we’re in an extremely unsafe world — we’ve never been here before.”

He pointed to Japan, China, and South Korea, which all saw exports drop by double-digits in the first two months of this year.

“The world economy is drifting into recession and we are not decoupled,” said Stockman. “We are not exempt.”

Further boosting his prediction of a fast-approaching stock market crash, the permabear investor noted that as of the end of 2015, earnings stood at just $86.50 per S&P 500 share, down 18% from their peak of $106.00 per share, recorded in September 2014.

The Dow Jones Industrial Average has also had a fast comeback, now in positive territory with a 0.7% gain. The tech-heavy NASDAQ Composite has yet to erase its 2016 losses. It has pared these losses to 4.5%.

Over the past four weeks, crude oil advanced 20%, while gold and silver lost 0.3% and 0.1% respectively.

David Stockman is not the only financial expert who has been warning of an impending stock market crash. The list also includes Peter Schiff of Euro Pacific Capital, three-time presidential candidate Ron Paul, and publisher of The Gloom, Boom & Doom Report, Marc Faber.