Robert Shiller's data say stocks are the 2nd most overbought in history.

Robert Shiller called the housing bubble peak in 2006 as well as the stock bubble peak in 2008.  Then he backed off the bearishness after the stock market 2009 low.  His track record is pretty darned good.  Since he is not talking from gut feel but rather from years of modeling data which apparently (to me at least) does not serve any political agenda, I do not lump him in with the rest of the talking heads from Academia.  He is not a permabull like most of the rest of them are.   When he's negative about housing and stocks he does not try to obfuscate his position with elite speak.   He's even fair and balanced when it comes to talking about Obama and that is pretty hard to do.

• People tend to think Obama's either the Messiah or Satan with little in between ground.  Of course, I think he's just another common criminal - one from a long line of global elitist liberal traitors going back to Bush 1 and to be honest, all the way back to JFK.  Every single president has racked up debt in order to push their agenda and that is liberal in nature.  I don't care what they say; it's what they do that actually defines them.

Shiller has also proven that he understands the madness of crowds or herding behavior.  He refers to it as Group Think.  That article is from Nov 1, 2008.  It is well worth your time to read.  The Groupthink term comes from a 1972 book by Irving Janis.  The article says, "Irving L. Janis, the Yale psychologist, explained how panels of experts could make colossal mistakes. People on these panels, he said, are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms with apparent assumptions held by the group."

He refers to those who are willing to stand apart from the group if they think they are right as "mavericks".  Also, the article title seems a pretty close reference to the 1998 movie, The Horse Whisperer".  Maybe these are just coincidences and maybe it is a coincidence each day when the sun rises too.   Sorry, I don't believe in them.  Shiller was and is saying something important to those with eyes to see and ears to hear.

There you have it: herding 101.  Each member of the herd subconsciously cares deeply about what the rest of the herd thinks about them and is always looking to the left and to the right in order to stay in step with the flock.  Everyone wants to be relevant in a world where relevance is sometimes difficult to judge (that describes Academia for sure!).  As a result, nobody wants to be a maverick.  Nobody wants to say what they really think lest people tell them they are a conspiracy theorist or someone who needs a psych eval.  These things can grow far beyond name calling, especially in an increasingly police state controlled environment where bureaucrats can decide that you might need psych "help" or political reeducation if you do not believe in and re-spew what they are pushing.  Careers can be flushed in an instant for failing to chant "heil Hitler" on command when the liberal element is running the show because they care more about perception than reality.  Real conservatives care about delivery and track record far more than about appearances and political correctness or cronyism.

So, for reasons stated above, I really do think Shiller is one of the few academians who does not have his PhD. crammed squarely up his alma mater.  Which brings us to the real point of this post which is to highlight his recent chart data (which is brought to us by another blogger) which claims that US stocks are badly overbought in a way that 10% or 20$ or even 50% pullback is not going to fix.

Shiller's chart taken from that blog post includes a mean-reversion line drawn through the center of it.  I suspect that, given the number of times that the chart has respected that line, many people will assume that the next lower swing will find support at the same trend line used by the last two pullbacks.  I think that is a very conservative estimation of the pullback can be visualized by adding some simple trend lines to the chart as shown below, especially the lower lime green one.

While Shiller's chart is useful in order to understand what we are up against in this Ponzi Pump of a stock market, let me decode a few things in simpler terms.  First this is the S+P composite.  TDAmeritrade does not have a ticker for it so I can not easily chart it directly.  Second, this is log scale so it is difficult to say in absolute price terms where that pull back shown by my red line hits.

But we do have the timeline and so this should tell us the pull back target in this model.  In other words, my conservative model's red line predicts that we pull back to the level of the prior 4th at a place where it hits the lower green trend line if it traveled at the same speed of collapse as that of 1929-32.  By this model, prices should return to the place that they were during the window of 1988-1990.  That this means about 270-340 on the S+P 500 and about 2750 on the DJIA.  Amazingly, this is right about where I have been modeling the coming pullback (deep sub 5k DJIA).

The fundamentals about this collapse are not difficult to understand.  Everyone and their dog is loaded up long and on max margin.  Once the margin calls begin, share prices will collapse and we will find that there simply are no buyers.  It will all be selling because everyone is already loaded to the gills on the long side and so there is nobody left to dump overpriced stocks on.  Boomers will look at it and go running for the hills lest they be left with nothing after the collapse.  Young people have no good jobs and not enough disposable income to save for the future.  They are not going to buy them from Wall St. once the collapse begins.  The entire stock market is a mania and nobody sees it.  They are all caught up in herd think and calling people like me "stupid", "conspiracy theorists", and of course the age old dismissive term "crazy".   I believe that I am just a maverick, unafraid of what others think of me, mainly because I have done my homework and I know damned well that they have not.

By the way, the above target is the happy, conservative target.  Prechter's target is sub 1k and in fact, 400 on the DJIA.  Before you laugh too hard at that, look at the first chart in this post (above).  It is a rising wedge with a 5th rail bump throwover.  If that lower rail breaks down, and it probably will, the expected retracement is back to the start of blue 1 (see just above the 1st "s" in "regression").  This is the level of the prior 4th.  It occurred around 1981.  In December of 1981, the DJIA was at 875.  No, there is no missing digit there.

Do you know what the significance of that time period was?  I wrote about this time period back in early 2011.  Yes, that was when the boomers were all herded en masse into the 401k trap like sheep to the slaughter.  The con men played on their greed.  They said "bring your money folks, bring us all your retirement money.  We've worked it out with the government to not even tax you on it before you bring it to us!  Let that money work for you.  Give it to us and it will magickally grow...".  What they failed to say aloud was "...via the new alchemy of entirely unsustainable something-for-nothing debt-Ponzi economics."  But don't think for a second that the schemers on Wall St don't know what it is.  They know.  They are not stupid even if they will claim that they are just as shocked and surprised about the unexpected loss of Mark and Patsy's entire retirement fund as anyone else is.

Folks those stocks were not bought.  They were essentially borrowed using borrowed money (AKA margin debt).  When that debt has to be paid off, the shares will come flooding back into the market and the supply of them will skyrocket while demand for them continues to plummet.  That is a sure recipe for a rapid and catastrophic sell off of the kind my model (and Shiller's as well) predicts has become inescapable.  Forget soft landing folks, this will be a musical chairs bum rush where civility is cast aside and it will be every man for himself.

Once the (mainly liberal) boomers get fvcked out of their life savings and once everyone swears off the stock market as being a complete scam, only then will be be safe to buy and hold again, and only then with companies which pay a 5-7% divvy and which have very little debt and probably a nice pile of gold listed as an asset on their balance sheets.