Between 1920 and 2000 the average Price Earnings ratio for the Dow Jones Industrial average was 14.2 times.  This meant the stock market expected corporate earnings to double every 5 years.  Today, with the Dow trading above 21.5 times earnings the market expects corporate earnings to double in 3.4 years.  This will not happen.

In order for it to means consumers around the world will have to go on a borrowing and spending spree at a record clip.  There is not a chance.  Debt levels for consumers and governments are at record highs and interest rates have nowhere to go but up.  Those who have savings, mostly retired people, are not big spenders.   Plus how many more cell phones, televisions, and cars do a family need?

 Thirty times this year the Dow Jones, S&P 500 and NASDAQ indexes have set new all time highs on the same day.  This has never taken place before.  Today’s bull market is the third longest and one of the most expensive on record.

 The financial industry and the governments cannot afford to see the stock markets fall.  Most pension, mutual funds, insurance companies and hedge funds have to see the stock markets go higher to keep up their monthly payments to pensioners.  For governments, higher stock markets help to create jobs and an expanding economy.  With an aging population and today’s high cost of living a higher stock market helps to generate needed funds for today and tomorrow’s financial needs.

 When the stock markets start to retreat all governments will see falling income.  This means government debt will soar, which in turn push interest rates higher.  This will put further downward pressure on the stock markets.

 One of the main reasons the world economy, especially in Canada, has been healthy is due to the housing market.  There is plenty of housing available.  The trouble today is too many people are buying 2^nd and 3^rd homes because “real estate always goes up”.

Greater Vancouver grew in population by 150,000 people between 2011 and 2016.  There is an average 2.6 people per household.  This means the area needed roughly 57,000 new houses to accommodate the growing population.   Yet, housing starts averaged roughly 25,000 annually over the same period indicating a significant surplus.  This can be seen throughout the province.    The population of Penticton has been growing by 600 people a year.  Today, the supply of dwellings being built can easily accommodate demand for the next decade.  In Kelowna and the Fraser Valley you can also see over building. 

 If this over building is going on across the  it means the government expects to allow about 1m plus immigrants into the country or speculation is much larger than what the media tells us.  The latter is most likely the reason.  The real threat to the housing industry is if all of a sudden there is a lack of buyers.  When this takes place, and it will, real estate prices will collapse.  They will drag down the stock markets as the dream of corporate earnings doubling within 3.4 years will quickly evaporate.

When this will begin we do not know. Your guess is as good as ours.  We do know it is coming, probably sooner rather than later.  Not one government will be able to stop the correction.  The slowdown will last for years.

We strongly suggest get rid of all debt.  You want to build up a cash reserve at around 30% and if retired close to 50%.  Buy and hold only ‘blue chip’ dividend paying shares.

Warning: 

An employee for a bank told me that they are swamped with people rushing to buy shares in marijuana companies.  The bank is days behind in opening each account due to the large volume.   The employee said people were buying because share prices are soaring.  History shows these people will lose most of their investment.  We would not touch one marijuana stock at this moment.  They are 100%  high risk.  We have no idea of what the demand will be.  When Colorado legalized marijuana the price for weed dropped causing many companies to lose money.  Today most of these Canadian companies have no sales, but are valued as if they do. This is an accident waiting to happen.