Six lies denialists tell themselves to get obliterated...
Denial #1) "Current stock prices are not overvalued"
Fantasy: "The Price/Earnings ratio is low"
Inconvenient Truth: The P/E is artificially (temporarily) low, because earnings as a ratio of GDP have never been higher:
Meanwhile, operating earnings peaked a year ago (black line), and 3rd quarter earnings are expected to fall -5.9%:
Denial #2) "Headwinds of a strong dollar are exaggerated"
Truth: The strong dollar hammered commodities/oil and Emerging markets, culminating in the Yuan devaluation. Which ended the carry trades.
Now we face only the fourth carry trade reversal in 20 years aka. "Damocles Sword":
Emerging Markets with Dow. Have a habit of being highly correlated...
Denial #3) "The energy sector meltdown is isolated"
Truth: Energy, transports, industrials, resources, construction, materials have all been declining for months and years. Now growth/biotech are leading the way down...
#4) "The Flash Crash was an anomaly. You can trust this market"
Truth: Market liquidity is at ALL TIME lows. There have been 13 overnight sell-offs since mid-August...
Liquidity now is lower than in 2008:
#5) "Volatility is low"
Because complacency is high:
#6) "An intra-year decline isn't something to worry about"
Unless it's the third momentum rollover in 20 years:
