12 charts that show why stocks could be in for a huge drop

A few weeks ago, I spent two days giving multiple speeches alongside my friend Steve Blumenthal of CMG in New Jersey. I listened to Steve do deep dives on stock market valuations.Steve puts a great deal of research into the topic, so I asked if he could share some data from time to time, and he agreed. With his help, I compiled valuation measurements used by people who know what they're talking about.Not surprisingly, they all point to the fact that equities are pricey. But what is surprising is the degree of overvaluation'we are talking about the risk of a 60% decline.Below are 12 charts that paint the whole picture best. Let's jump in.Shiller's CAPE (Cyclically Adjusted P/E)'A Measurement Process That Smooths P/E Over The Last 10 YearsThe current Shillers CAPE P/E is 28.94, higher than at the market high in 2007, and higher than the bull market peak in 1966. Only 1929 and 2000 were higher.Jeremy Grantham: GMO's 7-Year Asset Class Real Return ForecastHeres how to read the chart:GMO published these forecasts each month. There has been a high correlation over time between what GMO predicted and what turned out to be. An approximate 0.97 correlation, actually. Thats as close to the middle of the fairway as any forecaster has hit the ball, as far as I know, which is why you really need to take this forecast seriously.As of February 2017, GMO is forecasting a -3.8% annual return for US large-cap equities and a -0.8% for US bonds over the coming seven years.With a richly priced market (expensive hamburgers) and GMOs strong return forecast history, we find it illogical and unwise to chase into passive buy-and-hold ETFs and index funds at this time. Yet, that is what is happening.Hussman's 12-Year Return Forecast: 0'2% Returns Before InflationJohn Hussman shared this next chart, and it shows that his 12-year forecast is for 0% to 2% returns before inflation.This is a portfolio based on 60% equities, 30% Treasury bonds, and 10% Treasury bills. Basically, a typical 60/40 portfolio. Question: Do you really think there will be 0% inflation over the next 12 years'See the rest of the story at Business Insider
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