Market analyst warns of impending market collapse: ‘Bubbles happen’

The Gartman Letter editor and publisher Dennis Gartman discusses the collapse of the financial behemoth Bear Stearns a decade later.

Just 10 years ago, the huge global bank Bear Stearns collapsed, the first in a chain of events that eventually triggered the Great Recession -- since then, the S&P 500 has risen more than 300%, but some analysts are leery of the recent stock gains, warning the markets could be headed toward another collapse.

“I doubt we will have another bubble of that sort of consequence,” Dennis Gartman, editor and publisher of The Gartman Letter, told FOX Business’ Liz Claman during an interview on Wednesday. “But we do need to learn that bubbles happen, and we have to watch when they do. They all have the same shape: Markets go parabolic, then they collapse, euphoria happens at the feet, then they collapse.”

Gartman warned the possibility of a market bubble was “very serious” at this point, citing a nine-year bull market that was predominantly predicated on the Federal Reserve’s aggressive force-feeding of reserves into the system in the U.S.

But now, monetary authorities are in the process of quantitative tightening, with Fed chair Jerome Powell signaling the central bank could hike interest rates as many as four times in 2018. Fed officials are holding a key policy-setting session on March 21 to evaluate growth, employment and inflation, which could dampen the rallying markets.

“I think we probably have another year or so of economic strength, but with that economic strength, without the supply reserves from the monetary authorities, that money has to come from somewhere, and historically it comes out of the capital market, historically it comes out of the stock market,” Gartman said.

The Dow Jones Industrial Average closed above 26,000 for the first time ever in January, but since then, peaks in the market have been progressively lower, which Gartman found to be disconcerting.

To prepare for a potential bubble burst, Gartman is avoiding all cryptocurrencies entirely and high-flying tech stocks, while holding short-term duration Treasuries and safer equities.