Tag Archives: Stock Market

BREAKING: Gravity Works, by Robert Gore

Are you ready for the inevitable?

Why did the stock market fall? The usual suspects are finding all sorts of “causes.” How about this one: when everyone is on the same side of the boat, driven by hope and greed or fear and loathing, the boat capsizes, no matter the economic “fundamentals” or political climate.

Since 2009 the world’s central bank’s have blown up their balance sheets and much of that newly created fiat debt found a home in equity and bond markets and cryptocurrencies. With few interruptions, most asset prices have rallied ever since.

Virtually every stock market sentiment and positioning indicator has, like the stock market itself, gone from new extreme to new extreme for months. Numerous commentators, including SLL, have been warning for months, even years. Pick a valuation measure and stocks, even after the last two weeks, are at peak valuations rivaled only by 1929, 2000, and 2007.

The only mystery was when they would give way. If they are now in fact giving way, then there’s no mystery about how bad it’s going to get. Very bad.

With the world more indebted than it’s ever been on both an absolute basis and relative to the world’s productive capacity, economies and markets are extremely sensitive to interest rates. The Treasury debt market has been the dark cloud on the horizon since short-term bill rates made their low in mid-2015. The Fed followed, as it almost always does, raising the federal funds rate target (from zero) for the first time in seven years December 2015.

That markets lead, not follow the Fed, is an inconvenient truth for the legions of commentators and analysts who routinely assert the Fed controls interest rates. It shoots a hole in a lot of theories and models. (For substantiation that the Fed follows the market, see The Socionomic Theory of Finance, Chapter 3, Robert Prechter.)

The ten-year note made its high in July 2016 and has been trending irregularly lower—and interest rates irregularly higher—since. Higher interest rates raise the cost of leveraged speculation, production, and consumption. Yet, leveraged speculators in the stock market only seem to have noticed rising yields the past couple of weeks.

Given that the government will be borrowing close to $1 trillion this year, yields are still absurdly low. Markets have been conditioned by interest rate suppression, negative yields, governmental debt monetization, QEs, central bank puts, and central banker public pronouncements to think absurdly low yields are forever. A competing hypothesis is that it’s not nice to fool Mother Nature or markets, and after nine years of this nonsense, when they blow they’re really going to blow. SLL endorses the competing hypothesis.

Small coteries of central banking bureaucrats can’t regulate or control multi-trillion dollar, yen, yuan, and euro economies and financial markets. Super-volcanic financial eruptions will expose other truths as well. Watch as rising interest rates and crashing equity markets and economies reveal central, core truths: governments are bereft of real resources, are desperate to acquire same, and will be inconceivably—by today’s standards—rapacious in doing so. That’s quite a statement, because even today they’re pretty damn larcenous.

A generalized crash will also clarify the central conflict of our time: government and it’s string-pullers, minions, beneficiaries, and cheerleaders versus everybody else. Such a characterization suggests a deepening of today’s polarization. Unfortunately, as order breaks down, it will be everybody else versus everybody else, too. Good-bye polarization, hello atomization.

And order will break down. Government always and everywhere rule by force, fraud, and intimidation, but force, fraud, and intimidation need to be paid, preferably in something that can be exchanged for groceries or shoes for the kids. History suggests that the government and central bank will depreciate (speaking of fraud) their fiat debt instruments—Federal Reserve Notes, US Treasury debt, and central bank credit balances—to their marginal cost of production, or zero.

When governments are bankrupt, their praetorians forage—a nice word for theft and extortion. They’ll be competing with hordes of foraging civilians, many of whom will be armed. In such a scenario, one identifiable group has a fighting chance, and it will involve fighting and lots of it. That, of course, is the group who have either been preparing for such a scenario for years or have the skill set and mental fortitude necessary to adapt to it. Much scorned, this group may get the last laugh, but it will be a grim one.

They overwhelmingly supported Trump. It will be a disappointment, but not a surprise, that one man is unable to reverse a collapse long in the making. However, their support for Trump indicates ideological cohesion, which will be absent from the rest of the population.

Take away the undeserved from the undeserving and you get a tantrum. Steal the earned from those who earned it and you get righteous rage. One’s a firecracker, the other a volcano. The game has been to impress upon the useful a moral obligation to support the useless, but the volcano’s about to blow, burying that obscene morality in lava and ash. Given the staggering levels of accumulated debt and promises, the useful know their talents, skills, hard work, productivity and futures have been mortgaged for the useless. This is the salient and intractable social division. No reconciliation is possible between the useful and those who believe themselves entitled to their enslavement.

The Useful and the Useless,” SLL, 3/23/17

When the government implodes, those on the receiving end of its largess are going to be united by only two things: their outrage and their inability to do anything about it. They’ll have all the solidarity of cannibals trying to eat one another.

Against that backdrop will be the group who wants to provide for itself…and knows how to do so. Individualism, self-sufficiency, and a love of freedom and inviolable liberties are not dead in America, but those who support them have been driven underground. They’ll stay underground come the collapse—advertising abilities and provisions will be an invitation to brutalization, robbery and murder—but they’ll fend off the rampaging hordes, survive, and reemerge.

Do they have to reemerge, can’t they just emerge to set things right without all the collapse and carnage? Unfortunately not. For those pinning their hopes on political education and action, what are the chances of convincing the half of the country that’s riding the government gravy train to hop off to prevent insolvency and ruin? The question answers itself. They’ll have to be pushed off.

Trump’s election was a cry of protest, and he’s ruffled some feathers. However, eight years of around-the-clock, 24/7 presidential effort couldn’t undo decades of ruinous policies, many of which Trump has actually embraced: out of control spending, deficits, debt, and empire.  Trump will be battling falling equity markets, rising interest rates, and swamp vermin.

Things have to get much worse before they can get better, but just as nothing goes up forever, nothing goes down forever. Collapse’s silver lining may be that it offers a chance for freedom and inviolable liberties to finally emerge from underground.

In the meantime, Doug “Uncola” Lynn’s recent article on The Burning Platform, “BABY STEPS: You’ve Been Woke. Now Exit the Matrix.” is an excellent wake up call and has a lot of useful information and links to other sources about preparing for the inevitable. Nobody is going to be 100 percent prepared, but there’s no excuse for being 0 percent prepared.

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Stocks Get Messy, Dip-Buyers Get Crushed Again, by Wolf Richter

Buying the dips is easy, as long as you know which dips to buy. From Wolf Richter at wolfstreet.com:

What would the Fed do?

The Dow fell 4.1% today [Thursday] to 23,860, plunging 480 points in the last hour. This 1,033-point drop was the worst drop since, well, the 1,175-point drop on Monday, which had been, as it was endlessly repeated, the biggest point-drop in history – and irrelevant at these ludicrously inflated levels of the industrial average.

So now:

  • The Dow has dropped 10.4% from its all-time high on January 26 and has entered “correction” territory (defined as -10% from its recent high) over five trading days.
  • It closed 385 points below its Monday close: lower lows.
  • It’s down 3.5% for the year and back where it had been on November 29.
  • All of the 30 Dow components were in the red, with seven dropping more than 5%. Losses ranged from Exxon Mobil (-1.1%) to American Express (-5.6%).

This used to be standard practice after a dizzying surge of the type we had. Unwinding the last 10 weeks of a rally is no big deal. But those spoiled by the record 410-day streak without a 5% selloff are now struggling with letting go of an illusion: that stocks are a low-risk high-reward bet.

But there is something that is starting to get a little ugly. Today’s selloff has crushed again the most cherished way of making money in the stock market since the Financial Crisis: dip buying. There were three messy selloffs over a span of five trading days: Friday, Monday, and today; each time, prior dip buyers that didn’t get out of the way got slammed.

The S&P 500 dropped 101 points, or 3.75%, to 2,581, about half of it in the last hour. It was the worst drop since, well, Monday’s 113 point drop.

  • The S&P 500 closed 2.5% below Monday’s close. Lower lows. Dip buyers crushed.
  • It’s down 3.5% for the year and back where it had been on November 21.
  • It’s down 10.1% and in a correction. The last time the S&P was in a correction ended on February 7, 2016. At the time, it was down 19%.

The selloff is starting to show up on long-term charts. This chart, which captures the bottom of the last crash, shows just how steep the current selloff has been in point terms – 187 points in five trading days – compared to the selloffs since 2009, but in percentage terms it fits right in:

To continue reading: Stocks Get Messy, Dip-Buyers Get Crushed Again

 

Bottom’s In—Not! by David Stockman

David Stockman doesn’t think this is a good dip to buy. From Stockman at davidstockmanscontracorner.com:

Flush. Rinse. Repeat. BTFD!

Well, you could also give a good whack to the weak hands, burn the over-boughts, call in the sideline cash and get giddy about the fundur…mentals!

After all, the man on bubblevision said nothing has changed since the January 25 high at 2873 on the S&P 500. So there’s that: Another easy peasy 6% gain by just getting back to the trajectory of still another blowout year.

Moreover, having posted nine consecutive such years, one more doesn’t seem that hard to imagine, nor does another successful episode of buying the dip. The chart below documents dozens of that very thing since the March 2009 bottom.

Unfortunately, it also charts an alternate financial universe that is treading hard upon its sell-by date. That is, this is not the work of a capitalist free market in equity securities; it’s the consequence of a $14 trillion bond-buying spree by the Fed and other central banks since the financial crisis.

This tsunami of false liquidity and the accompanying price-keeping operations did drastically suppress interest rates and fuel rampant free-money carry trades. It also fostered the TINA (there is no alternative) trade in stocks and the investor scramble for yield into corporates and junk bonds, which, in turn, triggered massive corporate financial engineering maneuvers.

The latter flushed trillions of buying power into the Wall Street casino, even as it shrunk the supply of equities. Deeper in the casino, short sellers were executed, portfolio hedging became dirt cheap and various exotic forms of structured finance in options and volatility trades ramped the stock indices still higher.

At length, the financial markets and the main street economy became completely decoupled, and that is the true “fundamental” that has not changed in the last two weeks. It’s also the fundamental which guarantees that the Friday-Monday swoon was just a minor warm-up for the main event.

That’s because the economy is getting progressively weaker and longer in the tooth—-even as the central banks pivot away from the massive liquidity injections which inflated and sustained the financial bubble.

Indeed, whatever dip buying that remains will likely be shallow and short-lived. The peak level of central bank liquidity injection at a $2.1 trillion annual rate is already fast sinking toward the flat line, pulled down by the Fed ramping its bond dump-a-thon toward $600 billion per annum and the fast fading ECB’s bond-buying campaign as it glides toward the zero bound by October.

To continue reading: Bottom’s In—Not!

Is A Massive Stock Market Reversal Upon Us? by Brandon Smith

If the stock market continues down from here, Brandon Smith will be able to say he’s predicted it for some time. So will David Stockman, Robert Prechter, SLL, and any number of other seers. Smith says it’s the result of a plot by the globalists. Other seers, including SLL, have other explanations. Smith says: “The masses determine their economic optimism  (if they are employed) according to the Dow and the S&P and, to some extent, by official and fraudulent unemployment statistics.” Prechter argues that it’s the exact opposite: social moods of optimism and pessimism determine the Dow and the S & P. See The Socionomic Theory of Finance if you want to know more. Prechter offers a cogent explanation of markets and crowd psychology and has an overall predictive record that’s hard to beat.

From Smith at alt-market.com:

I have been saying it for years and I will say it again here — stocks are the worst possible “predictive” signal for the health of the general economy because they are an extreme trailing indicator. That is to say, when stock markets do finally crash, it is usually after years of negative signs in other more important fundamentals.

Of course, whether we alternative analysts like it or not, the fact of the matter is that the rest of the world is psychologically dependent on the behavior of stock markets. The masses determine their economic optimism  (if they are employed) according to the Dow and the S&P and, to some extent, by official and fraudulent unemployment statistics. When equities start to dive, society takes notice and suddenly becomes concerned about fiscal dangers they should have been worried about all along.

Well, it may have taken a couple months longer than I originally predicted, but it would seem so far that a moment of revelation (that slap in the face I discussed a couple weeks ago) is upon us. In less than a few days, most of the gains in global stocks for 2018 have been erased. The question is, will this end up as a “hiccup” in an otherwise spectacular bull market bubble? Or is this the inevitable death knell and the beginning of the implosion of that bubble?

After I predicted the election of Donald Trump, I also predicted that central banks would begin pulling the plug on life support for equities markets. This did in fact take place with the Fed’s continued program of interest rate increases and the reduction of their balance sheet, which effectively strangles the flow of cheap credit to banking and corporate institutions that fueled stock buybacks for years. Without this constant and ever expansionary easy fiat, there is nothing left to act as a crutch for stocks except perhaps blind faith. And blind faith in the economy always ends up being smacked down by the ugly realities of mathematics.

I believe the latest extraordinary dive in stocks is NOT a “hiccup,” but a sign that “contagion” is still a thing, and also a trailing sign of instability inherent in our fiscal system. Here are some reasons why this trend is likely to continue.

To continue reading: Is A Massive Stock Market Reversal Upon Us?

 

Death Star Headed for the U.S. Economy, by Bill Bonner

Unlike the one in Star Wars, there’s no way to blow up this Death Star. It will, in fact, blow up the global economy. From Bill Bonner at bonnerandpartners.com:

PARIS – “Keep your eye on Friday,” the old-timers used to say.

When the pros are worried, they sell on Friday so they can spend the weekend without sweating.

When they are confident, they buy on Friday so they don’t miss out on weekend gains (when traders engage in electronic “after-hours” trading).

Last Friday, selling pressure left the Dow 666 points lower by the closing bell. And this morning, stock markets everywhere from Tokyo to London are sliding.

Markets go up and down. This market will go down, no doubt about it. If not now, later. That would be nothing new. Hardly worth mentioning.

But there’s more to the story: In addition to plunges for stocks and bonds, the entire financial system is headed for a long, painful destruction.

So far, hardly anyone notices.

Today’s New York Times makes no mention of the Death Star headed for the U.S. economy. Instead, all we find is the typical public nonsense.

Trump did this… Russia did that… Nunes… Mueller… Israel… Poland… blah-blah. If we’re right about what is coming, none of this will matter.

But that’s the way it works.

The old-timers also say that a bear market will always try to take as many investors down with it as possible.

It would not be unusual for stocks to recover… so that investors think the danger is over. And then – whack! – a real crash.

As always, we wait to find out. We will do our best to enjoy it… trying always to understand it.

We watch. We wonder. The dots come together – slowly, slowly… then all of a sudden.

To continue reading: Death Star Headed for the U.S. Economy

An “Extreme Warning” From Our Doom Index, by Bill Bonner

Here’s another bearish prognostication, from Bill Bonner at bonnerandpartners.com:

BALTIMORE – When we left you yesterday, we were describing why the situation is getting dangerous for investors, and how the lessons learned over the last 30 years may backfire in the next crisis.

“Dow over 26,000… bitcoin under $10,000,” reports this morning’s news… “but could crypto panic spill over into stocks?”

Investors are accustomed to depending on the Greenspan-Bernanke-Yellen Put… which is to say, they are pretty sure that the feds will come in with more booze when the party starts to flag.

“Buy the dip,” they tell each other, confident that the feds can be counted on in a pinch.

Many think the recently passed tax bill is 80-proof, too – sure to rev things up by putting more money in the hands of shareholders and consumers.

Maybe it will raise stock prices. Or maybe it won’t. What it won’t do is make the next crisis disappear.

Bad Tidings

We hate to be the bearer of bad tidings, but bad tidings are all we have to bear.

Corporate America is already pretty flush. The price-to-earnings (P/E) ratio for the S&P 500 is now 70% above its long-term average.

In fact, the price of stocks relative to earnings has only been near this high three times in the last 118 years… each time caused by the aforementioned Fed party favors.

And if stocks go higher, it merely gives them further to fall.

In order to get back to more traditional levels, notes Martin Feldstein in yesterday’s Wall Street Journal, the next bear market would have to wipe out some $10 trillion of stock market wealth.

This, he says, would take 2% off annual GDP… tipping the country into recession.

Extreme Warning

How close is this crisis?

We turn to our Doom Index, put together by our ace researcher, Joe Withrow:

The Doom Index spiked back up to “7” this month – our extreme warning level.

After a surprisingly expansive third quarter in 2017, credit growth fell back to 1.6% in the fourth quarter. Paraphrasing your friend and economist Richard Duncan, bad things happen when credit growth falls below 2%.

Looking at the credit markets, corporate bond downgrades continued to come in at an elevated level last quarter. And junk bonds are starting to show some cracks, falling more than 1% on the quarter. That said, junk bonds still closed out 2017 in positive territory.

To continue reading: An “Extreme Warning” From Our Doom Index

Punch-Drunk Investors & Extinct Bears, Part 1: by Pater Tenebrarum

The age old question: if everybody’s bullish (or bearish) who’s left to buy (or sell)? From Pater Tenebrarum at acting-man.com:

The Mother of All Blow-Offs

We didn’t really plan on writing about investor sentiment again so soon, but last week a few articles in the financial press caught our eye and after reviewing the data, we thought it would be a good idea to post a brief update. When positioning and sentiment reach levels that were never seen before after the market has gone through a blow-off move for more than a year, it may well be that it means something for once.

Sloshed as we are…   a group of professional investors prepares for a day of hard work on Wall Street. The tedium of a market that goes up a little bit every day, day in day out, is taking its toll.

Interestingly, the DJIA has fully participated in the blow-off this time, contrary to what happened at the end of the 1990s bull market and the first echo boom that ended in 2007. On the monthly chart the venerable Dow Industrials Average now sports on RSI of roughly 90, which is really quite rare.

 

The “slightly overbought” DJIA sports an RSI of 89.59 on its monthly chart in the wake of the blow-off move over the past year.

If you think this looks like the exact opposite of what we have seen at the lows in 2009, you are entirely correct – it is indeed the opposite in every conceivable respect. In 2009 the news were uniformly bad; nowadays, we are flooded with good news on the economy and corporate earnings. In 2009 stocks were cheap  – if not really historically cheap – now they are in many ways at their most expensive in history, particularly if one considers the median stock rather than  just the capitalization-weighted indexes.

Singing From the Same Hymn Sheet

We recall that the reading of the Daily Sentiment Index of S&P futures traders stood at just 3% bulls on the day of the March 2009 low. Looking at sentiment data today, there are probably 3% bears left. What prompted us to take a closer look at the data was an article at Marketwatch about the positioning of Ameritrade customers – in other words, self-directed retail investors. The article is ominously entitled “Retail investor exposure to stock market is at an all-time high”. An all time high? Isn’t this supposed to be the “most hated” bull market ever? That hasn’t been true for quite a while actually. Ameritrade helpfully provided a chart of its “Investor Movement Index” (IM Index), which measures the aggregate stock market exposure of its clients.

At the height of the Fed’s QE3 operation in 2014, retail investors were almost “pessimistic” compared to today. The Ameritrade IM Index is currently above 8, but it already established a new record high when it crossed 7.0 for the first time last summer.

To continue reading: Punch-Drunk Investors & Extinct Bears, Part 1: