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The Dow Peaked At 14,000 Before The Last Stock Market Crash, And Now Dow 24,000 Is Here

The absurdity that we are witnessing in the financial markets is absolutely breathtaking.  Just recently, a good friend reminded me that the Dow peaked at just above 14,000 before the last stock market crash, and stock prices were definitely over-inflated at that time.  Subsequently the Dow crashed below 7,000 before rebounding, and now thanks to this week’s rally we on the threshold of Dow 24,000.  When you look at a chart of the Dow Jones Industrial Average, you would be tempted to think that we must be in the greatest economic boom in American history, but the truth is that our economy has only grown by an average of just 1.33 percent over the last 10 years.  Every crazy stock market bubble throughout our history has always ended badly, and this one will be no exception.

And even though the Dow showed a nice gain on Wednesday, the Nasdaq got absolutely hammered.  In fact, almost every major tech stock was down big.  The following comes from CNN

Meanwhile, big tech stocks — which have propelled the market higher all year — were tanking. The Nasdaq fell more than 1%, led by big drops in Google (GOOGL, Tech30) owner Alphabet, Amazon (AMZN, Tech30), Apple (AAPL, Tech30), Facebook (FB, Tech30) and Netflix (NFLX, Tech30).

Momentum darlings Nvidia (NVDA, Tech30) and PayPal (PYPL, Tech30) and red hot gaming stocks Electronic Arts (EA, Tech30) and Activision Blizzard (ATVI, Tech30) plunged too. They have been some of the market’s top stocks throughout most of 2017.

Many believe that the markets are about to turn down in a major way.  What goes up must eventually come down, and at this point even Goldman Sachs is warning that a bear market is coming

“It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,” Goldman Sachs International strategists including Christian Mueller-Glissman wrote in a note this week. “All good things must come to an end” and “there will be a bear market, eventually” they said.

As central banks cut back their quantitative easing, pushing up the premiums investors demand to hold longer-dated bonds, returns are “likely to be lower across assets” over the medium term, the analysts said. A second, less likely, scenario would involve “fast pain.” Stock and bond valuations would both get hit, with the mix depending on whether the trigger involved a negative growth shock, or a growth shock alongside an inflation pick-up.

Nobody believes that this crazy stock market party can go on forever.

These days, the real debate seems to be between those that are convinced that the markets will crash violently and those that believe that a “soft landing” can be achieved.

I would definitely be in favor of a “soft landing”, but those that have followed my work for an extended period of time know that I do not think that this will happen.  And with each passing day, more prominent voices in the financial world are coming to the same conclusion.  Here is one recent example

Vanguard’s chief economist Joe Davis said investors need to be prepared for a significant downturn in the stock market, which is now at a 70 percent chance of crashing.  That chance is significantly higher than it has been over the past 60 years.

The economist added, It’s unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue.”

A stock market crash has followed every major stock bubble in our history, and right at this moment we are in the terminal phase of one of the greatest stock market bubbles ever.  There are so many indicators that are screaming that we are in danger, and one of the favorite ones that I like to point to is margin debt.  The following commentary and chart were recently published by Wolf Richter

This chart shows margin debt (red line, left scale) and the S&P 500 (blue line, right scale), both adjusted for inflation to tune out the effects of the dwindling value of the dollar over the decades (chart by Advisor Perspectives):

Stock market leverage is the big accelerator on the way up. Leverage supplies liquidity that has been freshly created by the lender. This isn’t money moving from one asset to another. This is money that is being created to be plowed into stocks. And when stocks sink, leverage becomes the big accelerator on the way down.

Markets tend to go down much faster than they go up, and I have a feeling that when this market crashes it is going to happen very, very rapidly.

The only reason stock prices ever got this high in the first place was due to unprecedented intervention by global central banks.  They created trillions of dollars out of thin air and plowed those funds directly into the financial markets, and of course that was going to inflate asset prices.

But now global central banks are putting on the brakes simultaneously, and this has got to be one of the greatest sell signals that we have ever witnessed in modern financial history.

Even Federal Reserve Chair Janet Yellen says that she is concerned about causing “a boom-bust condition in the economy”, and yet she insists that the Fed is going to continue to gradually raise rates anyway

Federal Reserve Chair Janet Yellen said the central bank is concerned with growth get out of hand and thus is committed to continuing to raise rates in a gradual manner.

“We don’t want to cause a boom-bust condition in the economy,” Yellen told Congress in her semiannual testimony Wednesday.

While Yellen did not specifically commit to a December rate hike, her comments indicated that her views have not changed with her desire for the central bank to continue normalizing policy after years of historically high accommodation.

I never thought that this stock market bubble would get this large.  We are way, way overdue for a financial correction, but right now we are in a party that never seems to end.

But end it will, and when that happens the pain that will be experienced on Wall Street will be unlike anything that we have ever seen before.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Bank Of America Analyst: A ‘Flash Crash’ In Early 2018 ‘Seems Quite Likely’

Is the stock market bubble about to burst?  I know that I have been touching on this theme over and over and over again in recent weeks, but I can’t help it.  Red flags are popping up all over the place, and the last time so many respected experts were warning about an imminent stock market crash was just before the last major financial crisis.  Of course nobody can guarantee that global central banks won’t find a way to prolong this bubble just a little bit longer, but at this point they are all removing the artificial support from the markets in coordinated fashion.  Without that artificial support, it is inevitable that financial markets will experience a correction, and the only real question is what the exact timing will be.

For example, Bank of America’s Michael Hartnett originally thought that the coming correction would come a bit sooner, but now he is warning of a “flash crash” during the first half of 2018

Having predicted back in July that the “most dangerous moment for markets will come in 3 or 4 months“, i.e., now, BofA’s Michael Hartnett was – in retrospect – wrong (unless of course the S&P plunges in the next few days). However, having stuck to his underlying logic – which was as sound then as it is now – Hartnett has not given up on his “bad cop” forecast (not to be mistaken with the S&P target to be unveiled shortly by BofA’s equity team and which will probably be around 2,800), and in a note released overnight, the Chief Investment Strategist not only once again dares to time his market peak forecast, which he now thinks will take place in the first half of 2018, but goes so far as to predict that there will be a flash crash “a la 1987/1994/1998” in just a few months.

That certainly sounds quite ominous.

Just so that there is no confusion, let me give you his exact quote

“A flash crash (à la ’87/’94/’98) in H1 2018 seems quite likely, in our view, as the major sedative of volatility, the central banks, start to withdraw liquidity.”

Hartnett is making the same point that I have made repeatedly in recent weeks.  As the central banks withdraw the artificial support that has been propping up the markets ever since the last financial crisis, we will see if the markets can really maintain these absolutely ridiculous price levels on their own.

And we are not just talking about stock prices either.  In fact, Bill Blain believes that the coming crash will actually originate in the bond market

The 2008 crisis, which was about consumer debt, was triggered by mortgages. We still have consumer debt crisis problems ahead, warns Blain, adding the next financial crisis is likely to be in corporate debt.

“More immediately, the realization a crisis is coming feels very similar to June 2007 when the first mortgage-backed funds in the US started to wobble.” He said it explains why “we’re seeing the highly levered sector of the junk bond markets struggle, and companies correlated to struggling highly levered consumers (such as health and telecoms) also in trouble.”

Stock markets don’t matter, according to the strategist. “The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market,” he said.

Asset prices of all classes have been pushed to absolutely absurd levels by the central banks.

If it wasn’t for central bank manipulation, stock prices would have never gotten this high, and the bond market would have never been pushed to such irrational extremes.

And it isn’t just the Federal Reserve that has been intervening directly in U.S. markets.

For example, did you know that the Swiss National Bank is now the eighth largest public holder of U.S. stocks in the entire world?

According to John Mauldin, the Swiss central bank has poured 17 billion dollars into our stock market so far this year, and overall they now own approximately 80 billion dollars worth of our stocks…

The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).

They have bought roughly $17 billion worth of US stocks so far this year. And they have no formula; they are just trying to manage their currency.

Think about this for a moment: They have about $10,000 in US stocks on their books for every man, woman, and child in Switzerland, not to mention who knows how much in other assorted assets, all in the effort to keep a lid on what is still one of the most expensive currencies in the world.

Switzerland is now the eighth-largest public holder of US stocks. And apparently they are concentrating on the largest of the large-cap stocks. The own 19 million shares of Apple (as of March 31).

They have made these purchases with money that they have literally created out of thin air.

If that sounds like “cheating” to you, that is because that is exactly what it is.

How in the world can stock prices possibly fall when global central banks are creating colossal mountains of money out of thin air and are using that money to buy stocks?

The central banks created this ridiculous stock market bubble, and they can also burst the bubble by pulling back on the level of artificial support, and that is precisely what we see happening right now.

So don’t buy into the hype.  All that really matters is what the central banks choose to do, and if they wanted to continue to pump enormous amounts of money into the financial markets they could continue to pump up this absurd financial bubble that we are currently witnessing.

But at the moment they appear to be pulling back, and that makes a very “interesting” 2018 for the financial markets much more likely.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

‘The Currency Of The Apocalypse’? Doomsday Preppers Flock To Bitcoin As It Surges Past $8000

Once upon a time preppers would hoard gold and silver in anticipation of the meltdown of society, but now Bitcoin is becoming the alternative currency of choice for many in the prepping community.  On Monday, Bitcoin hit an all-time record high as it surged past $8,200, and it has now gone up nearly 50 percent in just the last eight days.  As I have admitted previously, one of my great regrets is not investing in Bitcoin when it first started, because we have never seen a meteoric rise quite like this.  Bitcoin hit the $5,000 mark for the very first time just over a month ago, it is up more than 700 percent so far this year, and it is up almost 40,000 percent over the past five years.  At this point Bitcoin has a market cap of over 130 billion dollars, and many believe that this is just the beginning.

At one time many preppers were quite skeptical of cryptocurrencies such as Bitcoin, but now that is starting to change in a major way.  The following comes from a Bloomberg article entitled “These Doomsday Preppers Are Starting to Switch From Gold to Bitcoin”

“Not too long ago, people in the prepper community were actively warning against crypto, and now they’re all investing in it,” said Tom Martin, a truck driver from Washington who runs a social-media website for people interested in learning skills to survive disaster. “As long as the grid stays up, people will keep using bitcoin.”

In addition to gold, silver and stocks, Martin invests in bitcoin and peers litecoin and steem because they’re easier to travel with, harder to steal and offer better protection in the event of the kind of societal breakdown that would unfold if a fiat currency like the dollar collapsed.

He’s among those confident that bitcoin can withstand even a complete blackout through the strength of the underlying blockchain, the anonymous public bookkeeping technology that records every single bitcoin transaction.

At the end of the day, cryptocurrencies only have value because people believe that they have value.  If the global financial system completely collapses, will there still be demand for Bitcoin and other cryptocurrencies?  And will they be accepted for food, medicine and other basic emergency supplies when everything falls apart?

These are legitimate questions for preppers to consider, because cryptocurrencies do not actually have any intrinsic value.  At the end of the day these cryptocurrencies only exist in cyberspace, and some of the biggest names in the financial world continue to be skeptics

J.P. Morgan CEO Jamie Dimon thinks bitcoin is a “fraud.” Investor Mark Cuban called it “a bubble.” Goldman Sachs CEO Lloyd Blankfein is still undecided. But whether or not executives believe in the potential of bitcoin, ethereum or blockchain technology, they and their companies can’t avoid talking about cryptocurrencies.

And there is a very real possibility that the marketplace could soon become absolutely saturated with “cryptocurrencies”.  At this point it seems like a new crytpocurrency is being started on almost a daily basis.  Here is more from CNN

Dragonchain, a crytpocurrency startup originally backed by Disney (DIS), has held an ICO. Filecoin, a cloud storage company, raised more than $250 million earlier this year from an ICO — the biggest ever.

And online retailer Overstock (OSTK) is even planning an ICO for its tZero blockhain unit.

“In an effort to bypass the rules and costs associated with getting listed on an exchange, many startups now are opting to raise funds by issuing their own digital currency based on blockchain technology,” Holmes wrote.

For now, we will probably continue to see wild up and down swings in the price of Bitcoin.  Those that were able to buy low and are able to sell high will make an extraordinary amount of money, but those that hold on to the bitter end may ultimately lose everything.

As is the case with so many things in life, timing is everything.

And for all of the preppers that are getting into Bitcoin, even Bloomberg is skeptical that the cryptocurrency will be of much use in an apocalyptic situation…

Still, it’s hard to envision people walking around spending digital coins to buy Spam, canned beans or bottled water at a local supermarket when they don’t have electricity at home to charge their smart phones, let alone a working internet connection to access their digital wallets.

Of course up to this point those with the last laugh have been those that invested in Bitcoin despite what the skeptics were saying.

Countless numbers of “Bitcoin millionaires” have already been created, and many believe that this is just the start of the cryptocurrency revolution.

But will this revolution end up resulting in heartbreak for those that don’t get out before the bubble bursts?

Only time will tell…

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Yield Curve Has Not Been This Flat In 10 Years, And Many Believe This Is A Sign That A Recession Is Imminent

Whenever we see an inverted yield curve, a recession almost always follows, and that is why many analysts are deeply concerned that the yield curve is currently the flattest that it has been in about a decade.  In other words, according to one of the most reliable indicators that we have, we are closer to another recession than we have been at any point since the last financial crisis.  And when you combine this with all of the other indicators that are screaming that a new crisis is on the horizon, a very troubling picture emerges.  Hopefully this will turn out to be a false alarm, but it is looking more and more like big economic trouble is coming in 2018.

The professionals on Wall Street take the yield curve very, very seriously, and the fact that it has gotten so flat has many of them extremely concerned.  The following comes from Business Insider

In the past, including before the Great Recession of 2007-2009, an inverted yield curve, where long-term interest rates fall below their short-term counterparts, has been a reliable predictor of recessions. The bond market is not there yet, but a sharp recent flattening of the yield curve has many in the markets watchful and concerned.

The US yield curve is now at its flattest in about 10 years — in other words, since around the time a major credit crunch of was gaining steam. The gap between two-year note yields and their 10-year counterparts has shrunk to just 0.63 percentage point, the narrowest since November 2007.

If the yield curve continues to get even flatter, it will spark widespread selling on Wall Street, and if it actually inverts that will set off total panic.

And with each passing day, even more of the “experts” are warning of imminent market trouble.  For example, just consider what Art Cashin told CNBC the other day…

Investors may want to take cover soon.

Art Cashin, UBS’ director of floor operations at the New York Stock Exchange, says a “split personality” is manifesting itself in the stock market, and it could hit Wall Street where it hurts at any moment.

“We’ve been setting record new highs, and often the breadth has been negative. We’ve had more declines than advances,” Cashin said Thursday on CNBC’s “Futures Now.”

When the financial markets finally do crash, it won’t exactly be a surprise.

In fact, we are way, way overdue for financial disaster.

Since the last financial crisis, we have been on the greatest debt binge in human history.  U.S. government debt has gone from $10 trillion to $20 trillion, corporate debt has doubled, and U.S. consumer debt has now risen to nearly $13 trillion.

Debt brings consumption from the future into the present, and so it increases short-term economic activity at the expense of long-term financial health.

But we simply cannot continue to grow debt much, much faster than the overall economy is growing.  I have never talked to anyone that believes that our debt binge is sustainable, and I doubt that I ever will.

The only reason why we have even gotten this far is because interest rates have been pushed to historically low levels.  If the average rate of interest on U.S. government debt even returned to the long-term average, we would be paying more than a trillion dollars a year in interest on the national debt and the game would be over.  Unprecedented intervention by the Federal Reserve and other global central banks has pushed interest rates way below the real rate of inflation, and that has bought us extra time.

But now the Federal Reserve and other global central banks are reversing course in unison, and global financial markets are already starting to decline.

The only way we can keep putting off the next financial crisis is if we continue our unprecedented debt binge and if global central banks continue to artificially prop up the financial markets.

Of course more debt and more central bank manipulation would just make the eventual financial disaster even worse, but that is what we are faced with at this point.

Most people simply don’t understand the gravity of the situation.  Nothing was ever fixed after the last financial crisis.  Instead, we went on the greatest debt binge that humanity has ever seen, and central banks started creating trillions of dollars out of thin air and recklessly injected that hot money into the financial system.

So now we are in the terminal phase of the largest financial bubble in human history, and there is no easy way out.

We basically have two choices.  We can have a horrific financial crisis now, or we can have one a little bit later.

Usually the choice is “later”, and that is why our leaders have been piling on the debt and global central banks have been recklessly creating money.

But it is inevitable that our bad choices will catch up with us eventually, and when that happens the pain that we are going to experience is going to be absolutely off the charts.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Last Time These 3 Ominous Signals Appeared Simultaneously Was Just Before The Last Financial Crisis

We have not seen a “leadership reversal”, a “Hindenburg Omen” and a “Titanic Syndrome signal” all appear simultaneously since just before the last financial crisis.  Does this mean that a stock market crash is imminent?  Not necessarily, but as I have been writing about quite a bit recently, the markets are certainly primed for one.  On Wednesday, the Dow fell another 138 points, and that represented the largest single day decline that we have seen since September.  Much more importantly, the downward trend that has been developing over the past week appears to be accelerating.  Just take a look at this chart.  Could we be right on the precipice of a major move to the downside?

John Hussman certainly seems to think so.  He is the one that pointed out that we have not seen this sort of a threefold sell signal since just before the last financial crisis.  The following comes from Business Insider

On Tuesday, the number of New York Stock Exchange companies setting new 52-week lows climbed above the number hitting new highs, representing a “leadership reversal” that Hussman says highlights the deterioration of market internals. Stocks also received confirmation of two bearish market-breadth readings known as the Hindenburg Omen and the Titanic Syndrome.

Hussman says these three readings haven’t occurred simultaneously since 2007, when the financial crisis was getting underway. It happened before that in 1999, right before the dot-com crash. That’s not very welcome company.

In fact, every time we have seen these three signals appear all at once there has been a market crash.

Will things be different this time?

We shall see.

If you are not familiar with a “Hindenburg Omen” or “the Titanic Syndrome”, here are a couple of pretty good concise definitions

  • Hindenburg Omen: A sell signal that occurs when NYSE new highs and new lows each exceed 2.8% of advances plus declines on the same day. On Tuesday, they totaled more than 3%.
  • Titanic Syndrome: A sell signal triggered when NYSE 52-week lows outnumber 52-week highs within seven days of an all-time high in equities. Stocks most recently hit a record on November 8.

You can see the other times in recent decades when these three signals have appeared simultaneously on this chart right here.

Once again, past patterns do not guarantee that the same thing will happen in the future, but if the market does crash it should not surprise anyone.

10 days ago, I published an article entitled “The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History”.  I pointed out that this stock market bubble was created by unprecedented central bank intervention, and now global central banks are reversing the process that created the bubble in unison.  There is no possible way that stock prices can stay at these absolutely absurd levels without central bank help, and if global central banks stay on the sidelines a market decline would seem to be virtually inevitable.

Meanwhile, we are also witnessing a very alarming flattening of the yield curve

Hogan said the market is nervous about the “flattening” difference between the 2-year yield and the 10-year Treasury yield, which have been moving closer together. The curve dipped to 68 basis points Tuesday, a 10-year low. Hogan said 70 has become a line in the sand, and when it falls below that traders get nervous.

A flattening curve can signal that the curve will invert, which historically means a recession is on the horizon.

If the yield curve does end up inverting, that will be a major red flag.

But the experts assure us that we have nothing to worry about.

For example, just check out what Karyn Cavanaugh of Voya Financial is saying

“Now that the earnings season is wrapped up, markets are more beholden to macro data. Weakness in oil prices and skepticism about the passing of the tax bill are also weighing on sentiment,” said Karyn Cavanaugh, senior market strategist at Voya Financial.

Despite the drop on the day, major indexes remain within 1.5 percentage points of record levels.

Any pullback at this stage should be viewed as an opportunity to buy, however. Earnings outlook for U.S. stocks, especially with the synchronized global growth environment is still good,” Cavanaugh said.

And U.S. consumers continue to pile on more debt as if there is no tomorrow.  This week we learned that U.S. household debt has almost reached the 13 trillion dollar threshold

Americans’ debt level rose during the third quarter, driven by an increase in mortgage loans, according to a Federal Reserve Bank of New York report published on Tuesday.

Total U.S. household debt was $12.96 trillion in the three months to September, up $116 billion from the prior three months. Debt levels were $605 billion higher than during the third quarter of 2016.

The fundamentals do not support this kind of irrational optimism.

What the fundamentals have been telling us is that in the absence of central bank support we should see the markets start to decline, and that it is quite likely that a painful recession is on the horizon.

As the next crisis erupts, the mainstream media is going to respond with shock and horror.  But the only real surprise is that this ridiculous bubble lasted for as long as it did.

The truth is that a market decline is way overdue.  If central banks had not pumped trillions upon trillions of dollars into the global financial system, there is no possible way that stock prices would have ever gotten so high, and now that the central banks are removing the artificial life support we shall see how the markets do on their own.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

This Is What A Pre-Crash Market Looks Like

The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed.  Will things be different for us this time?  We shall see, but without a doubt this is what a pre-crash market looks like.  This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention, but now global central banks are removing the artificial life support in unison.  Meanwhile, the real economy continues to stumble along very unevenly.  This is the longest that the U.S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close.  Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.

If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider.  The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter

The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent. The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?

Since the market bottomed out in early 2009, the S&P 500 has been on a historic run.  If this rally had been based on a booming economy that would be one thing, but the truth is that the U.S. economy has not seen 3 percent yearly growth since the middle of the Bush administration.  Instead, this insane bubble has been almost entirely fueled by central bank manipulation, and now that manipulation is being dramatically scaled back.

And the guys on Wall Street know what is coming.  For example, Joe Zidle says that this bull market is now in “the ninth inning”

Joe Zidle, of Richard Bernstein Advisors, is arguing that the bull market has entered the bottom of the ninth inning.

“This is a late-cycle environment,” Zidle said on CNBC’s “Futures Now” recently.

“In innings terms, they’re not time dependent. An inning could be shorter or they could be longer. It just really depends,” the strategist said.

This bubble has lasted for much longer than it ever should have, and everyone understands that a day of reckoning is coming.

In fact, earlier today I came across an article on Zero Hedge that contained an absolutely remarkable quote from Eric Peters…

“We are investing as if 1987 will happen tomorrow, because it will,” said the CIO. “But we need to be long, or we’ll be out of business,” he explained, under pressure to perform. “So we construct option trades that are binary bets.” Which pay X profit if stocks rally, and cost Y if markets fall. No more and no less.

“What you do not want is a portfolio whose losses multiply depending on the severity of a decline.” That’s what most people have today. “At the last stage of the cycle, you want lots of binary bets. Many small wins. Before the big loss.”

Are we at the start or the end of the ‘Don’t know what I’m buying’ cycle?” asked the same CIO. “No one knows.” But we’re definitely within it.

“When their complex swaps drop 40%, and prime brokers demand more margin, investors will cry ‘It’s not possible!’ But anything is possible.” The prime brokers will hang up and stop them out.

In case you don’t remember, in 1987 we witnessed the largest one day percentage decline in U.S. stock market history.

When it finally happens, millions upon millions of ordinary Americans will be completely shocked, but most insiders know that the other shoe is going to drop at some point.

In particular, watch financial stock prices very closely.  Last month, Richard Bove issued a chilling warning about bank stocks…

One of Wall Street’s most vocal bank analysts is troubled by the rally in financials.

The Vertical Group’s Richard Bove warns that the overall market is just as dangerous as the late 1990s, and he cites momentum — not fundamentals — as what’s driving bank stocks to all-time highs.

“If we don’t get some event in the economy or in politics or in somewhere that is going to create more loan volume and better margins for the banks, then yes, they would come crashing down,” Bove said Monday on CNBC’s “Trading Nation.” “I think that the risk in these stocks is very high at the present time.”

It isn’t going to take much to set off an unstoppable chain of events.  Our financial markets are even more vulnerable than they were in 2008, and the right trigger could unleash a crisis unlike anything we have ever seen in modern American history.

Unfortunately, most Americans keep getting fooled by the artificial boom and bust cycles that the central banks create.  Right now most people seem to have been lulled into a false sense of security, and they truly believe that everything is going to be okay.

But every time before when the market has looked like this a crash has always followed, and this time will be no exception.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Dow Falls By Triple Digits As Anxiety Over The Senate Tax Plan Grows

It is becoming quite clear that even if Congress passes a tax reform bill in 2017 that it won’t actually be that significant.  On Thursday, anxiety about the Senate’s version of the bill pushed the Dow down more than a hundred points, and that was the biggest decline that we have seen in two months.  Could it be possible that the massive stock market bubble that we are currently witnessing is about to burst?  Anticipation of what this tax bill would mean for U.S. companies has been the foundation for so much of the euphoria that was have seen on Wall Street this year, and now reality is starting to set in

The Dow suffered its biggest drop since early September as investors reacted to reports that the Senate’s tax proposal would delay tax cuts for corporations for year, a development that pushes back a key part of the plan Wall Street was betting on to provide a boost to corporate profitability.

Reducing our corporate tax rate is very important, because right now we are not competitive with the rest of the western world.  Almost every other major industrialized nation has a much lower corporate tax rate than us, and that encourages major corporations to locate operations elsewhere.

So if we are able to reduce the corporate tax rate to 20 percent, that is likely going to mean good things for the U.S. economy and more jobs for U.S. workers, but unfortunately the Senate version of the bill would delay that tax cut until 2019

The top corporate rate would drop from 35% to 20% in 2019, a year later than it would in a revised bill approved Thursday by the House Ways and Means Committee. That change, which reduces the overall cost of the tax cut package, delays one of President Trump’s main priorities for overhauling the tax code, but administration officials did not seem concerned during a brief appearance with Hatch on Thursday afternoon.

And then if the Democrats take back control of the White House in 2020, they would probably jack corporate tax rates back up to where they were before, and so in the end the change would not make much of an impact at all.

Other than reducing the corporate tax rate, the Senate version of the “tax reform bill” does not actually accomplish that much.  The following comes from Zero Hege, and it is a good summary of what is contained in the bill…

  • 20% permanent corporate tax cut delayed by 1 year
  • Complies with the $1.5 trillion cost (will cost $1.44 trillion)
  • Preserves 7 tax brackets: top tax bracket is 38.5%, down from 39.6%
  • Doubles standard deduction from $12,700 to $24,000 (married couples)
  • Ends state and local tax (SALT) deduction; keeps business deduction
  • Keeps the mortgage Interest deduction cap at $1 million
  • Preserve the estate tax, doubling the current $5.49 million exemption for individuals
  • Raises the child tax credit to $1,650 from $1,000
  • Sets 10% tax rate for US companies with IP in foreign low-tax jurisdictions
  • Full expensing of capital investments for five years
  • Preserves 401(k)s IRAs,
  • Sets repatriation rate at 12% for liquid assets, 5% for illiquid assets
  • Carried interest loophole unchanged
  • Electric Vehicle tax credit is spared (good news for Elon Musk)

This bill also repeals the alternative minimum tax, and that is a change that has been needed for ages.

But overall, our members of Congress are simply rearranging the deck chairs on the Titanic.

We have the most abominable system of taxation on the entire planet.  I once spent an entire year studying our tax code, and at the end of that year I came to the conclusion that the best thing that we could do would be to throw the entire thing in a shredder and start over.

Today, the tax code is more than two million words long, and the regulations are more than seven million words long.  I used to have to lug these books to class with me, and that was not pleasant.  Our system greatly favors the wealthy, because they can hire lobbyists to influence members of Congress, and they can pay accountants and tax attorneys to find every single loophole possible.  Meanwhile, ordinary people like you and me always end up with the short end of the stick.

The next time you are talking to a politician, ask them to defend our current system of taxation.  None of them will be able to, because it is an abomination.

Ultimately, I would like to abolish the IRS and the income tax completely.  We did not have an income tax between 1872 and 1913, and it was the greatest period of economic growth in U.S. history.

Of course we would need to greatly reduce the size of the federal government in order to do that, and that might take a while.  So in the short-term we could go to a flat tax or a fair tax, both of which would be greatly superior systems to what we have right now.

Simply reducing rates a little bit and tinkering with the regulations is not going to fundamentally change anything.  Real tax reform means getting rid of our current abominable system entirely, and if I am elected to Congress that is precisely what I am going to fight for.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Stock Market Has Gone Up More Than 5 Trillion Dollars Since Donald Trump Was Elected

One year ago we witnessed the greatest miracle in political history, and since that time we have also witnessed one of the greatest miracles in financial history.  On November 8th, 2016 the Dow closed at 18,332.74. On Wednesday, it closed at 23,563.36.  U.S. stocks have increased in value by about 5.4 trillion dollars since Donald Trump was elected, and I don’t think that we have seen anything quite like this ever before.  So does Donald Trump deserve the credit for this unprecedented stock market run?  Many experts are at least giving him part of the credit

Greg Valliere, chief global strategist at Horizon Investments, says outgoing Federal Reserve chair Janet Yellen deserves “much of the credit” because the Fed’s policy of low interest rates has helped maintain a good economy and “favors stocks over other investments.”

But Trump, he adds, “gets some credit for establishing a pro-business climate in Washington.” Trump also gets kudos for rolling back business regulations and pushing for a big tax cut for U.S. corporations, which investors say will boost corporate profitability.

Without a doubt, a Trump victory was a good thing for the financial markets, but politicians need to be careful not to take too much credit for soaring stock prices.

Because if they take credit when stocks go up, then they also have to be willing to take the blame when they go down.

The primary reason why stock prices have gone up so much over the past several years is due to unprecedented intervention by global central banks.  They have literally pumped trillions of dollars that they have created out of thin air into the financial markets, and of course that was going to drive up asset prices.

But now global central banks are reversing course in unison, and we will see if financial markets around the world can maintain these dizzying levels without artificial support.

Because the truth is that whenever price/earnings ratios have ever gotten this high throughout history, a horrifying stock market crash has always followed.  There is no way that stock prices can stay at these levels without central bank support, and the trillions of dollars in paper gains that we have seen up to now can potentially be wiped out very rapidly.

Just look at a company like Snapchat.  This is a company that is supposedly worth 15.4 billion dollars at the moment, and yet it is bleeding hundreds of millions of dollars a quarter.  The following numbers come from Wolf Richter

Snap Inc., the parent company of Snapchat, reported late Tuesday that its revenues in the third quarter rose 62% from a year ago, to $208 million, while its net loss more than tripled to $443 million. How? It wasn’t easy, but here’s how they did it:

  • Cost of revenues, $211 million, exceeds revenues, a troublesome indicator. Most of it is what Snap pays Alphabet for hosting its content in the Google Cloud.
  • Research and development expenses, $239 million, also exceed revenues.
  • Sales and marketing expenses, $102 million, to push those Snapchat Spectacles? More on those in a moment.
  • General and administrative expenses: $118 million

Total expenses of $670 million, against revenues of $208 million. That’s what I call a business model.

I want to be very clear about what I am going to say next.

Snapchat’s business model is terribly broken, and this is a company that is going to zero.

Ultimately, those that hold Snapchat stock to the very end will lose everything.  Instead of 15 billion dollars, this is a company that won’t be worth 15 cents.

Speaking of going to zero, Sears just announced that they are getting rid of up to 140 more stores.  We have already set an all-time record for retail store closings in 2018, and the “retail apocalypse” that we are witnessing is only going to continue to accelerate.

But at least the stock market continues to set new record highs, right?

Don’t be fooled by the headlines.  The artificial stock market bubble is living on borrowed time, and meanwhile the “real economy” continues to struggle.

When the stock market finally crashes, it will not be Donald Trump’s fault.

Let me say that again.

When the stock market finally crashes, it will not be Donald Trump’s fault.

The Federal Reserve and other global central banks created this artificial bubble, and they will be to blame for the carnage that is caused when it bursts.

And as the next great financial crisis unfolds, my hope is that people will finally be sick enough of these “boom and bust cycles” that we will be able to get rid of the Federal Reserve for good.

We need people to understand that the design of our financial system is fundamentally flawed, because if we never treat the root cause of our problems we will always be chasing symptoms.

There is a better way, and my hope is that in the aftermath of the next crisis we can start to get there.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History

Why have stock prices risen so dramatically since the last financial crisis?  There are certainly many factors involved, but the primary one is the fact that the Federal Reserve has been creating trillions of dollars out of thin air and has been injecting all of that hot money into the financial markets.  But now the Federal Reserve is starting to reverse course, and this has got to be the greatest sell signal for financial markets in modern American history.  Without the artificial support of the Federal Reserve and other global central banks, there is no possible way that the massively inflated asset prices that we are witnessing right now can continue.

The chart below comes from Sven Henrich, and it does a great job of demonstrating the relationship between the Fed’s quantitative easing program and the rise in stock prices.  During the last financial crisis the Fed began to dramatically increase the size of our money supply, and they kept on doing it all the way through the end of October 2017…

Unfortunately for stock traders, the Federal Reserve has now decided to change course, and that means that the process that has created these ridiculous stock prices is beginning to go in reverse.  In fact, according to Wolf Richter this reversal just started to go into motion within the past few days…

On October 31, $8.5 billion of Treasuries that the Fed had been holding matured. If the Fed stuck to its announcement, it would have reinvested $2.5 billion and let $6 billion (the cap for the month of October) “roll off.” The amount of Treasuries on the balance sheet should then have decreased by $6 billion.

And that’s what happened. This chart of the Fed’s Treasury holdings shows that the balance dropped by $5.9 billion, from an all-time record 2,465.7 billion on October 25 to $2,459.8 billion on November 1, the lowest since April 15, 2015

Does anyone out there actually believe that the immensely bloated balance sheet that the Fed has accumulated can be unwound without having an enormous negative impact on Wall Street?

And even more frightening is the fact that central banks all over the planet appear to be acting in coordinated fashion.  I really like how Brandon Smith made this point…

An observant person, however, might have noticed that central banks around the world seem to be acting in a coordinated fashion to remove stimulus support from markets and raise interest rates, cutting off supply lines of easy money that have long been a crutch for our crippled economy.  The Bank of England raised rates this past week, as the Federal Reserve indicated yet another rate hike in December.  The Europeans Central Bank continues to prep the public for coming rate hikes, while the Bank of Japan has assured the public that “inflation” expectations have been met and no new stimulus is necessary.  If all of this appears coordinated, that is because it is.

When interest rates are low and central banks are injecting money directly into the financial system, that tends to promote economic activity.

But when they raise interest rates and pull money out of the financial system, the exact opposite is true.

At this point Americans are more optimistic about the stock market than they have ever been before, and it is at this exact moment that the Fed is pulling the financial markets off of life support.

And it isn’t as if the “real economy” ever recovered in any meaningful way.  Most American families are still living paycheck to paycheck, and a new economic crisis would push millions more out of the middle class.

For a long time I have been warning that the only reason why stock prices ever got this high was because of the central banks, and I have also been warning that they could crash the markets if they wanted to do so.

Hopefully there is nothing nefarious going on, but I do find it very strange that all of the major global central banks are moving toward tightening at the exact same time.

If things go south for the global economy in the months ahead, we will know exactly where to point the blame…

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

Remember This Friday The 13th – Americans Are More Optimistic About The Stock Market Than They Have Ever Been Before

Happy days are here again for the U.S. economy – at least temporarily.  On Friday, U.S. stocks hit another brand new record high.  It seems like we are saying that almost every day lately, and most investors are absolutely thrilled by this seemingly endless surge.  Global stocks are surging too – today world stocks hit a new record high for the 4th consecutive day in a row.  But of course it isn’t just stock prices that are rising.  As the week ended, pretty much everything was up, and we also got some good news about consumer sentiment.  According to the new University of Michigan survey that was just released, U.S. consumers are the most optimistic about the economy that they have been since 2004

The consumer sentiment index, a survey of consumers by The University of Michigan, rose to 101.1 in October, far ahead of the 95 economists polled by Reuters anticipated.

“Consumer sentiment surged in early October, reaching its highest level since the start of 2004,” Richard Curtin, chief economist for the Surveys of Consumers, said in a statement.

And according to that same survey, we have never been more confident that the stock market will continue to go up than we are right now

Americans have never been more confident that that stock market will rally further in the next 12 months…

Of course it kind of makes sense why U.S. consumers would be feeling so good about the markets.  After all, stocks have only seemed to go up and up and up since the end of the last financial crisis.

But as I have written about so frequently in recent months, our financial markets are even more primed for a crash than they were in 2008, and we have received warning after warning that stock valuations are ridiculously inflated and must come crashing down at some point.

Plus, the “real economy” continues to send us some very troubling signals.  The U.S. economy lost jobs last month for the first time in seven years, and we just learned that General Motors is laying off more workers

Starting in mid-November and going through the rest of the year, General Motors will close its Detroit-Hamtramck assembly plant – its only remaining factory in its hometown – and lay off about 1,500 workers, “people familiar with the plan” told the Wall Street Journal. When the plant does resume production, output will be cut by 20%, and 200 people will be out of a job.

Back in 1999, the plant produced over 200,000 Cadillacs and Buicks a year. This year, it might barely produce 80,000 vehicles.

The truth is that we are in the terminal phase of the greatest debt bubble in human history, and all over the planet prominent names in the financial world are warning about what is just around the corner.  For example, German finance minister Wolfgang Schäuble is deeply concerned about what he is seeing

Outgoing German finance minister Wolfgang Schäuble has warned that spiraling levels of global debt and liquidity present a major risk to the world economy.

In an interview with the Financial Times, Schäuble said there was a danger of “new bubbles” forming due to the trillions of dollars that central banks have pumped into markets.

He also warned of risks to stability in the eurozone, particularly those posed by bank balance sheets burdened by the post-crisis legacy of non-performing loans.

And James Rickards is completely convinced “that a financial crisis is certainly coming”…

The bottom line is that a financial crisis is certainly coming. In my latest book, The Road to Ruin, I use 2018 as a target date primarily because the two prior systemic crises, 1998 and 2008, were 10 years apart. I extended the timeline 10 years into the future from the 2008 crisis to maintain the 10-year tempo, and this is how I arrived at 2018.

Yet I make the point in the book that the exact date is unimportant. What is most important is that the crisis is coming and the time to prepare is now. It could happen in 2018, 2019, or it could happen tomorrow. The conditions for collapse are all in place.

It’s simply a matter of the right catalyst and array of factors in the critical state. Likely triggers could include a major bank failure, a failure to deliver physical gold, a war, a natural disaster, a cyber–financial attack, and many other events.

If you look at how stock prices have behaved so far this year, it looks suspiciously just like the bubble that formed in 1987 just before the market crashed.

The conditions for an absolutely historic stock market crash already exist, and they have existed for quite some time.  None of our long-term problems have been solved, and with each passing day this colossal financial bubble just keeps getting bigger and bigger and bigger.

I definitely concur with James Rickards.  A major financial crisis “is certainly coming”, and because of all the irrational optimism that we are witnessing at the moment most Americans will be completely and utterly blindsided by what is ahead.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

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