If everything is going to be “just fine”, why are so many big names in the financial community warning about an imminent meltdown? I don’t think that I have seen so many simultaneous warnings about a market crash since just before the great financial crisis of 2008. And at this point, you would have to be quite blind not to see that stocks are absurdly overvalued and that a correction is going to happen at some point. And when stocks do start crashing, lots of fingers are going to start pointing at President Trump, but it won’t be his fault. The Federal Reserve and other central banks are primarily responsible for creating this bubble, and they should definitely get the blame for what is about to happen to global financial markets.
My regular readers are quite familiar with my thoughts on where the market is headed, so today let me share some thoughts from five highly respected financial experts…
#1 When Altair Asset Management’s chief investment officer Philip Parker was asked if a market crash was coming to Australia, he said that he has “never been more certain of anything in my life”. In fact, he is so sure that the investments that his hedge fund is managing are going to crash that a decision was made to liquidate the fund “and return ‘hundreds of millions’ of dollars to its clients”…
While hardly a novel claim – in the past many have warned that Australia’s housing and stock market are massive asset bubbles (which local banks have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) – so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars to its clients according to the Sydney Morning Herald, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.
“Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday quoted by the SMH.
#2 Seth Klarman leads one of the biggest hedge funds in the United States, and he believes that U.S. investors are greatly underestimating the amount of risk in the market right now…
“When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high,” Klarman wrote. “By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.”
Klarman oversees one of the US’s largest hedge fund firms, with some $30 billion under management. He has a huge following on Wall Street — investors named his book, “Margin of Safety,” their favorite investment book in a recent SumZero survey.
#3 Bill Blain is a strategist at Mint Partners, and he is actually specifically pointing to October 12th as the date when things will start to get “horribly interesting”…
But…. Catch a falling knife, why don’t you… I shall spend the summer wondering just how long the Stock Market games continue. When, not if.
At the moment, my prediction is October 12th. Around that day its going to get horribly interesting..
Why that particular day?
Gut feel and knowing how the Bowl of Petunias felt in Hitchhikers. (“Not again.”)
There are just too many contradictory currents out there. The unsustainability of burgeoning consumer debt, unfeasibly tight credit spreads, the sandcastle foundations of student loans, autos, housing and the CLO market, China, Trump, politics.. worries about what follows Brazil in the EM market, and whatever… The risks of a massive consumer sentiment dump..
#4 David Stockman has also been warning about what may happen this fall. According to Stockman, this current stock market bubble “is the greatest sucker’s rally we have ever seen”…
“The market is insanely valued right now. They were trying to tag, the robo machines and day traders, they were trying to tag 2,400 on the S&P 500. They ended up at 2,399, I think, but the point is that represents about 25 times trailing earnings for 2016. We are at a point in the so-called recovery that has already lasted 96 months. It’s almost the longest one in history. What the market is saying is we have reached the point of full employment forever. There will never be another recession or any kind of economic surprise or upset or dislocation. The market is pricing itself for perfection for all of eternity. This is crazy. . . . I think the market could easily drop to 1,600 or 1,300. It could drop by 40% or even more once the fantasy ends. When the government shows its true colors, that it’s headed for a fiscal bloodbath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all. I mean it’s not going to happen. They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade. It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.“
#5 Last but certainly not least, David Kranzler seems quite certain “that the stock market bubble is getting ready to pop”…
Anyone happen to notice that several market commentators have argued that is a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of Amazon.com Inc (NASDAQ:) is hurtling toward parity with the price of one ounce of . Tesla (NASDAQ:) burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors (NYSE:). Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.
This insanity is the surest sign that the stock market bubble is getting ready to pop. If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.” This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.” There will be millions of people who are permanently damaged financially when the Fed loses control of this market. Or, as legendary “vulture” investor Asher Edelman stated on CNBC, “I don’t want to be in the market because I don’t know when the plug is going to be pulled.”
Could all of these top experts be wrong?
It’s possible, but I wouldn’t bet on it.
Every stock market bubble of this magnitude in U.S. history has ended in a spectacular crash, and this one will not be any different. We can certainly have some good arguments about the exact timing of the next crash, but what everyone should be able to agree on is that a crash is coming.
You only make money in the stock market if you get out at the right time. Many of those that timed things well have made a tremendous amount of money, but most investors will be entirely caught off guard by the market implosion that is rapidly approaching.
As I have explained to my readers repeatedly, markets tend to go down a whole lot faster than they go up, and in the not too distant future we are going to see trillions of dollars of investor wealth wiped out very, very quickly.
Let’s hope that the coming crisis will not be as bad as 2008, but I have a feeling that it is going to be much worse.
We didn’t learn our lessons the last time around, and so now we are going to pay a very high price for our stubbornness.
If a former Reagan administration official is correct, we are likely to see the next major financial collapse by the end of 2017. According to Wikipedia, David Stockman “is an author, former businessman and U.S. politician who served as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget (1981–1985) under President Ronald Reagan.” He has been frequently interviewed by mainstream news outlets such as CNBC, Bloomberg and PBS, and he is a highly respected voice in the financial community. Like other analysts, Stockman believes that the U.S. economy is in dire shape, and he told Greg Hunter during a recent interview that he is convinced that the S&P 500 could soon crash “by 40% or even more”…
The market is pricing itself for perfection for all of eternity. This is crazy. . . . I think the market could easily drop to 1,600 or 1,300. It could drop by 40% or even more once the fantasy ends. When the government shows its true colors, that it’s headed for a fiscal blood bath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all. I mean it’s not going to happen. They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade. It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.”
But even more alarming is what Stockman had to say about the potential timing of such a financial crash. According to Stockman, if he were to pick a time for the next major stock market plunge he would “target sometime between August and November”…
The S&P 500 is going to drop by hundreds and hundreds of points sometime over the next few months as we drift into this unexpected crisis. . . . I would target sometime between August and November because that’s when the rubber is going to meet the road on a debt ceiling increase when they are out of cash. Washington is going to end up in vicious political conflict over what to do about the debt ceiling. . . . It is going to be one giant fiscal bloodbath the likes of which we have never seen.
That really got my attention, because those are the exact months during which the events that I portrayed in The Beginning Of The End play out.
Without a doubt, the U.S. financial system is living on borrowed time, and we cannot keep going into so much debt indefinitely. In 2017, interest on the national debt will be more than half a trillion dollars for the first time ever, and it will be even higher next year because we are likely to add at least another trillion dollars to the debt during this fiscal year.
Meanwhile, the financial markets just keep becoming more absurd with each passing day.
Just look at Tesla. This is a company that somehow managed to lose 620 million dollars during the first quarter of 2017, and it has been consistently losing hundreds of millions of dollars quarter after quarter.
And yet somehow the market values Tesla at a staggering 48 billion dollars.
It is almost as if we are living in an “opposite world” where the more money you lose the more valuable investors think that you are. Companies like Tesla, Netflix and Twitter are burning through gigantic mountains of investor cash without ever making a profit, and nobody seems to care.
Commercial mortgage-backed securities are another red flag that is starting to get a lot of attention…
The percentage of commercial mortgage-backed security (MBS) loans in special servicing hit 6.6% to close April, Commercial Mortgage Alert reported, citing Trepp data. The five basis point move higher from March came as the past-due rate on Fitch-rated commercial mortgage-backed securities (CMBS) climbed by nine basis points to end April at to 3.5%.
Both MBS and CMBS rates hit their highest levels since 2015.
During the crisis of 2008, regular mortgage-backed securities played a major role, and this time around it looks like securities that are backed by commercial mortgages could cause quite a bit of havoc.
One of the reasons for this is because mall owners are having such tremendous difficulties. The number of retail store closings in 2017 is on pace to shatter the all-time record by more than 20 percent, and Bloomberg is projecting that about a billion square feet of retail space will eventually close or be used for another purpose.
So needless to say this is putting an enormous amount of strain on those that are trying to rent space to retailers, and a lot of their debts are starting to go bad.
In 2007 and early 2008, a lot of the analysts that were loudly warning about mortgage-backed securities, a major stock market crash and an imminent recession were being mocked. People kept asking them when “the crisis” was finally going to arrive, and leaders such as Federal Reserve Chairman Ben Bernanke confidently assured the public that the U.S. economy was not going to experience a recession.
But of course then we got to the fall of 2008 and all hell broke loose. Investors suddenly lost trillions of dollars, millions of jobs were lost, and the U.S. economy plunged into the worst recession since the Great Depression of the 1930s.
Now we stand poised on the brink of an even worse disaster. The U.S. national debt has almost doubled since the last crisis, corporate debt has more than doubled, and all of our long-term economic fundamentals have continued to deteriorate.
The only thing that has saved us is our ability to go into enormous amounts of debt, and once that debt bubble finally bursts it will be the biggest standard of living adjustment that Americans have ever seen.
So I don’t know if Stockman’s timing will be 100% accurate or not, but that is not what is important.
What is important is that decades of exceedingly foolish decisions have made the greatest economic crisis in American history inevitable, and when it fully erupts the pain is going to be absolutely off the charts.
Why won’t the American people listen to the warnings? David Stockman was a member of the U.S. House of Representatives from 1977 to 1981, and he served as the Director of the Office of Management and Budget under President Ronald Reagan from 1981 to 1985. These days, he is running a website called “Contra Corner” which I highly recommend that you check out. Stockman believes that a global “debt super-cycle” that has been building for decades is now bursting, and he is convinced that the consequences for the U.S. and for the rest of the planet will be absolutely catastrophic. His findings are very consistent with what I have been writing about on The Economic Collapse Blog, and if Stockman is correct the times ahead of us are going to be exceedingly painful.
But right now, most people don’t seem to be in the mood to listen to these types of warnings. Even though there is a mountain of evidence that the global economy has already plunged into recession, U.S. stocks had a great month in October, and so most Americans seem to think that the crisis has passed.
Of course the truth is that the stock market is not an accurate barometer of the economy and it never has been. Back in 2008, almost everything else started to go downhill before stocks did, and the same thing is happening once again. In a recent article, Stockman explained that stocks are surging to absolutely ridiculous levels even though corporate earnings are actually way down…
At this point, 75% of S&P 500 companies have reported Q3 results, and earnings are coming in at $93.80 per share on an LTM basis. That happens to be 7.4% below the peak $106 per share reported last September, and means that the market today is valuing these shrinking profits at a spritely 22.49X PE ratio.
And, yes, there is a reason for two-digit precision. It seems that in the 4th quarter of 2007 LTM earnings came in at 22.19X the S&P 500 index price. We know what happened next!
Why do so many refuse to see the parallels?
This crisis is unfolding so similarly to 2008, and yet most of the “experts” are willingly blind.
Much of the stock buying that has been happening in 2015 has been fueled by stock buybacks and by M&A (merger and acquisitions). Many firms have even been going into debt to buy back their own stocks, but now sources of financing are starting to dry up. This year we have already seen the most corporate debt downgrades since 2009, and big financial institutions are now becoming much more hesitant to loan giant stacks of cash to these large corporations at super low interest rates.
So it is very, very difficult to see how the equity markets are going to move much higher than they are right now.
Meanwhile, the global economy is starting to unravel right in front of our eyes. In his recent piece, Stockman discussed some of these data points…
In the last two days we posted the latest data on two crucial markers of global economic direction——-export shipments from Korea and export orders coming into the high performance machinery factories of Germany.
In a word, they were abysmal, and smoking gun evidence that the suzerains of Beijing have not stopped the implosion in China, and that their latest paddy wagon forays—–arresting the head of China’s third largest bank and hand-cuffing several hedge fund managers including the purported “Warren Buffett” of China—-are signs not of stabilization, but sheer desperation.
So it is not surprising that Korea’s October exports—–the first such data from anywhere in the world—were down by a whopping 16% from last year, and have now been down for 10 straight months. Needless to say, China is the number one destination for Korean exports.
Likewise, German export orders plummeted by 18% in September, and this was no one month blip.
For many more recent statistics just like these, please see my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“.
If the global economy really was doing “just fine” as Barack Obama and others suggest, then why is the largest shipping line in the world eliminating jobs and scaling back capacity?…
A.P. Moeller-Maersk A/S is scaling back capacity and cutting jobs in the world’s largest shipping line to adapt to a drop in demand.
The Danish company, which last month lowered its profit forecast for 2015 citing a gloomier outlook for the global shipping market, will shed 4,000 jobs in its Maersk Line unit as part of a program to “simplify the organization,” it said in an e-mailed statement on Wednesday.
And why are some of the biggest banks in the western world laying off tens of thousands of workers?…
Standard Chartered Plc became the third European bank in less than two weeks to announce sweeping job cuts, bringing the total planned reductions to more than 30,000, or almost one in seven positions.
The London-based firm said Tuesday it will eliminate 15,000 jobs, or 17 percent of its workforce, as soaring bad loans in emerging markets hurt earnings. Deutsche Bank AG, based in Frankfurt, last week announced plans for 11,000 job cuts, while Credit Suisse Group AG said it would trim as many as 5,600 employees.
And if things are so great in the United States, why is Target suddenly closing stores?
The truth, of course, is that things are not great. Global GDP expressed in U.S. dollars is down 3.4 percent so far this year, and total global trade has plummeted 8.4 percent.
We have entered a major global economic slowdown, and like usual, equity markets will be the last to get the memo.
But when they finally do react, that is likely going to greatly accelerate our problems. Just like we saw in 2008, when there is fear and panic in the financial markets that tends to cause the flow of credit to freeze up. And that is something that we simply cannot afford, because the flow of credit has become the lifeblood of the global economy.
So no, “the crisis” is not “over”.
Rather, the truth is that “the crisis” is just beginning, and it will soon be making front page headlines all over the planet.