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Most People Don’t Believe It, But We Are Right On Schedule For The Next Financial Crash

Stock Market Crash - Public DomainPeople have such short memories.  Even though we are repeating so many of the same patterns that we witnessed in 2000-2001 and 2007-2008, most people do not think that another financial crash is coming.  In fact, with the stock market setting record high after record high lately, I have been taking quite a bit of criticism for my relentless warnings about the coming financial storm.  Many of the comments go something like this: “Snyder you are a moron!  Nothing you say ever comes true.  The stock market is going to keep on rocking and Obama is going to lead this country back to greatness.  I hope that you choke on all of your doom and gloom.”  Of course these critics never offer any hard evidence that I have been wrong about anything.  They just assume that since the stock market has soared to unprecedented heights that all of us “bears” must have been wrong.

But the truth is that what we are observing right now is classic bubble behavior.  The stock market crashes of 1929, 1987 and 2008 were all preceded by irrational market rallies in the spring or summer.  The financial markets have become completely divorced from economic reality, and such a state of affairs never lasts forever.  It is just a matter of time before a correction comes.

But every time there is a bubble, most people end up getting caught up in all of the euphoria.  And it is happening again.  In fact, CNBC has just reported that bearishness among market newsletter writers is the lowest that it has been since 1987.  But of course we all remember what happened back in 1987…

Professional investors haven’t had this little fear about stocks since Ronald Reagan was president.

It was the same year Michael Jackson told us in a song he was “Bad.” The New York Giants won the Super Bowl.

And oh yeah … by the way … the stock market crashed.

As gauged by the weekly Investors Intelligence report, bearishness among market newsletter writers has fallen to 13.3 percent, a level it has not seen since 1987 as the market continues to set new highs despite a seemingly endless call for a long-overdue correction.

People need to understand that just because something has not happened yet does not mean that it is not going to happen.

In this day and age, we have extremely short attention spans and we do not have the patience to wait for much of anything.  But the financial world is not a game of checkers.  It is a game of chess where things can take an extended period of time to play out.

Those that are mocking those of us that are bearish should consider where we stand financially in comparison to previous crash cycles.  For example, the derivatives bubble is 20 percent larger than it was back in 2008, the “too big to fail banks” are 37 percent larger than they were back in 2008 and global debt levels are 40 percent larger than they were back in 2008.

In other words, many of our long-term economic problems are a lot worse than they were just prior to the last major financial meltdown.

But most people pay such little attention to the fundamentals these days.  All they can see is that little stock market ticker going up and up and up.

Other analysts with much stronger credentials than I are issuing similar ominous warnings about what is ahead for the financial markets.

For example, Nobel Prize-winning economist Robert Shiller is warning that market valuations are tremendously bloated right now

Shiller, a Yale University professor who is often cited as one of the most influential people in economics and finance in the world, created a metric that compares stock prices with corporate profits. The metric recently climbed above 25. That level has only been surpassed three times since 1881: 1929, 1999 and 2007.

Steep market tumbles followed each instance, including the bursting of the dotcom bubble in the early 2000s.

But it doesn’t take a genius to see this.

Just look at the chart of the NASDAQ that I have posted below.  The “dotcom bubble” in 2000 is really easy to see.  So why can’t more people recognize the bubble that is happening now?…

NASDAQ Chart

In so many ways this bubble is reminiscent of the “dotcom bubble” of 14 years ago.  Consider the following numbers from a recent article by Brett Arends

When you look at medians, or in other words the typical stock, valuations are higher today than they were at the peak in 1999-2000.

For example, the median stock today is 20 times earnings. In January 2000, it was 16 times.

The median stock today trades at 2.5 times “book” or net asset value. At the start of 2000 it was just 2.2 times.

The median stock today trades for 1.8 times annual per-share revenues. In 2000: just 1.4 times.

What we are experiencing is not normal.

And this is especially true considering the fact that our overall economic performance is tepid at best.

A stock market correction is coming.

But you don’t have to take my word for it.  Some of the most prominent names in the financial world are warning about the coming correction.  Two of them were recently interviewed by CNBC

A jolt to international confidence in central banks will lead to a 30 to 60 percent market decline, David Tice, president of Tice Capital and founder of the Prudent Bear Fund, told CNBC’s “Power Lunch.” When this happens, he said, markets will face a “period of extreme turmoil.”

This crash will be precipitated, he said, by a disillusionment with the Federal Reserve’s “confidence game,” which will then see inflation rise, and the Fed scramble to raise rates. At that point, Tice added, “the Fed starts to lose control.”

Another market watcher also called for an impending fall.

The Fed’s low interest rates could bring a “scary” 50-60 percent market correction, said technical analyst Abigail Doolittle.

“Unfortunately, I think it could come on a crash similar to what happened in 2007,” Doolittle, the founder of Peak Theories Research, said on “Squawk Box” a day after the S&P 500 closed above the 2,000 level for the first time ever. “It’s tough to know what the exact catalyst will be. But that’s the very nature of that kind of selloff. They start slowly and then happen very suddenly.”

And as Zero Hedge has pointed out, billionaires such as Sam Zell, George Soros, Stan Druckenmiller and Carl Icahn all seem to be “quietly preparing” for the next crash.

Yes, the next financial crash has taken longer to come to fruition than many had anticipated.  But as I have discussed so many times before, this is a very good thing.  We should want this period of relative stability to last for as long as possible.  The longer that things remain relatively stable, the longer that all of us have to prepare and to position ourselves for the financial chaos that is coming.

At this point, the fact that we are in the midst of a massive financial bubble has become so obvious that even the Bank for International Settlements is publicly talking about it…

Financial markets have been exuberant over the past year, […] dancing mainly to the tune of central bank decisions. Volatility in equity, fixed income and foreign exchange markets has sagged to historical lows. Obviously, market participants are pricing in hardly any risks.

Many have expected me to “change my tune” about the coming collapse because of how well the stock market has been performing.

Well, that simply is not going to happen.

Our economic fundamentals have continued to deteriorate, and our financial system is in far worse shape than it was just prior to the financial crash of 2008.

The truth is that we are right on schedule for the next great financial crash.

You can choose to ignore the warnings if you would like, but ultimately time will reveal who was right and who was wrong.

Denial Is Not Just A River In Egypt: 10 Hilarious Examples Of How Clueless Our Leaders Are About The Economy

Barack Obama And Ben BernankeThey didn’t see it coming last time either.  Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future.  In fact, as late as January 2008 Bernanke boldly declared that “the Federal Reserve is not currently forecasting a recession.”  At the time, only the “doom and gloomers” were warning that everything was about to fall apart.  And of course we all know what happened.  But just a few short years later, history seems to be repeating itself.  Barack Obama, Federal Reserve Chairman Ben Bernanke and almost every prominent voice in the financial world are all promising that the U.S. “economic recovery” is going to continue even though Europe is coming apart like a 20 dollar suit.  But the economic fundamentals tell a different story.  Our national debt is more than $6,000,000,000,000 larger than it was back in 2008, the number of Americans on food stamps just hit another brand new all-time record, and the bankers up on Wall Street are selling gigantic mountains of the exact same kind of toxic derivatives that caused so much trouble the last time around.  But all of our “leaders” swear that everything is going to be okay.  You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.

Sadly, many Americans are not even going to see the crash coming because they still have faith in the “experts”.  They haven’t figured out that the “experts” really do not know what they are doing.

The blind are leading the blind, and in the end the results are going to be absolutely tragic.

The following are 10 hilarious examples of how clueless our leaders are about the economy…

#1 When I first came across the following chart the other day, it made me chuckle.  It is a chart that supposedly tells us the “probability” of a recession, and it was taken from the website of the Federal Reserve Bank of St. Louis.  According to the chart, right now there is a 0.16% chance of a recession…

Smoothed U.S. Recession Probabilities

#2 Federal Reserve Chairman Ben Bernanke has also been proclaiming his belief that the U.S. economy will continue to grow.  The following is an excerpt from his recent remarks to Congress

The pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery. Rather, economic activity was temporarily restrained by weather-related disruptions and by transitory declines in a few volatile categories of spending, even as demand by U.S. households and businesses continued to expand. Available information suggests that economic growth has picked up again this year.

And Bernanke also insists that the labor market is “improving”…

Consistent with the moderate pace of economic growth, conditions in the labor market have been improving gradually.

Of course the labor market is not actually improving.  I showed this using the Fed’s own numbers the other day.

And you can put stock in Bernanke’s forecasting ability if you like, but considering his track record of failure in the past, that might not be too wise.  Just check out what he was saying before the last financial crisis: “30 Ben Bernanke Quotes That Are So Stupid That You Won’t Know Whether To Laugh Or Cry“.

#3 Although Bernanke has such a nightmarish track record of failure, Warren Buffett still has faith in him.  In fact, Buffett loves all of the money printing that Bernanke has been doing…

The U.S. economy might be “dead in the water” without the stimulus provided by the Federal Reserve under Chairman Ben Bernanke, according to Warren Buffett, CEO of Berkshire Hathaway.

“I think very cheap money makes things happen, it makes asset values higher. When asset values are higher, people do have a greater propensity to spend,” Buffett told CNBC.

“I think Bernanke has sort of carried the load himself during this period.”

If Buffett thinks the wild money printing that the Fed has been doing is so wonderful, then he probably would have absolutely loved living in the Weimar Republic.

#4 Barack Obama continues to insist that we do not have a debt crisis, but that we will not be able to balance the budget any time in the foreseeable future either.

Even though the national debt has grown by more than 6 trillion dollars under his leadership and our debt to GDP ratio is now well over 100%, Obama does not believe that it is a significant problem

“We don’t have an immediate crisis in terms of debt”

And Obama certainly does not plan to even come close to balancing the budget during his second term.  In fact, he openly admits that we won’t see a balanced budget at any point within the next decade

“We’re not gonna balance the budget in 10 years”

Sadly, the truth is that the U.S. will never have a balanced budget ever again under our current system, but most of our politicians are not willing to go that far and admit that sad fact to the American people just yet.

#5 But of course it would certainly help if the U.S. government would stop wasting so much money.  For example, did you know that the federal government is helping dead people get free cell phones?  The following is from a recent article in the New York Post

Dead people don’t need cell phones.

That’s the message Rep. Tim Griffin of Arkansas wants to send Congress, after he says a controversial government-backed program that helps provide phones to low-income Americans ended up sending mobiles to the dead relatives of his constituents. Griffin has introduced a bill that targets the phone hand-out program, which has ballooned into a fiscal headache for the government.

And of course a lot of living people are abusing the free cell phone program as well.  Rep. Griffin says that he has heard of some people getting as many as 10 free cell phones from the government…

“I’ve also gotten calls from people who say their employees were bragging about having 10 phones.”

#6 Meanwhile, the most prominent economic journalist in the United States, Paul Krugman of the New York Times, continues to insist that it is a good thing for the government to be running up so much debt…

First of all… that trillion-dollar deficit is overwhelmingly the result of a depressed economy. And when the economy’s depressed it’s good to run a deficit. You don’t want the government to try and balance its budget right now.

Krugman is also operating under the delusion that the federal government “can’t run out of cash”, that it can just print money whenever it wants and that printing giant piles of money would not hurt anything.

The United States is a country that has its own currency–can’t run out of cash because we print the money. If you even try to think what would happen–suppose that investors get down on the United States. Even so, that would weaken the dollar, not send interest rates soaring, and that would be good. That would help our exports

It is frightening that the top economic journalist in America has such little understanding of how our system actually works.  I would encourage Krugman to read a couple of my previous articles so that he won’t be so ignorant in the future…

-“Where Does Money Come From? The Giant Federal Reserve Scam That Most Americans Do Not Understand

-“10 Things That Every American Should Know About The Federal Reserve

#7 Many Americans have wondered why the federal government never seems to go after the big Wall Street banks.  Well, now we know why.  The other day, the Attorney General of the United States admitted that the federal government is very hesitant to prosecute anyone from the big banks because of what it might do to the global economy…

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy”

So I guess we now live in a world where there is a different set of rules for the big banks, eh?

Most of us already knew that this was the case, but it is quite chilling to hear the Attorney General of the United States publicly admit this.

#8 Many of the big Wall Street banks are absolutely giddy that the Dow keeps setting new all-time highs, and many of them are projecting wonderful things ahead for the U.S. economy.  For example, here is one forecast from Morgan Stanley’s Vincent Reinhart

“In the Morgan Stanley forecast for the US, the trajectory of economic activity marks an inflection point midway through 2013. The severe financial crisis of 2008-09 necessitated significant downward adjustments by the private sector to the levels of aggregate demand and efficient supply. As the event recedes further into history, however, the drag on growth from these ongoing level adjustments plays out.

In our forecast, the expansion of real GDP steps up to around 2-3/4 percent in the second half of this year and beyond.”

#9 Vice-President Joe Biden is pushing economic optimism to ridiculous levels.  Apparently he believes that most Americans are “no longer worried” that a major economic crisis is coming…

But all kidding aside, I think the American people have moved — Democrats, Republicans, independents.  They know that the possibilities for this country are immense.  They’re no longer traumatized by what was a traumatizing event, the great collapse in 2008.  They’re no longer worried, I think, about our economy being overwhelmed either by Europe writ large, the EU, or China somehow swallowing up every bit of innovation that exists in the world.  They’re no longer, I think, worried about our economy being overwhelmed beyond our shores.

And I don’t think they’re any more — there’s no — there’s very little doubt in any circles out there about America’s ability to be in position to lead the world in the 21st century, not only in terms of our foreign policy, our incredible defense establishment, but economically.

#10 Right now, many in the financial world are projecting that this will be a year to remember for the stock market.  During a recent interview with Fox Business, Wharton School of Business Finance Professor Jeremy Siegel declared that the Dow will cross the 16,000 mark by the end of this year…

“I think by the end of this year, we’ll be in the 16,000 to 17,000 range.”

Of course it is true that other analysts have a much different view of things.  Many of them are absolutely amazed that the U.S. economy has become so disconnected from economic reality.  For example, just check out what Steve Russell and Hamish Baillie, fund managers at the Ruffer Investment Company, recently had to say…

“If this was explained to a recently arrived Martian he would no doubt be puzzled – US unemployment has almost doubled since 2007, GDP [gross domestic product] growth is a third lower and debt as a percentage of GDP is within a whisker of doubling. The market is forward looking but this is extreme”

So who is right and who is wrong?

Time will tell.

Fortunately, it appears that the American people are getting fed up with the constant stream of lies that they have been told.

According to a new Pew Research survey, just 26 percent of all Americans trust the government to do the right thing.

So what about you?

Do you trust what the government and the “experts” are telling you?

Do you trust them to do the right thing?

Feel free to post a comment with your thoughts below…

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