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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.

What In The World Is Happening To The Nasdaq?

NASDAQ MarketSite TV studio - Photo by Luis Villa del CampoAll of a sudden, the Nasdaq is absolutely tanking.  On Monday, it fell more than 1 percent after dropping 3.6 percent on Thursday and Friday combined.  At this point, the Nasdaq is off to the worst start to a year that we have seen since 2008, and we all remember what happened back then.  So why is this happening?  In recent years, the Nasdaq has been ground zero for “dotcom bubble 2.0”.  The hottest stocks in the entire world are on the Nasdaq – we are talking about stocks like Yahoo, Netflix, Apple, Tesla, Google and Facebook.  Those stocks have gone to absolutely incredible heights, but now they are starting to fall.  Some are blaming insider selling, and without a doubt the “smart money” is starting to flee the stock market.  Just check out this chart.  Others are blaming low expectations for first-quarter earnings or the tapering of quantitative easing by the Federal Reserve.  But whatever is causing this decline, it is starting to get alarming.  The Nasdaq just experienced its largest three day fall since November 2011.

No stock can resist gravity forever.  What goes up must eventually come down.  This is especially true for stock prices that become grotesquely distorted.

On Wall Street, a price to earnings ratio of 20 to 25 is usually considered fairly normal.  In recent years, the price to earnings ratios for many of these “hot tech stocks” have gone way, way beyond that.  For example, posted below is a screen capture from Bloomberg TV that was featured in a recent Zero Hedge article

Zero Hedge

There is no way in the world that such valuations are justified.

We have been living in another dotcom bubble, and it was inevitable that it was going to burst at some point.

The following is how one financial industry insider described the carnage that we have seen on the Nasdaq over the past few days…

Gary Kaltbaum, president of money-management firm Kaltbaum Capital Management, describes the carnage of once high-flying “growth” names in the Nasdaq composite, that have come crashing down to earth: “The best we can describe what we have been recently seeing in ‘growth-land’ is a 50-car pileup,” Kaltbaum told clients in a morning research note. “Call them what you want … risk areas, growth stocks, froth areas … they are melting away.

And of course it isn’t just the Nasdaq that has been seeing declines over the past few days.  On Monday, some of the biggest names on the Dow also fell precipitiously

Visa, Goldman Sachs and Boeing are among the biggest drags on the Dow Monday, falling 2.1%, 2.9% and 1.4% respectively. Weakness in these stocks is especially problematic since the Dow gives greatest weight to the stocks with the highest per-share prices. And at $203.41, $158.56 and $125.59 respectively, Visa, Goldman and Boeing are the stocks that really matter to the measure.

And the trouble in these stocks isn’t just today. So far this year, Visa is down 8.7%, Goldman is off 10.5% and Boeing is down 8.0%.

This recent decline has many analysts groping for answers.

Some believe that it is simply a “rotation” as investors leave growth stocks that have become overvalued and move into safer, more traditional stocks.

Others are pointing their fingers at the Federal Reserve

Peter Boockvar, chief market strategist at Lindsey Group, believes it’s all about the Fed. “I’m still amazed at the complacency with the Fed taper, and a lot of people still don’t think it’s a big deal,” he said. “I just don’t think it’s a coincidence that the high-fliers are getting popped when the Fed is half way done with QE. We’ve got tightening smack in front of your face with the taper.”

In fact, some believe that the really big stock market decline will happen later this year when the Fed starts to wrap up quantitative easing completely

Once the Fed begins to truly reduce its massive bond buying program later this year, markets could see a quarter of their value wiped off the books, a private equity pro told CNBC on Friday.

Jay Jordan, founder of the Jordan Company, issued the dire warning during an interview on CNBC’s “Squawk Box,” saying a 25 percent drop could extend to all asset classes. He blames the monetary policies of former Fed chair Ben Bernanke for artificially inflating asset prices through super-low interest rates.

Yet others point to the fact that we are now moving into earnings season, and it is being projected that corporate earnings will come in at very poor levels.  In fact, it is being estimated that overall earnings for companies in the S&P 500 for the first quarter will be down 1.2 percent.

So what should we expect to see next?

Whether it happens this month or not, at some point a massive stock market correction is coming.  In recent years, the financial markets have become completely and totally divorced from economic reality, and that is a state of affairs that cannot last indefinitely.

Many have compared the current state of affairs to 2008, but to me what is happening right now is eerily reminiscent of 2007.  The Dow soared to record heights quite a few times that year, but there were constant rumblings of economic trouble in the background.  Stocks began to drop steadily late in the year, and 2008 ultimately turned out to be an utter bloodbath.

I believe that what is happening right now is setting the stage for another financial bloodbath.  I truly believe that we will look back on this two year time period and regard it as a major “turning point” for America.

And as I have written about previously, we are in far worse shape as a nation than we were back in 2008.  We have far more debt, the “too big to fail banks” have a much larger share of the banking industry, the derivatives bubble has gotten completely and totally out of control, and our overall economy is far weaker than it was back then.

In other words, we are now even more vulnerable.  When the next great financial crisis strikes us, it is going to be absolutely crippling.

Now is not the time to get complacent.

Now is the time to get prepared, because time is running out.

Will The Bottom Fall Out? 15 Signs That Layoffs And Job Losses Are Skyrocketing

If you still have a good job, you might want to hold on to it very tightly because there are a whole bunch of signs that unemployment in the United States is about to start getting worse again.  Over the past several weeks, a substantial number of large corporations have announced disappointing earnings for the third quarter.  Many of those large corporations are also loaded up with huge amounts of debt.  So what is the solution?  Well, the favorite solution on Wall Street these days seems to be to lay off workers.  In fact, it is almost turning into a feeding frenzy.  Since September 1st, we have seen more job cuts announced than during any other two month period since the start of 2010.  These announcements represent future layoffs and job losses which are not even showing up in the unemployment numbers yet.  So needless to say, things don’t look very promising for the end of 2012 or for the beginning of 2013.  If this race to eliminate jobs becomes a stampede, will we see the bottom fall out of the employment market?

If you are concerned about whether or not you will still have a job 12 months from now, you might find the numbers posted below to be quite alarming.  We have not seen layoff announcements come this fast and this furious since the gloomy days of the last recession.

According to Bloomberg, job cuts are well ahead of the pace set last year…

North American companies have announced plans to eliminate more than 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg. Firings total 158,100 so far this year, more than the 129,000 job cuts in the same period in 2011.

So what happens if the economy really starts sliding rapidly and this loss of jobs becomes an avalanche?

Can the U.S. economy and the American people handle another major economic downturn?

Some of the biggest names in the business world have announced job cuts in recent weeks.  The following are 15 signs that layoffs and job losses are skyrocketing…

1. Dow Chemical has announced that it will be closing about 20 plants and will be letting about 2,400 workers go.

2. Colgate-Palmolive has announced that they will be eliminating about 2,300 jobs.

3. DuPont has announced plans to eliminate about 1,500 jobs.

4. Ford has announced that it will be eliminating 6,200 jobs and will be reducing production capacity in Europe by 18 percent.

5. Hewlett-Packard announced last month that they plan to eliminate 29,000 jobs.

6. Chip maker AMD has announced that they will be getting rid of about 15 percent of their workers.

7. Sony has announced plans to reduce their workforce by about 2,000 workers.

8. Electronics manufacturer Sharp reportedly plans to eliminate 11,000 jobs.

9. Engine maker Cummins Inc. has announced that they plan to get rid of about 1,500 jobs by the end of 2012.

10. Earlier this month Applied Materials announced a plan that will eliminate up to 1,300 jobs.

11. Zynga (known for making video games for Facebook such as FarmVille) has announced that they are reducing their workforce by about 5 percent.

12. Lattice Semiconductor has announced plans to eliminate about 13 percent of their jobs.

13. Alcatel-Lucent recently announced a plan to eliminate more than 5000 jobs all over the globe.

14. Siemens AG has announced that the number of positions being eliminated may reach 10,000 by the end of the year.

15. Banking giant UBS plans to eliminate up to 5,000 jobs.

Please keep in mind that these job cuts do not show up in the unemployment numbers yet.  When big corporations announce the elimination of jobs, it often takes a while before those job losses actually take place.

Sadly, I believe that this is just the tip of the iceberg.  I am convinced that the layoffs and the job losses are going to get a lot worse.

In fact, 2013 is already shaping up to be a very difficult year for the economy no matter how the election turns out.

Those of you that read my articles regularly already know that our economic system is becoming increasingly unstable.  We could literally plunge into another major recession at any moment.

Not that we need any more economic trouble.  Tens of millions of American families are having to fight tooth and nail just to make it from month to month right now.

There aren’t enough jobs and the middle class is rapidly shrinking.  Even if you do have a job, that does not mean that you are doing okay.  About a quarter of all jobs do not even pay enough to lift a family of four above the poverty level, and entry level wages for those with just a high school education have been steadily declining over the past 40 years.  If you doubt this, just check out this chart.

So what is going to happen if we do have another avalanche of job losses like we saw back in 2008 and 2009?

Will even more of us end up dependent on the government?

We are told that we are in the midst of an “economic recovery”, but the number of Americans that are dependent on the government just continues to soar.  In fact, at this point it is at an all-time high.

If the economy is getting better, then why does the number of Americans on food stamps just keep going up?  To get an idea of just how massive the food stamp program has become, just check out this infographic.

One of the most frightening things about the possibility of another major economic downturn is the loss of hope that it could bring.

At this point, most Americans still believe that things will get better eventually.

But what is going to happen when large segments of our population lose all hope?

How desperate will they become?

When people become desperate, they tend to do desperate things.

Just check out what happened to a family down in Woodstock, Georgia the other day.  They had just lost their home to foreclosure, and they were getting ready to move out.  So they posted an ad on Craigslist for people to come over and get some things that they were planning to get rid of.  What happened next is a glimpse into the kind of desperate behavior that we may see during the next major economic downturn…

Their online post was just a well-meaning ad for a giveaway in their driveway outside the small house, a giveaway scheduled to begin at 10 a.m. Wednesday.

But big crowds showed up and ended up taking practically everything inside the house, too.

Wednesday night, Michael Vercher walked 11Alive’s Jon Shirek through his family’s almost empty soon-to-be former home.

“Well, when we got to the house, I mean, pretty much — this,” he said as he stepped from the foyer into the living room.

Their home — ransacked, ravaged, raked over.

Almost everything inside — gone.

My wife and I once used Craigslist quite a bit, but incidents like this make one question the wisdom of inviting strangers to come to your home.

Sadly, the truth is that society is rapidly decaying, and the worse unemployment becomes the more desperate people are going to get.

So what do you think about all of this?

Do you have any stories that you would like to share?

Please feel free to post a comment with your thoughts below…

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