Is the stock market about to crash? Hopefully not, and there definitely have been quite a few “false alarms” over the past few years. But without a doubt we have been living through one of the greatest financial bubbles in U.S. history, and the markets are absolutely primed for a full-blown crash. That doesn’t mean that one will happen now, but we are starting to see some ominous things happen in the financial world that we have not seen happen in a very long time. So many of the same patterns that we witnessed just prior to the bursting of the dotcom bubble and just prior to the 2008 financial crisis are repeating themselves again. Hopefully we still have at least a little bit more time before stocks completely crash, because when this market does implode it is going to be a doozy.
The following are 9 ominous signals coming from the financial markets that we have not seen in years…
#1 By the time the markets closed on Monday, we had witnessed the biggest three day decline for U.S. stocks since 2011.
#2 On Monday, the S&P 500 moved below its 200 day moving average for the first time in about two years. The last time this happened after such an extended streak of success, the S&P 500 ended up declining by a total of 22 percent.
#3 This week the put-call ratio actually moved higher than it was at any point during the collapse of Lehman Brothers in 2008. This is an indication that there is a tremendous amount of fear on Wall Street right now.
#4 Everybody is watching the VIX at the moment. According to the Economic Policy Journal, the VIX has now risen to the highest level that it has been since the heart of the European debt crisis. This is another indicator that there is extraordinary fear on Wall Street…
US stock market volatility has jumped to the highest since the eurozone debt crisis, according to a closely watched index, the the CBOE Vix index of implied US share price volatility.
It jumped to 24.6 late on Monday and is up again this morning. On Thursday, it was as low as 15.
That’s a very strong move, but things have been much worse. At height of the recent financial crisis – the Vix index peaked at 80.1 in November 2008.
Could we get there again? Yeah.
#5 The price of oil is crashing. This also happened in 2008 just before the financial crisis erupted. At this point, the price of oil is now the lowest that it has been in more than two years.
#6 As Chris Kimble has pointed out, the chart for the Dow has formed a “Doji Star topping pattern”. We also saw this happen in 2007. Could this be an indication that we are on the verge of another stock market crash similar to what happened in 2008?
#7 Canadian stocks are actually doing even worse than U.S. stocks. At this point, Canadian stocks have already dropped more than 10 percent from the peak of the market.
#8 European stocks have also had a very rough month. For example, German stocks have already dropped about 10 percent since July, and there are growing concerns about the overall health of the German economy.
#9 The wealthy are hoarding cash and precious metals right now. In fact, one British news report stated that sales of gold bars to wealthy customers are up 243 percent so far this year.
So what comes next?
Some experts are saying that this is the perfect time to buy stocks at value prices. For example, USA Today published a story with the following headline on Tuesday: “Time to ‘buy’ the fear? One Wall Street pro says yes“.
Other experts, however, believe that this could represent a major turning point for the financial markets.
Just consider what Abigail Doolittle recently told CNBC…
Technical strategist Abigail Doolittle is holding tight to her prediction of market doom ahead, asserting that a recent move in Wall Street’s fear gauge is signaling the way.
Doolittle, founder of Peak Theories Research, has made headlines lately suggesting a market correction worse than anyone thinks is ahead. The long-term possibility, she has said, is a 60 percent collapse for the S&P 500.
In early August, Doolittle was warning both of a looming “super spike” in the CBOE Volatility Index as well as a “death cross” in the 10-year Treasury note. The former referenced a sharp move higher in the “VIX,” while the latter used Wall Street lingo for an event that already occurred in which the fixed income benchmark saw its 50-day moving average cross below its 200-day trend line.
Both, she said, served as indicators for trouble ahead.
So what do you think?
Are we about to witness a stock market crash and another major financial crisis?
Or is this just another “false alarm” that will soon fade?
Please feel free to share what you think by posting a comment below…
During the first three months of this year, the U.S. economy contracted at a 1 percent annual rate. Despite this, mainstream economists flooded the mainstream media with assurances that much better days are just around the corner on Thursday. In fact, many of them boldly predicted that U.S. GDP would grow at a 3 or 4 percent annual rate in the second quarter. None of them seem the least bit concerned that another major recession is rapidly approaching. Instead, they just blamed the bad number for the first quarter on a “severe winter“, and the financial markets responded to the GDP news quite cheerfully. In fact, the S&P 500 soared to another brand new record high. No matter how bad the numbers get, almost everyone in the financial world seems quite optimistic. But is there actually good reason to have such optimism?
As Zero Hedge has pointed out, if it wasn’t for dramatically increased healthcare spending due to the implementation of Obamacare, U.S. GDP would have actually dropped at a 2 percent annual rate during the first quarter of 2014.
That would have been an absolutely disastrous number.
But within a very short time of the revised U.S. GDP number being released, the mainstream media was inundated with positive stories about the news.
For example, CNN published a story entitled “U.S. economy shrinks, but it’s not a big deal” and CNBC released a survey of nine prominent economists that showed that their consensus forecast for the second quarter of 2014 is GDP growth at a 3.74 percent annual rate.
It just seems like almost everyone wants to forget about what happened during the first quarter and wants to look ahead to a great number for quarter two.
Joseph Lavorgna, the chief U.S. economist at Deutsche Bank, is boldly forecasting a 4 percent growth rate for the second quarter. So is Jim O’Sullivan. In fact, it is hard to find any “expert” in the mainstream media that does not expect rip-roaring economic growth this quarter.
For example, just check out these quotes…
-Stuart Hoffman, the chief economist for PNC Bank: “The first quarter was disappointing, but rather than view that as an omen of a recession or the first of a down leg in the economy, I see the seeds of a big bounce back in spring.”
-Paul Ashworth of Capital Economics: “For those worried about a recession, it’s worth remembering that employment increased by nearly 300,000 in April.”
-The Bank of Tokyo’s Chris Rupkey: “2Q growth seen at nearly 4%… Weak 1Q is stone cold dead as an indicator of where the economy is headed.”
-Jan Hatzius of Goldman Sachs: “Because of weaker inventory investment in Q1, we increased our Q2 GDP tracking estimate by two-tenths to 3.9%.”
-Dun & Bradstreet Credibility Corp. CEO Jeffrey Stibel: “Using an alternative model for projecting job growth, we see an entirely different scenario, one in which the U.S. unemployment rate will fall below 5 percent by no later than the middle of next year.”
Hopefully they are right.
Hopefully we are not heading into another recession.
But as I discussed in an article earlier this week, evidence continues to mount that another recession has already begun for much of the country.
And there was another number that was released today that seems to confirm this. According to CNBC, there was a 6 percent drop in exports in the first quarter of 2014 when compared to the first quarter of 2013…
The U.S. economic reversal was led by a 6 percent drop in exports year over year, until recently hailed as a key driver of the U.S. recovery, and which had risen 9.5 percent in the last three months of 2013.
The slackening of trade has spread to the developing world, where emerging economies are seeing less demand from the U.S., Europe and China for raw materials and other exports.
We saw a similar decline happen in mid-2008 as the U.S. economy plunged into recession.
And Bloomberg’s Consumer Comfort index has fallen to the lowest level that we have seen in six months. U.S. consumers are increasingly tapped out, and the ongoing “retail apocalypse” is evidence of that fact.
A declining middle class simply cannot support the massive retail infrastructure that America has developed. As the middle class has fallen to pieces, it was just a matter of time before big trouble started erupting for the retail industry. This is something that David Stockman recently wrote about…
It does not take much analysis to see that these bell ringers do not represent sustainable prosperity unfolding across the land. For example, around 1990 real median income was $56k per household and now, 25 years later, its just $51k—-meaning that main street living standards have plunged by about 9% during the last quarter century. But what has not dropped is the opportunity for Americans to drop shopping: square footage per capita during the same period more than doubled, rising from 19 square feet per capita at the earlier date to 47 at present.
This complete contradiction—declining real living standards and soaring investment in retail space—did not occur due to some embedded irrational impulse in America to speculate in real estate, or because capitalism has an inherent tendency to go off the deep-end. The fact that in equally “prosperous” Germany today there is only 12 square feet of retail space per capita is an obvious tip-off, and this is not a teutonic aberration. America’s prize-winning number of 47 square feet of retail space per capita is 3-8X higher than anywhere else in the developed world!
Without middle class jobs, you can’t have a middle class. That is why our employment crisis is at the very heart of our economic problems. Even using the government’s highly manipulated unemployment figures, there are still quite a few cities out there that have official unemployment rates in the double digits…
The unemployment rate in Yuma, Ariz., is 23.8%. In El Centro, Calif., it is 21.6%. El Centro sits in an area of California in which unemployment in many metro areas is double the national average. In Merced the figure is 14.3%, in Yuba City the figure is 14.5%, in Hanford it is 13.1% and in Visalia it is 13.4%. In several metros close to these, the figure is above 10%. Most of them are inland from San Francisco and the area just south of it, which also happens to be among the nation’s most drought-plagued regions. This means jobs recovery is highly unlikely.
But of course the truth is that if the government actually used honest numbers, the unemployment rate for the entire nation would be in double digits.
And as I like to remind people, according to the government’s own numbers approximately 20 percent of the families in the entire nation do not have a single member that is employed.
So how is it possible that the “unemployment rate” is just a little above 6 percent?
It is a giant sham.
But that is what they want.
They want us feeling good and thinking that everything is going to be okay.
Unfortunately, they used the same approach back in 2007 and 2008, and we all remember how that turned out.
How would you feel if you went to the store to buy something, and someone rushed ahead of you and purchased it first and then sold it to you at a higher price? Well, in the financial world this happens millions upon millions of times. In fact, this practice has become so popular that it has spawned an entire industry known as “high frequency trading”. At this point, high frequency trading makes up about half of all trading volume on Wall Street, and it is costing the rest of us billions of dollars a year. And the funny thing is that this is all perfectly legal. High frequency trading firms are exploiting a glitch in the system, and by allowing this to go on, the authorities have essentially given them a license to steal from the rest of us. Sadly, this is just another example that shows that the odds are never in our favor. The “little guy” never seems to be able to win, and those at the top of the food chain like it that way.
Making money in the stock market is supposed to be about making wise investment decisions. It isn’t supposed to be about finding a glitch in a video game and exploiting it. But that is essentially what these high frequency traders have done. They have spent an extraordinary amount of time and energy figuring out ways to make pennies (or sometimes just fractions of a penny) on the trades that the rest of us make.
Fortunately, this practice was exposed in front of the entire world by 60 Minutes the other night. Steve Kroft interviewed a former trader named Michael Lewis that just released a new book entitled “Flash Boys” that is all about the evils of high frequency trading. The following is an excerpt from that interview…
Steve Kroft: And this is all being done by computers?
Michael Lewis: All being done by computers. It’s too fast to be done by humans. Humans have been completely removed from the marketplace.
“Fast” is the operative word. Machines with secret programs are now trading stocks in tiny fractions of a second, way too fast to be seen or recorded on a stock ticker or computer screen. Faster than the market itself. High-frequency traders, big Wall Street firms and stock exchanges have spent billions to gain an advantage of a millisecond for themselves and their customers, just to get a peek at stock market prices and orders a flash before everyone else, along with the opportunity to act on it.
Michael Lewis: The insiders are able to move faster than you. They’re able to see your order and play it against other orders in ways that you don’t understand. They’re able to front run your order.
Steve Kroft: What do you mean front run?
Michael Lewis: Means they’re able to identify your desire to, to buy shares in Microsoft and buy ‘em in front of you and sell ‘em back to you at a higher price. It all happens in infinitesimally small periods of time. There’s speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds. But it”s enough for them to identify what you’re gonna do and do it before you do it at your expense.
Steve Kroft: So it drives the price up.
Michael Lewis: So it drives the price up, and in turn you pay a higher price.
You can watch the entire interview right here. Unlike most mainstream media news reports, this one is actually worth your time. I have watched the entire thing, and I highly recommend it.
Of course there have been many that have been screaming about high frequency trading for many years. Zero Hedge is just one example. This practice has gone on year after year and the federal government has looked the other way.
These high frequency trading firms do not add anything to society. As Barry Ritholtz noted recently, one of these firms has an average holding period for stocks of just 11 seconds, and at one point it stated that it had “not had a losing day of trading in four years“…
The only surprising thing about Lewis’s assertion was that anyone could be even remotely surprised by it.
The math on trading is simple: It is a zero-sum game. One trader’s gain is another trader’s loss. Only in the case of HFT, the losers are the investors — by way of their pension funds, retirement accounts and institutional funds. The HFT’s take — the “skim” — comes out of these large institution’s trade executions.
The technology behind HFT may be complex, but the math is that simple. Once the Securities and Exchange Commission allowed stock exchanges to share with traders all of the unexecuted incoming orders, it was hard not to make money by skimming a few cents or fractions of a cent from each trade. Several years ago, the founder of Tradebot, one of the biggest high-frequency firms, had said that the firm had “not had a losing day of trading in four years.” The firm’s average holding period for stocks is 11 seconds.
How in the world does that kind of behavior add any value to society?
They are just skimming money that should be going to others. Billions of dollars is essentially being stolen from pension funds and retirement accounts, and it is time that people started getting outraged about this.
Unfortunately, even if this practice is outlawed, the truth is that the odds will still never be in our favor.
There are millions of Americans that dream of getting ahead, but they never seem to be able to get there. They work incredibly hard, but the more they earn, the more the government taxes them. If somehow you do manage to scrape together a little bit of money to invest in the financial markets, any profits that you make will be endlessly eroded by fees, commissions and even more taxes.
And it is important to remember that in the financial world, the “little guy” is regarded as easy prey by the hungry wolves that are all too eager to find a way to transfer your money into their own pockets. If you don’t know what you are doing, it is all too easy to get absolutely slaughtered.
On Wall Street, there are winners and there are losers.
Most of the time, “the little guys” end up losing.
But at least they could try to have a system that at least has the appearance of fairness. As long as high frequency trading exists, that will never be the case.
Some of the most respected prognosticators in the financial world are warning that what is coming in 2014 and beyond is going to shake America to the core. Many of the quotes that you are about to read are from individuals that actually predicted the subprime mortgage meltdown and the financial crisis of 2008 ahead of time. So they have a track record of being right. Does that guarantee that they will be right about what is coming in 2014? Of course not. In fact, as you will see below, not all of them agree about exactly what is coming next. But without a doubt, all of their forecasts are quite ominous. The following are quotes from Harry Dent, Marc Faber, Gerald Celente, Mike Maloney, Jim Rogers and nine other respected economic experts about what they believe is coming in 2014 and beyond…
-Harry Dent, author of The Great Depression Ahead: “Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest.”
-Marc Faber, editor and publisher of the Gloom, Boom & Doom Report: “You have to say that we are again in a massive financial bubble in bonds, in equities, in [other] asset prices that have gone up dramatically.”
-Gerald Celente: “Any self-respecting adult that hears McConnell, Reid, Boehner, Ryan, one after another, and buys this baloney… they deserve what they get.
And as for the international scene… the whole thing is collapsing.
That’s our forecast.
We are saying that by the second quarter of 2014, we expect the bottom to fall out… or something to divert our attention as it falls out.”
-Mike Maloney, host of Hidden Secrets of Money: “I think the crash of 2008 was just a speed bump on the way to the main event… the consequences are gonna be horrific… the rest of the decade will bring us the greatest financial calamity in history.”
-Jim Rogers: “You saw what happened in 2008-2009, which was worse than the previous economic setback because the debt was so much higher. Well now the debt is staggeringly much higher, and so the next economic problem, whenever it happens and whatever causes it, is going to be worse than in the past, because we have these unbelievable levels of debt, and unbelievable levels of money printing all over the world. Be worried and get prepared. Now it [a collapse] may not happen until 2016 or something, I have no idea when it’s going to happen, but when it comes, be careful.”
-Lindsey Williams: “There is going to be a global currency reset.”
-CLSA’s Russell Napier: “We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels.”
-Oaktree Capital’s Howard Marks: “Certainly risk tolerance has been increasing of late; high returns on risky assets have encouraged more of the same; and the markets are becoming more heated. The bottom line varies from sector to sector, but I have no doubt that markets are riskier than at any other time since the depths of the crisis in late 2008 (for credit) or early 2009 (for equities), and they are becoming more so.”
-Financial editor Jeff Berwick: “If they allow interest rates to rise, it will effectively make the U.S. government bankrupt and insolvent, and it would make the U.S. government collapse. . . . They are preparing for a major societal collapse. It is obvious and it will happen, and it will be very scary and very dangerous.”
-Michael Pento, founder of Pento Portfolio Strategies: “Disappointingly, it is much more probable that the government has brought us out of the Great Recession, only to set us up for the Greater Depression, which lies just on the other side of interest rate normalization.”
-Boston University Economics Professor Laurence Kotlikoff: “Eventually somebody recognizes this and starts dumping the bonds, and interest rates go up, and inflation takes off, and were off to the races.”
-Mexican Billionaire Hugo Salinas Price: “I think we are going to see a series of bankruptcies. I think the rise in interest rates is the fatal sign which is going to ignite a derivatives crisis. This is going to bring down the derivatives system (and the financial system).
There are (over) one quadrillion dollars of derivatives and most of them are related to interest rates. The spiking of interest rates in the United States may set that off. What is going to happen in the world is eventually we are going to come to a moment where there is going to be massive bankruptcies around the globe.”
-Robert Shiller, one of the winners of the 2013 Nobel prize for economics: “I’m not sounding the alarm yet. But in many countries the stock price levels are high, and in many real estate markets prices have risen sharply…that could end badly.”
-David Stockman, former Director of the Office of Management and Budget under President Ronald Reagan: “We have a massive bubble everywhere, from Japan, to China, Europe, to the UK. As a result of this, I think world financial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future.”
And certainly there are already signs that the U.S. economy is slowing down as we head into the final weeks of 2013. For example, on Thursday we learned that the number of initial claims for unemployment benefits increased by 68,000 last week to a disturbingly high total of 368,000. That was the largest increase that we have seen in more than a year.
In addition, as I wrote about the other day, rail traffic is way down right now. In fact, for the week ending November 30th, U.S. rail traffic was down 16.3 percent from the same week one year earlier. That is a very important indicator that economic activity is getting slower.
And we continue to get more evidence that the middle class is being steadily eroded and that poverty in America is rapidly growing. For example, a survey that was just released found that requests for food assistance and the level of homelessness have both risen significantly in major U.S. cities over the past year…
A survey of 25 American cities, including many of the nation’s largest, showed yearly increases in food aid and homelessness.
The cities, located throughout 18 states, saw requests for emergency food aid rise by an average of seven percent compared with the previous period a year earlier, according to the US Conference of Mayors study, published Wednesday.
All but four cities reported an increase in demand for assistance between the period of September 2012 through August 2013.
Unfortunately, if the economic experts quoted above are correct, this is just the beginning of our problems.
The next wave of the economic collapse is rapidly approaching, and things are going to get much worse than this.
So what do you think?
Which of the individuals quoted above do you think are right on the money and which ones do you think are way off base?
Please feel free to share what you think by posting a comment below…
If the economy is improving, then why aren’t things getting better for most average Americans? They tell us that the unemployment rate is going down, but the percentage of Americans that are actually working is exactly the same it was three years ago. They tell us that American families are in better financial shape now, but real disposable income is falling rapidly. They tell us that inflation is low, but every time we go shopping at the grocery store the prices just seem to keep going up. They tell us that the economic crisis is over, and yet poverty and government dependence continue to explode to unprecedented heights. There seems to be a disconnect between what the government and the media are telling us and what is actually true. With each passing day the debt of the federal government grows larger, the financial world become even more unstable and more American families fall out of the middle class. The same long-term economic trends that have been eating away at our economy like cancer for decades continue to ruthlessly attack the foundations of our economic system. We are rapidly speeding toward an economic cataclysm, and yet the government and most of the media make it sound like happy days are here again. The American people deserve better than this. The American people deserve the truth. The following are 36 hard questions about the U.S. economy that the mainstream media should be asking…
#1 If the percentage of working age Americans that have a job is exactly the same as it was three years ago, then why is the government telling us that the “unemployment rate” has gone down significantly during that time?
#2 Why are some U.S. companies allowed to exploit disabled workers by paying them as little as 22 cents an hour?
#3 Why are some private prisons allowed to pay their prisoners just a dollar a day to do jobs that other Americans could be doing?
#4 Why is real disposable income in the United States falling at the fastest rate that we have seen since 2008?
#5 Why do 53 percent of all American workers make less than $30,000 a year?
#6 Why are wages as a percentage of GDP at an all-time low?
#7 Why are 76 percent of all Americans living paycheck to paycheck?
#8 Why are so many large corporations issuing negative earnings guidance for this quarter? Does this indicate that the economy is about to experience a significant downturn?
#9 Why is job growth at small businesses at about half the level it was at when the year started?
#10 Why are central banks selling off record amounts of U.S. debt right now?
#11 Why did U.S. mortgage bonds just suffer their biggest quarterly decline in nearly 20 years?
#12 Why did we just witness the largest weekly increase in mortgage rates in 26 years?
#13 Why has the number of mortgage applications fallen by 29 percent over the last eight weeks?
#14 Why has the number of mortgage applications fallen to the lowest level in 19 months?
#15 If the U.S. economy is recovering, why is the mortgage delinquency rate in the United States still nearly 10 percent?
#16 Why did the student loan delinquency rate in the United States just hit a brand new all-time high?
#17 Why is the sale of hundreds of millions of dollars of municipal bonds being postponed?
#18 What are the central banks of the world going to do when the 441 trillion dollar interest rate derivatives bubble starts to burst?
#19 Why is Barack Obama secretly negotiating a new international free trade agreement that will impose very strict Internet copyright rules on all of us, ban all “Buy American” laws, give Wall Street banks much more freedom to trade risky derivatives and force even more domestic manufacturing offshore?
#20 Why don’t our politicians seem to care that the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975?
#21 Why doesn’t the mainstream media talk about how rapidly the U.S. economy is declining relative to the rest of the planet? According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001. That number dropped to 21.6 percent in 2011.
#22 Why is the percentage of self-employed Americans at a record low?
#23 What are we going to do if dust bowl conditions continue to return to the western half of the United States? If the drought continues to get even worse, what will that do to our agriculture?
#24 Why is the IRS spending thousands of taxpayer dollars on kazoos, stove top hats, bathtub toy boats and plush animals?
#25 Why did the NIH spend $253,800 “to study ways to educate Boston’s male prostitutes on safe-sex practices”?
#26 Why do some of the largest charities in America spend less than 5 percent of the money that they bring in on actual charitable work?
#27 Now that EU finance ministers have approved a plan that will allow Cyprus-style wealth confiscation as part of all future bank bailouts in Europe, is it only a matter of time before we see something similar in the United States?
#28 Why does approximately one out of every three children in the United States live in a home without a father?
#29 Why are more than a million public school students in the United States homeless?
#30 Why are so many cities all over the United States passing laws that make it illegal to feed the homeless?
#31 Why is government dependence in the U.S. at an all-time high if the economy is getting better? Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.
#32 Why does the number of Americans on food stamps exceed the entire population of the nation of Spain?
#33 The number of Americans on food stamps has grown from 32 million to 47 million while Barack Obama has been occupying the White House. So why is Obama paying recruiters to go out and get even more Americans to join the program?
#34 Today, there are 56 million Americans collecting Social Security benefits. In 2035, there will be 91 million Americans collecting Social Security benefits. Where in the world will we get the money for that?
#35 Why has the value of the U.S. dollar fallen by over 95 percent since the Federal Reserve was created back in 1913?
#36 Why has the size of the U.S. national debt gotten more than 5000 times larger since the Federal Reserve was created back in 1913?
They 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…
#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…
Why are some of the biggest names in the corporate world unloading stock like there is no tomorrow, and why are some of the most prominent investors on Wall Street loudly warning about the possibility of a market crash? Should we be alarmed that the big dogs on Wall Street are starting to get very nervous? In a previous article, I got very excited about a report that indicated that corporate insiders were selling nine times more of their own shares than they were buying. Well, according to a brand new Bloomberg article, insider sales of stock have outnumbered insider purchases of stock by a ratio of twelve to one over the past three months. That is highly unusual. And right now some of the most respected investors in the financial world are ringing the alarm bells. Dennis Gartman says that it is time to “rush to the sidelines”, Seth Klarman is warning about “the un-abating risks of collapse”, and Doug Kass is proclaiming that “we’re headed for a sharp fall”. So does all of this mean that a market crash is definitely on the way? No, but when you combine all of this with the weak economic data constantly coming out of the U.S. and Europe, it certainly does not paint a pretty picture.
According to Bloomberg, it has been two years since we have seen insider sales of stock at this level. And when insider sales of stock are this high, that usually means that the market is about to decline…
Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years.
There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index (SPX) companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm.
But it isn’t just the number of stock sales that is alarming. Some of these insider transactions are absolutely huge. Just check out these numbers…
Among the biggest transactions last week were a $65.2 million sale by Google Inc.’s 39-year-old Chief Executive Officer Larry Page, a $40.1 million disposal by News Corp.’s 81- year-old Chairman and CEO Rupert Murdoch and a $34.2 million sale from American Express Co. chief Kenneth Chenault, who is 61. Nolan Archibald, the 69-year-old chairman of Stanley Black & Decker Inc. who plans to leave his post next month, unloaded $29.7 million in shares last week and Amphenol Corp. Chairman Martin Hans Loeffler, 68, sold $27.5 million, according to data compiled by Bloomberg.
Google Chairman Eric Schmidt, 57, announced plans to sell as many as 3.2 million shares in the operator of the world’s most-popular search engine. The planned share sales, worth about $2.5 billion, represent about 42 percent of Schmidt’s holdings.
So why are all of these very prominent executives cashing out all of a sudden?
That is a very good question.
Meanwhile, some of the most respected names on Wall Street are warning that it is time to get out of the market.
For example, investor Dennis Gartman recently wrote that the game is “changing” and that it is time to “rush to the sidelines”…
“When tectonic plates in the earth’s crust shift earthquakes happen and when the tectonic plants shift beneath our feet in the capital markets margin calls take place. The tectonic plates have shifted and attention… very careful and very substantive attention… must be paid.
“Simply put, the game has changed and where we were playing a ‘game’ fueled by the monetary authorities and fueled by the urge on the part of participants to see and believe in rising ‘animal spirits’ as Lord Keynes referred to them we played bullishly of equities and of the EUR and of ‘risk assets’. Now, with the game changing, our tools have to change and so too our perspective.
“Where we were buyers of equities previously we must disdain them henceforth. Where we were sellers of Yen and US dollars we must buy them now. Where we had been long of gold in Yen terms, we must shift that and turn bullish of gold in EUR terms. Where we might have been ‘technically’ bullish of the EUR we must now be technically and fundamentally bearish of it. The game board has been flipped over; the game has changed… change with it or perish. We cannot be more blunt than that.”
That is a very ominous warning, but he is far from alone. Just the other day, I wrote about how legendary investor Seth Klarman is warning that the collapse of the financial markets could happen at literally any time…
“Investing today may well be harder than it has been at any time in our three decades of existence,” writes Seth Klarman in his year-end letter. The Fed’s “relentless interventions and manipulations” have left few purchase targets for Baupost, he laments. “(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors.”
Other big hitters on Wall Street are ringing the alarm bells as well. For example, Seabreeze Partners portfolio manager Doug Kass recently told CNBC that what he is seeing right now reminds him of the period just before the crash of 1987…
“I’m getting the ‘summer of 1987 feeling’ in the U.S. equity market,” Kass told CNBC, “which means we’re headed for a sharp fall.”
And of course the “perma-bears” continue to warn that the months ahead are going to be very difficult. For instance, “Dr. Doom” Marc Faber recently said that he “loves the high odds of a ‘big-time’ market crash“.
Another “perma-bear”, Nomura’s Bob Janjuah, is convinced that the stock market will experience one more huge spike before collapsing by up to 50%…
I continue to believe that the S&P500 can trade up towards the 1575/1550 area, where we have, so far, a grand double top. I would not be surprised to see the S&P trade marginally through the 2007 all-time nominal high (the real high was of course seen over a decade ago – so much for equities as a long-term vehicle for wealth creation!). A weekly close at a new all-time high would I think lead to the final parabolic spike up which creates the kind of positioning extreme and leverage extreme needed to create the conditions for a 25% to 50% collapse in equities over the rest of 2013 and 2014, driven by real economy reality hitting home, and by policymaker failure/loss of faith in “their system”.
So are they right?
We will see.
At the same time that many of the big dogs are pulling their money out of the market, many smaller investors are rushing to put their money back in to the market. The mainstream media continues to assure them that everything is wonderful and that this rally can last forever.
But it is important to keep in mind that the last time that Wall Street was this “euphoric” was right before the market crash in 2008.
So what should we be watching for?
As I have mentioned before, it is very important to watch the financial markets in Europe right now.
If they crash, the financial markets in the U.S. will probably crash too.
And the financial markets in Europe definitely have had a rough week. Just check out what happened on Thursday. The following is from a report by CNBC’s Bob Pisani…
Italy, Germany, France, Spain, U.K., Greece, and Portugal all on track to log worst day since Feb. 4. European PMI numbers were disappointing, with all major countries except Germany reporting numbers below 50, indicating contraction.
What does this mean? It means Europe remains mired in recession: “The euro zone is on course to contract for a fourth consecutive quarter,” Markit, who provides the PMI data, said. A new insight is that France is now joining the weakness shown in periphery countries.
You’re giving me agita: Italy was the worst market, down 2.5 percent. The CEO of banking company, Intesa Sanpaolo, said Italy’s recession has been so bad it could cause a fifth of Italian companies to fail, noting that topline for those bottom fifth have been shrinking 35 to 45 percent. Italian elections are this weekend.
It wasn’t any better in Asia. The Shanghai Index had its worst day in over a year, closing down nearly three percent.
And the economic numbers coming out of the U.S. also continue to be quite depressing.
On Thursday, the Department of Labor announced that there were 362,000 initial claims for unemployment benefits during the week ending February 16th. That was a sharp rise from a week earlier.
But I am not really concerned about that number yet.
When it rises above 400,000 and it stays there, then it will be time to officially become alarmed.
So what is the bottom line?
There are trouble signs on the horizon for the financial markets. Nobody should panic right now, but things certainly do not look very promising for the remainder of the year.
In the financial world, the month of October is synonymous with stock market crashes. So will a massive stock market crash happen this year? You never know. The truth is that our financial system is even more vulnerable than it was back in 2008, and financial experts such as Doug Short, Peter Schiff, Robert Wiedemer and Harry Dent are all warning that the next crash is rapidly approaching. We are living in the greatest debt bubble in the history of the world and Wall Street has been transformed into a giant casino that is based on a massive web of debt, risk and leverage. When that web breaks we are going to see a stock market crash that is going to make 2008 look like a Sunday picnic. Yes, the Federal Reserve has tried to prevent any problems from erupting in the financial markets by initiating another round of quantitative easing, but 40 billion dollars a month will not be nearly enough to stop the massive collapse that is coming. This will be explained in detail toward the end of the article. Hopefully we will get through October (and the rest of this year) without seeing a stock market collapse, but without a doubt one is coming at some point. Those on the wrong end of the coming crash are going to be absolutely wiped out.
A lot of people focus on the month of October because of the history of stock market crashes in this month. This history was detailed in a recent USA Today article….
When it comes to wealth suddenly disappearing, October can be diabolically frightful. The stock market crash of 1929 that led to the Great Depression occurred in October. So did the 22.6% plunge suffered by the Dow Jones industrial average in 1987 on “Black Monday.”
The scariest 19-day span during the 2008 financial crisis also went down in October, when the Dow plunged 2,675 points after investors fearing a financial collapse went on a panic-driven stock-selling spree that resulted in five of the 10 biggest daily point drops in the iconic Dow’s 123-year history.
So what will we see this year?
Only time will tell.
If a stock market crash does not happen this month or by the end of this year, that does not mean that the experts that are predicting a stock market crash are wrong.
It just means that they were early.
As I have said so many times, there are thousands upon thousands of moving parts in the global financial system. So that makes it nearly impossible to predict the timing of events with perfect precision. Financial conditions are constantly shifting and changing.
But without a doubt another major financial collapse similar to what happened back in 2008 (or even worse) is on the way. Let’s take a look at some of the financial experts that are predicting really bad things for our financial markets in the months ahead….
According to Doug Short, the vice president of research at Advisor Perspectives, the stock market is somewhere between 33% and 51% overvalued at this point. In a recent article he offered the following evidence to support his position….
● The Crestmont Research P/E Ratio (more)
● The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
● The Q Ratio, which is the total price of the market divided by its replacement cost (more)
● The relationship of the S&P Composite price to a regression trendline (more)
Peter Schiff, the CEO of Euro Pacific Capital, has been one of the leading voices in the financial community warning people about the crisis that is coming.
During a recent interview with Fox Business, Schiff stated that the massive financial collapse that we witnessed back in 2008 “wasn’t the real crash” and he boldly declared that the “real crash is coming”.
So is Schiff right?
We shall see.
Economist Robert Wiedemer warned people what was coming before the crash of 2008, and now he is warning that what is coming next is going to be even worse….
“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”
Financial author Harry Dent believes that the stock market could fall by as much as 60 percent in the coming months. He is convinced that stocks are hugely overvalued right now….
“We have the greatest debt bubble in history. We will see a worldwide downturn. And when you are in this type of recessionary environment stocks should be trading at five to seven times earnings.”
So are these guys right?
We shall see.
But I do find it interesting that some of the biggest names in the financial world are currently making moves as if they also believe that a massive financial crisis is coming.
For example, as I have written about previously, George Soros has dumped all of his holdings in banking giants JP Morgan, Citigroup and Goldman Sachs.
Infamous billionaire hedge fund manager John Paulson, the man who made somewhere around 20 billion dollars betting against the U.S. housing market during the last financial crisis, is making massive bets against the euro right now.
So where are these financial titans putting their money?
According to the Telegraph, both of these men are pouring enormous amounts of money into gold….
There was also news last week in an SEC filing that both George Soros and John Paulson had increased their investment in SPDR Gold Trust, the world’s largest publicly traded physical gold exchange traded fund (ETF).
Mr Soros upped his stake in the ETF to 884,400 shares from 319,550 and Mr Paulson bought 4.53m shares, bringing his stake to 21.3m.
At the current price of about $156 a share, these are new investments of about $88m of Mr Soros’ cash and more than $700m from Mr Paulson’s funds. These are significant positions.
So why would they do this?
Why would they pour millions upon millions of dollars into gold?
Well, it would make perfect sense to put so much money into gold if a massive financial crisis was coming.
So is the next financial crisis imminent?
We will see.
Most “financial analysts” that appear in the mainstream media would laugh at the notion that a stock market crash is imminent.
Most of them would insist that everything is going to be perfectly fine for the foreseeable future.
In fact, most of them are convinced that quantitative easing is going to cause stocks to go even higher.
After all, isn’t quantitative easing supposed to be good for stocks?
Didn’t I write an article just last month that detailed how quantitative easing drives up stock prices?
Yes I did.
So how can I be writing now about the possibility of a stock market crash?
Aren’t I contradicting myself?
Not at all.
Let me explain.
The first two rounds of quantitative easing did indeed drive up stock prices. The same thing will happen under QE3, unless the effects of QE3 are overwhelmed by a major crisis.
For example, if we were to see a total collapse of the derivatives market it would render QE3 totally meaningless.
Estimates of the notional value of the worldwide derivatives market range from 600 trillion dollars all the way up to 1.5 quadrillion dollars. Nobody knows for sure how large the market for derivatives is, but everyone agrees that it is absolutely massive.
When we are talking about amounts that large, the $40 billion being pumped into the financial system each month by the Federal Reserve during QE3 would essentially be the equivalent of spitting into Niagara Falls. It would make no difference at all.
Most Americans do not understand what “derivatives” are, so they kind of tune out when people start talking about them.
But they are very important to understand.
Essentially, derivatives are “side bets”. When you buy a derivative, you are not investing in anything. You are just gambling that something will or will not happen.
I explained this more completely in a previous article entitled “The Coming Derivatives Crisis That Could Destroy The Entire Global Financial System“….
A derivative has no underlying value of its own. A derivative is essentially a side bet. Usually these side bets are highly leveraged.
At this point, making side bets has totally gotten out of control in the financial world. Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it. This system is almost entirely unregulated and it is totally dominated by the big international banks.
Over the past couple of decades, the derivatives market has multiplied in size. Everything is going to be fine as long as the system stays in balance. But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.
Five very large U.S. banks (including Goldman Sachs, JP Morgan and Bank of America) have combined exposure to derivatives in excess of 250 trillion dollars.
Keep in mind that U.S. GDP for 2011 was only about 15 trillion dollars.
So we are talking about an amount of money that is almost inconceivable.
That is why I cannot talk about derivatives enough. In fact, I apologize to my readers for not writing about them more.
If you want to understand the coming financial collapse, one of the keys is to understand derivatives. Our entire financial system has been transformed into a giant casino, and at some point all of this gambling is going to cause a horrible crash.
Do you remember the billions of dollars that JP Morgan announced that they lost a while back? Well, that was caused by derivatives trades gone bad. In fact, they are still not totally out of those trades and they are going to end up losing a whole lot more money than they originally anticipated.
Sadly, that was just the tip of the iceberg. Much, much worse is coming. When you hear of a major “derivatives crisis” in the news, you better run for cover because it is likely that the entire house of cards is about to start falling.
And don’t get too caught up in the exact timing of predictions.
If a stock market crash does not happen this month, don’t think that the storm has passed.
A major financial crisis is coming. It might not happen this week, this month or even this year, but without a doubt it is approaching.
And when it arrives it is going to be immensely painful and it is going to change all of our lives.
I hope you are ready for that.