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This Is EXACTLY What The Early Phases Of A Market Meltdown Look Like

Stock Market Collapse Toilet Paper - Public DomainThere is so much confusion out there.  On the days when the Dow goes down by several hundred points, lots of people pat me on the back and tell me that I “nailed” my call for the second half of this year.  But on the days when the Dow goes up by several hundred points, I get lots of people contacting me and telling me that they are confused because they thought the stock market was supposed to go down.  Well, the truth is that if there is going to be a full-blown market meltdown, we would expect for there to be wildly dramatic swings in the market both up and down.  A perfect example of this is what we experienced during the financial crisis of 2008.  9 of the 20 largest single day declines in stock market history happened that year, but 9 of the 20 largest single day increases in stock market history also happened that year.  If we are moving into another great financial crisis, there should be massive ups and massive downs, and that is precisely what we are witnessing right now.

On Tuesday, the Dow surged several hundred points.  There was much celebrating in the mainstream media over this, but what they failed to realize was that this was another big red flag.  And we saw this volatility carry over into Wednesday.  The Dow was up 171 points early in the day before ending down 239 points.

By themselves, those two days don’t mean a whole lot.  The key is to look at them in context.  And in context, we have already witnessed the most dramatic stock market crash since the last financial crisis.

There will be more days when the stock market absolutely plummets and there will be more days when it absolutely soars.  No stock market crash in U.S. history has ever gone in just one direction continually.  There are always giant waves of momentum that cause panic selling and panic buying.

There is one thing that could change that.  A major “black swan event” such as a historic natural disaster, an unprecedented terror attack, or the outbreak of war could potentially be enough to chase all of the buyers out of the marketplace.  And considering the times that we are moving into, those things should not be ruled out.

But minus some type of event like that, we should expect lots of wild swings in both directions.

Over the past couple of years, I have repeatedly attempted to explain the general principle that markets tend to go up when they are calm and they tend to go down when they are volatile.

If you want the bull market to return, you should be rooting for lots of really, really boring days on Wall Street.

When things are boring, investors make money.

Days that are “exciting” are really bad for Wall Street.  Investors like a world that is predictable, and when conditions start changing rapidly they get very, very nervous.

In the months ahead, trillions of dollars are going to be lost in stock markets all over the planet.  Feel bad for the retirees and the hard working families that are going to get wiped out by this, but don’t feel bad for the banksters.  They have been laughing it up while most of the country has been suffering during our ongoing economic decline.  If you don’t believe me, just check out this YouTube clip.

A lot of people are going to be paralyzed during this time, because they won’t know what to do.  They didn’t heed the warnings up until now, and they thought that they would be able to safely get out of the market when things started getting crazy.  The big ups and big downs in the markets will confuse them, and the mainstream media will be telling them that everything is just fine.

If you have been waiting for the market to send you “warning signals”, then you can stop waiting because it is happening right in front of your eyes.

Now is not a time for fear.  Personally, I seek to live my live in a constant state of peace without any fear even though I write about some very hard realities almost every day.

This is part of the reason why I so adamantly encourage people to prepare for what is ahead.  Knowledge and preparation can help eliminate fear.

If you already know what is coming and you are already prepared for it, you won’t be freaking out like the rest of the general population will be when things start really going crazy.

I want to share something with you that Brandon Smith wrote recently

Panic betrays and fear kills. The preparedness culture is built upon the ideal that one must defeat fear in order to live. How a person goes about removing uncertainty from the mind is really up to the individual. For me, combat training and mixed martial arts is a great tool. If you get used to people trying to hurt you in a ring, it’s not quite as surprising or terrifying when it happens in the real world. If you can handle physical and mental trauma in a slightly more controlled environment, then fear is less likely to take hold of you during a surprise disaster.

Six months may be enough time to enter a state of mental preparedness, it may not be, but more than anything else, this is what you should be focusing on. All other survival actions depend on it. Your ability to function personally, your ability to work with others, your ability to act when necessary, all rely on your removal of fear. Take the precious time you have now and ensure you are ready to handle whatever the future throws at you.

Life in America in the years ahead is going to look dramatically different from what life in America looks like right now.

Do you have some specific tips on getting prepared for what is coming that you would like to share with the rest of us?  Please feel free to join the discussion by posting a comment below…

During Every Market Crash There Are Big Ups, Big Downs And Giant Waves Of Momentum

Tsunami Tidal Wave - Public DomainThis is exactly the type of market behavior that we would expect to see during the early stages of a major financial crisis.  In every major market downturn throughout history there were big ups, big downs and giant waves of momentum, and this time around will not be any different.  As I have explained repeatedly, markets tend to go up when things are calm, and they tend to go down when things get really choppy.  During a market meltdown, we fully expect to see days when the stock market absolutely soars.  Waves of panic selling are often followed by waves of panic buying.  As you will see below, six of the ten best single day gains for the Dow Jones Industrial Average happened during the financial crisis of 2008 and 2009.  So don’t be fooled for a moment by a very positive day for stocks like we are seeing on Tuesday.  It is all part of the dance.

At one point on Tuesday, the Dow was up over 400 points, and many of the talking heads on television were proclaiming that the stock market had “recovered”.  This is something that I predicted would happen yesterday

And if stocks go up tomorrow (which they probably should), all of those same “experts” will be proclaiming that the “correction” is over and that everything is now fine.

No, everything is not “fine” now.  The extreme volatility that we are witnessing just tells us that more trouble is coming.  Early on Tuesday the market was “burning up energy” as short-term investors sought to “buy the dip”.  But now that wave of panic buying is subsiding and the Dow is only up 240 points as I write this.

Overall, the Dow is still down more than 2,200 points from the peak of the market.  Even though I specifically warned that a market crash was coming, I didn’t expect the Dow to be down this far in late August.  Even after the “rally” we witnessed today, we are still way ahead of schedule.

The truth is that what we have seen so far is just the warm up act.

The main event will unfold during the months of September through December, and right now most people could not even conceive of the things that we are going to see in 2016.

But all along, there are going to be days when stocks fly higher.  As I mentioned above, many of the “best days” in stock market history occurred right in the middle of the financial crisis of 2008 and 2009.  This is a point that Jim Quinn has made very eloquently…

Six of the ten largest point gains in the history of the stock market occurred between September 2008 and March 2009. That’s right. During one of the greatest market collapses in history, the market soared by 5% to 11% in one day, six times. Here are the data points:

2008-10-13: +936.42

2008-10-28: +889.35

2008-11-13: +552.59

2009-03-23: +497.48

2008-11-21: +494.13

2008-09-30: +485.21

Do you think these factoids will be shared with the public today on the stock bubble networks? Not a chance.

And all of the technical indicators are still screaming that U.S. stocks have a long, long way to fall.  For example, just check out this chart.  The long-term analysis has not changed one bit.

Often, it is the short-term news that drives markets on any particular day.  Tuesday began with another massive stock selloff in Asia

The Shanghai Composite, China’s main stock exchange, fell 7.6% on Tuesday – after losing 8.5% on what state media have called China’s “Black Monday”.

It was the worst fall since 2007 and caused sharp drops in markets in the US and Europe

Tokyo’s Nikkei index had a volatile day, closing 4% lower.

In another desperate attempt to stop the bleeding, the Chinese decided to cut interest rates

The People’s Bank of China has lowered its interest rate for the fifth time since November. The one-year lending has been reduced by 25 basis points to 4.6 percent; the one-year deposit rate has been cut by 25 basis points to 1.75 percent. The change comes into force on Wednesday.

This reduction in interest rates was cheered by investors all over the planet, and as a result there was a wave of panic buying in Europe and in the United States.

But none of the short-term activity changes the fact that global financial markets are absolutely primed for a giant crash.  I like how Bill Fleckenstein put it during a recent interview with King World News

I have no idea how this is going to play out, other than I know we are headed considerably lower. The fact that so few seem to understand what the actual problem is makes me even more confident about that point. It would seem that everyone is using the easy answer and blaming China, but that was just the catalyst. The market has been trading in a heavy sideways fashion for some time, expectations are way higher than can be met, the technical action has now deteriorated, and bad news actually matters at the same time that speculation has run rampant. As I have stated many times (and also noted the reasons why), you couldn’t create a more crash-prone environment if you specifically set out to do so.

What we can’t account for are “black swan events” which could greatly accelerate this financial crisis.

A war in the Middle East, a major natural disaster or a terror attack involving weapons of mass destruction are all examples of the kinds of things that could turn this market crash into full-blown market implosion.

As we move into the critical month of September 2015, I think that it is safe to say that we should all be ready to expect the unexpected.  Our world is becoming increasingly unstable, and I am extremely concerned about the period of time that we are heading into.

The nice, comfortable period of relative stability that we have been experiencing for the past few years has come to an end.  I hope that you have enjoyed the good times while you still had them.

Now we are moving into a time of tremendous chaos and rapidly shifting conditions, and it is imperative that we all work very hard to get prepared for it while we still can.

Why Are Exchange-Traded Funds Preparing For A ‘Liquidity Crisis’ And A ‘Market Meltdown’?

Financial Crisis 2015 - Public DomainSome really weird things are happening in the financial world right now.  If you go back to 2008, there was lots of turmoil bubbling just underneath the surface during the months leading up to the great stock market crash in the second half of that year.  When Lehman Brothers finally did collapse, it was a total shock to most of the planet, but we later learned that their problems had been growing for a long time.  I believe that we are in a similar period right now, and the second half of this year promises to be quite chaotic.  Apparently, those that run some of the largest exchange-traded funds in the entire world agree with me, because as you will see below they are quietly preparing for a “liquidity crisis” and a “market meltdown”.  About a month ago, I warned of an emerging “liquidity squeeze“, and now analysts all over the financial industry are talking about it.  Could it be possible that the next great financial crisis is right around the corner?

According to Reuters, the companies that run some of the largest exchange-traded funds in existence are deeply concerned about what a lack of liquidity would mean for them during the next financial crash.  So right now they are quietly “bolstering bank credit lines” so that they will be better positioned for “a market meltdown”…

The biggest providers of exchange-traded funds, which have been funneling billions of investor dollars into some little-traded corners of the bond market, are bolstering bank credit lines for cash to tap in the event of a market meltdown.

Vanguard Group, Guggenheim Investments and First Trust are among U.S. fund companies that have lined up new bank guarantees or expanded ones they already had, recent company filings show.

The measures come as the Federal Reserve and other U.S. regulators express concern about the ability of fund managers to withstand a wave of investor redemptions in the event of another financial crisis. They have pointed particularly to fixed-income ETFs, which tend to track less liquid markets such as high yield corporate bonds or bank loans.

So why are Vanguard Group, Guggenheim Investments and First Trust all making these kinds of preparations right now?

Do they know something that the rest of us do not?

Over recent months, I have been writing about how so many of the exact same patterns that we witnessed just prior to previous financial crashes seem to be repeating once again in 2015.

One of the things that we would expect to see happen just before a major event would be for the “smart money” to rush out of long-term bonds and into short-term bonds and other more liquid assets.  This is something that had not been happening, but during the past couple of weeks there has been a major change.  All of a sudden, long-term yields have been spiking dramatically.  The following comes from Martin Armstrong

The amount of cash rushing around on the short-end is stunning. Yields are collapsing into negative territory and this is the same flight to quality we began to see at the peak in the crisis back in 2009. The big money is selling the 10 year or greater paper and everyone is rushing into the short-term. There is not enough paper around to satisfy the demands. Capital is unwilling to hold long-term even the 10 year maturities of governments including Germany. This is illustrating the crisis that is unfolding and there is a collapse in liquidity.

There is that word “liquidity” once again.  It is funny how that keeps popping up.

Here is a chart that shows what has been happening to the yield on 30 year U.S. Treasuries in 2015.  As you can see, there has been a big move recently…

30 Year Yield

And what this chart doesn’t show is that the yield on 30 year Treasuries shot up to about 3.08% on Wednesday.

Of course it isn’t just yields in the U.S. that are skyrocketing.  This is happening all over the globe, and many analysts are now openly wondering if the 76 trillion dollar global bond bubble is finally imploding.  For instance, just consider what Deutsche Bank strategist Jim Reid recently told the Telegraph

Financial regulations introduced since the crisis have required banks to hold more bonds, as quantitative easing schemes have meant central banks hold many on their own balance sheets, reducing the number available to trade on the open market.

Simultaneously, central banks have attempted to boost so-called “high money liquidity” with quantitative easing schemes and their close to zero interest rates. “What has become increasingly clear over the last couple of years is that the combination of high money liquidity and low trading liquidity creates air pockets,” said Mr Reid.

He continued: “It’s a worry that these events are occurring in relatively upbeat markets. I can’t helping thinking that when the next downturn hits the lack of liquidity in various markets is going to be chaotic. These increasingly regular liquidity issues we’re seeing might be a mild dress rehearsal.”

Those are sobering words.

And without a doubt, we are in the midst of a massive stock market bubble as well.  The chaos that is coming is not just going to affect bonds.  In fact, I believe that the greatest stock market crash in U.S. history is coming.

So when will it happen?

Well, Phoenix Capital Research seems to think that we have reached an extremely important turning point…

This is something of a last hurrah for stocks. We are now officially in May. And historically the period from May to November has been one of the worst periods for stocks from a seasonal perspective.

Moreover, the fundamentals are worsening dramatically for the markets. By the look of things, 2014 represented the first year in which corporate sales FELL since 2009. Sales track actual economic activity much more closely than earnings: either the money comes in or it isn’t. The fact that sales are falling indicates the economy is rolling over and the “recovery” has ended.

Having cut costs to the bone and issued debt to buyback shares, we are likely at peak earnings as well. Thus far 90% of companies in the S&P 500 have reported earnings. Year over year earnings are down 11.9%.

So sales are falling and earnings are falling… at a time when stocks are so overvalued that even the Fed admits it. This has all the makings of a serious market collapse. And smart investors are preparing now BEFORE it hits.

Personally, I have a really bad feeling about the second half of 2015.  Everything seems to be gearing up for a repeat of 2008 (or even worse).  Let’s hope that does not happen, but let’s not be willingly blind to the great storm on the horizon either.

And once the next great crisis does hit us, governments around the world will have a lot less “ammunition” to fight it than the last time around.  For example, the U.S. national debt has approximately doubled since the beginning of the last recession, and the Federal Reserve has already pushed interest rates down as far as they can.  Similar things could also be said about other governments all over the planet.  This is something that HSBC chief economist Stephen King recently pointed out in a 17 page report entitled “The world economy’s titanic problem”.  The following is a brief excerpt from that report

“Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery — both in the US and elsewhere — has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.”

For a long time, I have had a practice of ending my articles by urging people to get prepared.  But now time for preparing is rapidly running out.  My new book entitled “Get Prepared Now” was just released, but honestly my co-author and I should have had it out last year.  In the very small amount of time that we have left before the financial markets crash, the amount of “prepping” that people are going to be able to do will be fairly limited.

I am not just pointing to a single event.  Once the financial markets crash this time, I believe that there is not going to be any sort of a “recovery” like we experienced after 2008.  I believe that the long-term economic collapse that we have been experiencing will accelerate very greatly, and it will usher in a horrible period of time for the United States unlike anything that we have ever seen before.

So what do you think?

Could I be wrong?

Please feel free to share your thoughts by posting a comment below…

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