Stock Prices

Goldman Sachs Says That There Is A 99 Percent Chance That Stock Prices Will Not Keep Going Up Like This

Analysts at Goldman Sachs are saying that it is next to impossible for stock prices to keep going up like they have been recently.  Ever since Donald Trump’s surprise election victory in November, stocks have been on a tremendous run, but this surge has not been matched by a turnaround in the real economy.  We have essentially had a “no growth” economy for most of the past decade, and ominous signs pointing to big trouble ahead are all around us.  The only reason why stocks have been able to perform so well is due to unprecedented intervention by global central banks, but they are not going to be able to keep inflating this bubble forever.  At some point this absolutely enormous bubble will burst and investors will lose trillions of dollars.

The only other times we have seen stock valuations at these levels were just before the stock market crash of 1929 and just before the dotcom bubble burst in 2000.  For those that think that they can jump into the markets now and make a lot of money from rapidly rising stock prices, I think that it would be wise to consider what analysts at Goldman Sachs are telling us.  The following is from a CNBC article that was published on Monday…

Investors may be in for disappointing market returns in the decade to come with valuations at levels this high, if history is any indication.

Analysts at Goldman Sachs pointed out that annualized returns on the S&P 500 10 years out were in the single digits or negative 99 percent of the time when starting with valuations at current levels.

Do you really want to try to fight those odds?

Unfortunately, it appears that is precisely what a lot of investors are planning to do.  In fact, Schwab says that they are opening new accounts “at levels we have not seen since the Internet boom of the late 1990s”…

New accounts are at levels we have not seen since the Internet boom of the late 1990s, up 34% over the first half of last year. But maybe more important for the long-term growth of the organization is not so much new accounts, but new-to-firm households, and our new-to-firm retail households were up 50% over that same period from 2016.

And a different survey found that Millennial investors in particular are eager to pour money into the stock market…

Furthermore, according to a June survey from Legg Mason, nearly 80% of millennial investors plan to take on more risk this year, with 66% of them expressing an interest in equities. About 45% plan to take on “much more risk” in their portfolios.

One of the fundamental tenets of investing is to buy low and sell high.  Those that are getting in at the peak of the market are going to get absolutely slaughtered.  Trillions of dollars of paper wealth will be completely wiped out by the coming crash, and I wish that I could get more people to understand what is about to happen.

I recently wrote about how some really big investors are betting millions upon millions of dollars that a major stock market crash is going to happen in the very near future.  The financial markets are far more primed for a crash than they were in 2008, and there are certainly a lot of potential “black swan events” that could push us over the edge.  In his most recent article, Simon Black listed some of the things that he is currently watching…

– North Korea is threatening to nuke the US
– Donald Trump is firing his entire cabinet
– The Federal Reserve has dropped interest rates to record lows and drowned the world in trillions of dollars of cash
– Debt levels are at record highs
– Entire banking systems, especially in Europe, are in need of massive bailouts
– The US government will run out of money in less than 90-days and hit the debt ceiling once again

You only make money in the stock market if you get out in time.  And since just before the crisis of 2008 I have never seen so many prominent names in the financial community warn about a coming stock market crash as I have over the last 90 days.  For example, legendary investor Jim Rogers is warning that there will almost certainly be a crash “this year or the next”, and that it will be “the worst in your lifetime and my lifetime”…

The best-selling author expects the next financial crisis to be the “worst” he has ever seen.

“We’ve had economic problems in the U.S. or in North America every four to eight years since the beginning of the Republic so to say that we’re going to have a problem is not unusual,” he told Kitco News from the Freedom Fest conference in Las Vegas.

“I would expect it to start this year or the next…and it’s going to be the worst in your lifetime and my lifetime.”

What goes up must come down, and markets tend to go down a whole lot faster than they go up.

And in the environment that we are in today, caution is a very good thing.  I really like how billionaire Howard Marks put this the other day…

I think it’s better to turn cautious too soon (and thus perhaps underperform for a while) rather than too late, after the downslide has begun, making it hard to trim risk, achieve exits and cut losses.

Perhaps this will be the first giant financial bubble in our history to end smoothly, but I wouldn’t count on it.

In the end, I expect this one to end just like all of the others.  And I anticipate that the coming crisis will ultimately be worse than anything we have ever faced before because this current bubble has been artificially inflated for so long.

Hopefully stock prices will go up again tomorrow, but it would be exceedingly foolish to ignore all of the warnings.  Goldman Sachs says that there is a 99 percent chance that stocks cannot continue surging like this, and in this case I believe that Goldman Sachs is entirely correct.

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.

A Mystery Investor Has Made A 262 Million Dollar Bet That The Stock Market Will Crash By October

One mystery trader has made an extremely large bet that the stock market is going to crash by October, and if he is right he could potentially make up to 262 million dollars on the deal.  Fortunes were made and lost during the great financial crisis of 2008, and the same thing will happen again the next time we see a major stock market crash.  But will that stock market crash take place before 2017 is over?  Without a doubt, we are in the midst of one of the largest stock market bubbles in U.S. history, and many prominent investors are loudly warning of an imminent stock market collapse.  It doesn’t take a genius to see that this stock market bubble is going to end very badly just like all of the other stock market bubbles throughout history have, but if you could know the precise timing that it will end you could set yourself up financially for the rest of your life.

I want to be very clear about the fact that I do not know what will or will not happen by the end of October.  But one mystery investor is extremely convinced that market volatility is going to increase over the next few months, and if he is correct he will make an astounding amount of money.  According to Business Insider, the following is how the trade was set up…

  • To fund it, the investor sold 262,000 VIX puts expiring in October, with a strike price of 12.
  • The trader then used those proceeds to buy a VIX 1×2 call spread, which involves buying 262,000 October contracts with a strike price of 15 and selling 524,000 October contracts with a strike price of 25.
  • For reference, bullish call spreads are used when a moderate rise in the underlying asset is expected. Traders buy call options at a specific strike price while selling the same number of calls of the same asset and expiration date at a higher strike.
  • In a perfect scenario, where the VIX hits but doesn’t exceed 25 before October expiration, the trader would see a whopping $262 million payout.

I will be watching to see what happens.  If this mystery investor is correct, it will essentially be like winning the lottery.

But just because he has made this wager does not mean that he has some special knowledge about what is going to happen.

For example, just look at what Ruffer LLP has been doing.  They are a $20 billion investment fund based in London, and they have been betting tens of millions of dollars on a stock market crash which has failed to materialize so far.  But even though they have lost so much money already, they continue to make extremely large bearish bets…

As of earlier this week, Ruffer had spent $119 million this year betting on a stock market shock, $89 million of which had expired worthless, according to data compiled by Macro Risk Advisors. The investor has gradually amassed holdings of about 1 million VIX calls through three occasions so far in 2017, and each time a significant portion expired at a loss.

Blame a subdued VIX for the futility. The fear gauge was locked in a range of 10 to 14 for the first three months of 2017, and while it has since climbed to as high as 15.96, it has been stuck well below 14 since a single-day plunge of 26% nine days ago. Earlier this week, the index closed at its lowest level since February 2007.

But that doesn’t mean Ruffer is giving up. Already loaded up on May contracts, the firm has continued to buy cheap VIX calls expiring later in the year — wagers costing about 50 cents.

I can understand why Ruffer has been making these bets.  In a rational world, stocks would have already crashed long ago.

The only way that stock prices have been able to continue to rise is because of unprecedented intervention by global central banks.  They have been pumping trillions of dollars into the financial markets, and this has essentially completely destroyed normal market forces.  The following comes from David Stockman…

The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.

Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about “stimulus”, “accommodation” and guiding economies toward optimal levels of inflation and full-employment.

The truth of the matter is far different. The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.

In the “bizarro world” that we are living in today, many companies are trading at prices that are more than 100 times earnings, and some companies are actually trading at prices that are more than 200 times earnings.

Stock prices have become completely and totally disconnected from economic reality.  As I discussed the other day, U.S. GDP has only risen at an average yearly rate of just 1.33 percent over the past 10 years, but meanwhile stock prices have been soaring into the stratosphere.

Nobody in their right mind can claim that makes any sense at all.  Just like in 2000, and just like in 2008, this absolutely ridiculous stock market bubble will have a horribly tragic ending as well.

Once again, I don’t know what the exact timing will be.  Stocks could start crashing tomorrow, but then the Swiss National Bank could swoop in and buy 4 million shares of Apple just like they did during the months of January, February and March earlier this year.

The biggest players in this ongoing charade are the global central banks.  If they decide to keep pumping trillions of dollars into global financial markets, they may be able to keep the bubble going for a little while longer.

But if at any point they decide to withdraw their artificial assistance, those that have placed huge bets against the market are going to make absolutely enormous piles of cash.

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.

Central Banks Now Own Stocks And Bonds Worth Trillions – And They Could Crash The Markets By Selling Them

Have you ever wondered why stocks just seem to keep going up no matter what happens?  For years, financial markets have been behaving in ways that seem to defy any rational explanation, but once you understand the role that central banks have been playing everything begins to make sense.  In the aftermath of the great financial crisis of 2008, global central banks began to buy stocks, bonds and other financial assets in very large quantities and they haven’t stopped since.  In fact, as you will see below, global central banks are on pace to buy 3.6 trillion dollars worth of stocks and bonds this year alone.  At this point, the Swiss National Bank owns more publicly-traded shares of Facebook than Mark Zuckerberg does, and the Bank of Japan is now a top-five owner in 81 different large Japanese firms.  These global central banks are shamelessly pumping up global stock markets, but because they now have such vast holdings they could also cause a devastating global stock market crash simply by starting to sell off their portfolios.

Over the years I have often been asked about the “plunge protection team”, but the truth is that global central banks are the real “plunge protection team”.  If stocks start surging higher on any particular day for seemingly no reason, it is probably the work of a central bank.  Because they can inject billions of dollars into the markets whenever they want, that essentially allows them to “play god” and move the markets in any direction that they please.

But of course what they have done is essentially destroy the marketplace.  A “free market” for stocks basically no longer exists because of all this central bank manipulation.  I really like how Bruce Wilds made this point…

One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses. Their incursion into this bastion of the free markets signals we have entered the era where true price discovery no longer exists. The central banks are often viewed as price-insensitive buyers, so this incestuous influx of money is in some ways the ultimate distortion.

According to Business Insider, global central banks are on pace to purchase an astounding 3.6 trillion dollars in stocks and bonds in 2017.

Overall, the five largest global central banks now collectively have 14.6 trillion dollars in assets on their balance sheets.

You can call this a lot of things, but it certainly isn’t free market capitalism.

The Swiss National Bank is one of the biggest offenders.  During just the first three months of this year, it bought 17 billion dollars worth of U.S. stocks, and that brought the overall total that the Swiss National Bank is currently holding to more than $80 billion.

Have you ever wondered why shares of Apple just seem to keep going up and up and up?

Well, the Swiss National Bank bought almost 4 million shares of Apple during the months of January, February and March.

And as I mentioned above, the Swiss National Bank “now owns more publicly-traded shares in Facebook than Mark Zuckerberg”…

Switzerland’s central bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg, part of a mushrooming stock portfolio that is likely to grow yet further.

The tech giant’s founder and CEO has other ways to control his company: Zuckerberg holds most of his stake in a different class of stock. Nevertheless this example illustrates how the Swiss National Bank has become a multi-billion-dollar equity investor due to its campaign to hold down the Swiss franc.

It is now the world’s eighth-biggest public investor, data from the Official Monetary and Financial Institutions Forum show.

But as shameless as the Swiss National Bank has been, the Bank of Japan is even worse.

Today, the Nikkei is essentially a giant sham.  The Bank of Japan regularly goes in and just starts buying up everything in sight, and according to Bloomberg they are on pace to become the largest shareholder in dozens of the most prominent Japanese corporations by the end of 2017…

Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings.

If global central banks have the power to pump up these markets, they also have the power to crash them.

Why would they want to do such a thing?

I can answer that question with just two words…

Donald Trump.

If the Comey angle doesn’t work, the elite could try to destroy Trump by engineering an absolutely devastating stock market crash.  Close to half the U.S. population dislikes Trump anyway, and so it would be fairly easy to get them to believe that Trump’s policies have caused a new financial crisis.  Of course that would be complete nonsense, but in our society today the truth often doesn’t really matter.

And without a doubt, evidence continues to mount that the real economy is starting to slow down substantially.  For example, we just learned that bankruptcies surged once again in May.  The following comes from Wolf Richter…

So here we go again. Total US business bankruptcies in May rose 4.7% year-over-year to 3,572 filings, according to the American Bankruptcy Institute. That’s up 40% from May 2015 and up 10% from May 2014.

And there’s another concern: Bankruptcy filings are highly seasonal. They peak in tax season – March or April – and then fall off. The decline in April after the peak in March was within that seasonal pattern. Over the past years, filings dropped in May. But not this year.

Without unprecedented intervention by global central banks, financial markets would have crashed long ago.

And if they keep increasing their purchases of stocks and bonds, the central banks may be able to prop things up for a while longer.

Who knows?  Perhaps with enough financial engineering they would be able to keep this bubble going for years.  Of course things would start to get really awkward once they eventually owned virtually everything, but I have a feeling that things will never get that far.

I have a feeling that global central banks will eventually find an excuse to start “unwinding their balance sheets”, and I have a feeling that it will be at a time that is highly inconvenient for President Trump.

Why Are So Many Big Investors Positioning Themselves To Make Giant Amounts Of Money If The Stock Market Crashes?

I keep hearing from people that think that the stock market is going to crash by the end of the year.  Hopefully that will not happen, but the ridiculous stock prices that we are seeing right now certainly cannot last forever.  On Sunday, I was chatting with a friend that had just been to a financial conference.  He was quite surprised that one of the things being taught to the attendees of this conference was how to position themselves to make an enormous amount of money when the stock market crashes dramatically in the near future.  Markets tend to go down a lot faster than they go up, and so when the inevitable market crash does take place those that have made large bets against the market will make huge fortunes.  It happened in 2008, and it will happen again.  But it was unsettling to my friend Robert that there were so many people that were gleefully looking forward to this.

Of course some of the biggest names in the investing world are also anticipating a major downturn very soon.  I have previously written about how Warren Buffett’s Berkshire Hathaway Inc. is sitting on a pile of 86 billion dollars in cash right now.  Nobody ever knows exactly what Buffett is thinking, but it isn’t too hard to figure out that he plans to use those billions to buy up stocks for a song after a big market crash happens.

I have also previously written about many other big names throughout the financial world that are warning that a new financial crisis is imminent.  The last time I saw so many prominent investors sounding the alarm was just before the market crash of 2008, but most people didn’t listen that time around either.

And of course those that believe that a market crash is coming are doing a lot more than just talking about it.  According to Zero Hedge, there are now more short positions betting against the Russell 2000 than we have seen at any time in the last six years…

The Russell 2000 Index posted a 2.2% decline in May, its worst month since October, and it appears a large swath of investors is now betting it has further to fall.

As Bloomberg notes, hedge funds and other major speculators have a combined net short position of 73,030 contracts in the small-cap index’s futures, according to the latest data from the Commodity Futures Trading Commission.

Russell 2000 sentiment has sharply declined since January, when future contract positioning reached record bullishness. It’s now the most short since May 2011.

The last time investors were this short the Russell 2000, it fell by almost 30 percent.

Can we expect something similar this time?

We will just have to wait and see.

Meanwhile, there has also been a surge in the number of investors betting that we will soon see increased market volatility…

As Bloomberg notes, with the VIX down more than 30% this year through the end of last week, investors have been using options to bet on volatility.

As the chart above shows, the volume of contracts wagering on a resurgence of market turmoil has reached its highest level since last February relative to those calling for a drop in price movements.

Because markets tend to go down much faster than they go up, most of those that bet on increased volatility are typically doing so because they believe that a stock market crash is coming very soon.

And it is also interesting to note that hedge funds are jumping into gold at a rate that we have not seen since 2007…

Hedge funds are jumping back into gold.

Money managers boosted their long positions in U.S. futures by the most in almost a decade in the week ended May 23, Commodity Futures Trading Commission data show.

Gold is a safe haven asset, and it is a very good place to be during a major financial crisis.  So if hedge funds are anticipating that we are on the verge of a major market downturn, it would make sense for them to be piling into gold.

All of the moves that I have discussed above will end up looking quite foolish if stocks just keep going up and up and up.

But if the market crashes, those that have positioned themselves ahead of time will end up making a killing.

Today the stock market bears absolutely no resemblance to economic reality, but at some point that will change.  And with each passing day we just continue to get more bad economic news.

Yesterday, I showed that according to official U.S. government figures there are 102 million working age Americans that do not have a job right now.  Today, we got more confirmation that the U.S. economy is slowing down.  We learned that new vehicle sales fell on a year-over-year basis for the fifth month in a row in May, and we learned that factory orders and new orders for durable goods both declined last month.  And for a lot more numbers just like those, please see this article.

The U.S. economy is not “healthy” and it hasn’t been for a very long time.  Because we have shipped so many jobs overseas, manufacturing’s share of U.S. employment has fallen to an all-time record low.  The middle class is shrinking, and somewhere around two-thirds of the country is living paycheck to paycheck.  We have been able to maintain our national standard of living by going on the greatest debt binge of all time, but every additional dollar of debt that we take on makes our long-term outlook even worse.

Just because he is living in the White House does not mean that Donald Trump can automatically turn things around.  Without the help of Congress, he cannot cut taxes, repeal Obamacare, eliminate unnecessary federal agencies or implement many of the other items on his economic agenda.

And the truth is that because of the way that our system is structured, the Federal Reserve actually has much, much more power over the economy than Donald Trump does.  When the financial markets crash and we officially enter the next recession, most of the blame will be placed on Trump, but it won’t be his fault.  Instead, it will be primarily the Federal Reserve’s fault, and we need to educate the American people about this ahead of time.

What goes up must come down, and this irrational stock bubble has been living on borrowed time for quite a while now.

It isn’t going to take much to push things over the edge, and there are all sorts of candidates for what the next “trigger event” will be.

House Of Cards: Netflix Is One Of The Poster Children For Tech Bubble 2.0

How can a company that is going to generate $2,000,000,000 in negative free cash flow in 2017 be worth 70 billion dollars?  Netflix has soared in popularity in recent years, but so have their financial losses.  Just like during the original tech bubble, investors are ignoring basic fundamentals and are greatly rewarding firms that are bleeding giant mountains of cash year after year just because they are trendy “tech companies”.  But somewhere along the line you actually have to quit losing money if you are going to survive.  Just ask tech bubble 1.0 victims Pets.com, Webvan and Etoys.com.  The investors that poured enormous amounts of money into those companies ended up losing everything, and similar tragedies will play out as tech bubble 2.0 bursts.

So far in 2017, the S&P 500 is up about 8 percent, but FANG stocks (Facebook, Amazon, Netflix and Google) are up a whopping 30 percent.

But at least Facebook, Amazon and Google are making money.

Netflix is not.

So why in the world has the stock shot up by more than 30 percent so far this year?  It just doesn’t make any sense at all.  According to CNBC, during the first quarter Netflix had $423 million in negative free cash flow, and for the entire year it is being projected that it will have $2 billion in negative free cash flow…

The California-based company is now dumping cash into original content to maintain its dominance over its growing field of rivals. The company’s had $423 million negative free cash flow during the quarter, wider than the $261 million negative free cash flow a year ago. Netflix expects to have $2 billion in negative free cash flow this year.

The bleeding of cash at Netflix only seems to be accelerating.  The number for the first quarter of 2017 was 62 percent worse than the number for the first quarter of 2016, and it was more than twice as bad as the number for the first quarter of 2015.

It is hard to imagine that Netflix will ever be more popular than it is right now.

So if Netflix is not making a profit at this point, when will it ever make a profit?

Similar things could be said about Twitter.  This is a company that has never made a yearly profit and that is actually starting to see revenues decline.  But somehow the stock just continues to go up.  Since the last time I wrote about Twitter, the market cap has shot up another 1.5 billion dollars.

At this point, the market values Twitter at 13 billion dollars, but in the entire history of the company it has actually lost 2 billion dollars.

What we are witnessing is a modern day version of “tulip mania”, and at some point this irrational euphoria will come to a sudden end.  In fact, there are already some signs that tech bubble 2.0 may be in a significant amount of trouble.  The following is an excerpt from a Bloomberg article entitled “Investors Go All-In on Tech Giants”…

The tech-powered rally has catapulted the sector to a price-to-earnings ratio of 24.4, or 41 percent above the 10-year average. But as Google and Amazon stretch to nearly $1,000 a share, not everyone is comfortable with the valuations. Investors pulled more than $716 million from the most popular technology exchange-traded fund last week — the $17.4 billion Technology Select Sector SPDR Fund, or XLK — its largest weekly outflow in over a year, data compiled by Bloomberg show.

“Most everybody remembers 2000, so they might be getting a little nervous with this development,” said Maley. “I just wonder how many people have said to themselves, ‘If AMZN gets to $1,000, I’m going to take at least some profits.’”

All over the financial world, prominent voices are warning that the enormous financial bubbles that we see all around us are not sustainable and that a major crisis is heading our way.  I wrote about some of these voices yesterday, and today we can add Paul Singer to the list…

Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like…), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.

When the financial markets collapse, Donald Trump will likely get most of the blame.

But Donald Trump did not create the stock market bubble, and he will not be responsible for ending it either.

Since the Federal Reserve was created in 1913, we have seen this same story play out over and over again.  There have been 18 distinct recessions or depressions since the Fed was established, and the more the Fed interferes in the marketplace the larger the booms and busts tend to be.

And it could be argued that this time around the Fed has manipulated financial markets more than ever before.  Interest rates were pushed as low as possible and trillions of dollars were pumped into the financial system during the Fed’s quantitative easing programs.  Of course those actions were going to create a huge bubble, and of course that bubble is going to inevitably burst.

Unfortunately, this is not just a game.  Real people with real hopes and real dreams are going to be absolutely devastated.  Millions of Americans that were carefully saving for retirement are going to be financially crippled, and pension funds all over the nation are going to be wiped out.

I don’t know why we can’t seem to learn from history.  And I am not talking about events that happened decades ago.  The build up to this coming crisis is so similar to what we witnessed just before the crashes of 2000 and 2008, but we just keep getting fooled over and over again.

But once things fall apart this time, I think that the American people will finally be fed up.  I think that they will be sick and tired of an unelected, unaccountable central bank that creates endless booms and busts, and I think that they will finally be ready to push Congress to shut the Federal Reserve down for good.

5 Highly Respected Financial Experts That Are Warning That A Market Crash Is Imminent

If everything is going to be “just fine”, why are so many big names in the financial community warning about an imminent meltdown?  I don’t think that I have seen so many simultaneous warnings about a market crash since just before the great financial crisis of 2008.  And at this point, you would have to be quite blind not to see that stocks are absurdly overvalued and that a correction is going to happen at some point.  And when stocks do start crashing, lots of fingers are going to start pointing at President Trump, but it won’t be his fault.  The Federal Reserve and other central banks are primarily responsible for creating this bubble, and they should definitely get the blame for what is about to happen to global financial markets.

My regular readers are quite familiar with my thoughts on where the market is headed, so today let me share some thoughts from five highly respected financial experts…

#1 When Altair Asset Management’s chief investment officer Philip Parker was asked if a market crash was coming to Australia, he said that he has “never been more certain of anything in my life”.  In fact, he is so sure that the investments that his hedge fund is managing are going to crash that a decision was made to liquidate the fund “and return ‘hundreds of millions’ of dollars to its clients”…

While hardly a novel claim – in the past many have warned that Australia’s housing and stock market are massive asset bubbles (which local banks have been forced to deny as their fates are closely intertwined with asset prices even as the RBA is increasingly worried) – so far few if any have gone the distance of putting their money where their mouth was. That changed, when Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars to its clients according to the Sydney Morning Herald, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.

“Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday quoted by the SMH.

#2 Seth Klarman leads one of the biggest hedge funds in the United States, and he believes that U.S. investors are greatly underestimating the amount of risk in the market right now…

“When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high,” Klarman wrote. “By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.”

Klarman oversees one of the US’s largest hedge fund firms, with some $30 billion under management. He has a huge following on Wall Street — investors named his book, “Margin of Safety,” their favorite investment book in a recent SumZero survey.

#3 Bill Blain is a strategist at Mint Partners, and he is actually specifically pointing to October 12th as the date when things will start to get “horribly interesting”…

But…. Catch a falling knife, why don’t you… I shall spend the summer wondering just how long the Stock Market games continue. When, not if.

At the moment, my prediction is October 12th. Around that day its going to get horribly interesting..

Why that particular day?

Gut feel and knowing how the Bowl of Petunias felt in Hitchhikers. (“Not again.”)

There are just too many contradictory currents out there. The unsustainability of burgeoning consumer debt, unfeasibly tight credit spreads, the sandcastle foundations of student loans, autos, housing and the CLO market, China, Trump, politics.. worries about what follows Brazil in the EM market, and whatever… The risks of a massive consumer sentiment dump..  

#4 David Stockman has also been warning about what may happen this fall.  According to Stockman, this current stock market bubble “is the greatest sucker’s rally we have ever seen”…

“The market is insanely valued right now.  They were trying to tag, the robo machines and day traders, they were trying to tag 2,400 on the S&P 500.  They ended up at 2,399, I think, but the point is that represents about 25 times trailing earnings for 2016.  We are at a point in the so-called recovery that has already lasted 96 months.  It’s almost the longest one in history.  What the market is saying is we have reached the point of full employment forever.  There will never be another recession or any kind of economic surprise or upset or dislocation.  The market is pricing itself for perfection for all of eternity.  This is crazy. . . . I think the market could easily drop to 1,600 or 1,300.  It could drop by 40% or even more once the fantasy ends. When the government shows its true colors, that it’s headed for a fiscal bloodbath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all.  I mean it’s not going to happen.  They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade.  It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.“

#5 Last but certainly not least, David Kranzler seems quite certain “that the stock market bubble is getting ready to pop”…

Anyone happen to notice that several market commentators have argued that Bitcoin is a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of Amazon.com Inc (NASDAQ:AMZN) is hurtling toward parity with the price of one ounce of gold. Tesla (NASDAQ:TSLA) burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors (NYSE:GM). Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.

This insanity is the surest sign that the stock market bubble is getting ready to pop. If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.” This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.” There will be millions of people who are permanently damaged financially when the Fed loses control of this market. Or, as legendary “vulture” investor Asher Edelman stated on CNBC, “I don’t want to be in the market because I don’t know when the plug is going to be pulled.”

Could all of these top experts be wrong?

It’s possible, but I wouldn’t bet on it.

Every stock market bubble of this magnitude in U.S. history has ended in a spectacular crash, and this one will not be any different.  We can certainly have some good arguments about the exact timing of the next crash, but what everyone should be able to agree on is that a crash is coming.

You only make money in the stock market if you get out at the right time.  Many of those that timed things well have made a tremendous amount of money, but most investors will be entirely caught off guard by the market implosion that is rapidly approaching.

As I have explained to my readers repeatedly, markets tend to go down a whole lot faster than they go up, and in the not too distant future we are going to see trillions of dollars of investor wealth wiped out very, very quickly.

Let’s hope that the coming crisis will not be as bad as 2008, but I have a feeling that it is going to be much worse.

We didn’t learn our lessons the last time around, and so now we are going to pay a very high price for our stubbornness.

The Next Stock Market Crash Will Be Blamed On Donald Trump But It Will Be The Federal Reserve’s Fault Instead

A stock market crash is coming, and the Democrats and the mainstream media are going to blame Donald Trump for it even though it won’t be his fault.  The truth is that we were headed for a major financial crisis no matter who won the election.  The Dow Jones Industrial Average is up a staggering 230 percent since the lows of 2009, and no stock market rally in our history has ever reached the 10 year mark without at least a 20 percent downturn.  At this point stocks are about as overvalued as they have ever been, and every other time we have seen a bubble of this magnitude a historic stock market crash has always followed.  Those that are hoping that this time will somehow be different are simply being delusional.

Since November 7th, the Dow is up by about 3,000 points.  That is an extremely impressive rally, and President Trump has been taking a great deal of credit for it.

But perhaps he should not have been so eager to take credit, because what goes up must come down.  The following is an excerpt from a recent Vanity Fair article…

According to Douglas Ramsay, chief investment officer of the Leuthold Group, Trump administration officials will come to regret gloating about the market’s performance. That’s because Trump enters the White House during one of the most richly valued stock markets in U.S. history. The last president to come in at such valuations was George W. Bush, and the dot-com bubble burst soon afterward. Bill Clinton began his second term in a more overvalued stock market in 1997, and exited unscathed. But if his timing were different by just a year, he would have been blamed for the early-aughts market crash.

This stock market bubble was not primarily created by Barack Obama, Donald Trump or any other politician.  Rather, the Federal Reserve was primarily responsible for creating it by pushing interest rates all the way to the floor during the Obama era and by flooding the financial system with hot money during several stages of quantitative easing.

But now the economy is slowing down.  Economic growth on an annual basis was just 0.7 percent during the first quarter, and yet the Federal Reserve is talking about raising interest rates anyway.

The Federal Reserve also raised interest rates in a slowing economy in the late 1930s, and that had the effect of significantly extending the economic problems during that decade.

As I noted in my article entitled “The Federal Reserve Must Go”, there have been 18 recessions or depressions since the Federal Reserve was created in 1913, and now we stand on the precipice of another one.

After this next crisis, hopefully Congress will finally understand that it is time to shut the Federal Reserve down for good, and I am going to do all that I can to make that happen.

Ron Paul is someone that I look up to greatly, and he also agrees that the blame for the coming crisis should be placed on the Federal Reserve instead of on Trump…

“There are some dire predictions that say in the next year, or 18 months, we have something arriving worse than 2008 and 2009, the downturn is much worse,” Paul said in a recent interview with liberty-minded anti-globalist radio host Alex Jones. “They’ll say, ah, it’s all Trump’s fault. No. It wasn’t. 08 and 09 wasn’t Obama’s fault. It was the fault of the Federal Reserve, it was the fault of the Keynesian economic model, the spending too much, the deficit. So, unfortunately, there’s nothing he can do — Trump can’t do it.”

Paul, a medical doctor who took a keen interest in economics throughout his celebrated career as a constitutionalist in Congress, said Trump could “help” the situation by pursuing good policies. “But you can’t avoid the correction, the correction is locked in place, because the deficits are there, the malinvestment, everybody agrees interest rates have been too low too long,” he said in the late January interview. “The only thing he can do is allow the recession to come, get it over with, liquidate the debt. Politically, nobody wants that, so you’re going to see runaway inflation before you see this country wake up.”

Over the past decade, the U.S. economy has grown at an average rate of just 1.33 percent, and there is no possible way to put a positive spin on that.

And now the economy appears to be entering a fresh slowdown.  A couple of months ago, banking giant UBS warned about “a sudden slowdown in new credit”…

There’s been a sudden slowdown in new credit extended to businesses over the last year, one that strategists at UBS are calling “drastic” and “highly uncommon outside of economic downturns.”

And since that time, lending has tightened up even more.  The following comes from Zero Hedge…

According to the latest Fed data [7], the all-important C&I loan growth contraction has not only continued, but over the past two months, another 50% has been chopped off, and what in early March was a 4.0% annual growth [4]is now barely positive, down to just 2.0%, and set to turn negative in just a few weeks. This was the lowest growth rate since May 2011, right around the time the Fed was about to launch QE2.

At the same time, total loan growth has likewise continued to decline, and as of the second week of May was down to 3.8%, the weakest overall loan creation in three years.

This is exactly what we would expect to see if we were entering a new recession.  Neil Howe, one of the authors of The Fourth Turning, recently warned that “winter is coming” and I have to admit that I agree with him.

So when the stock market finally crashes, how bad could it be?

Well, one analyst that spoke to CNBC said that other historic market crashes have averaged “about 42 percent”…

“If you look at the market historically, we have had, on average, a crash about every eight to 10 years, and essentially the average loss is about 42 percent,” said Kendrick Wakeman, CEO of financial technology and investment analytics firm FinMason.

And as I have explained many times in the past, stocks would have to fall about 40 to 50 percent from current levels just for the stock market to get back to “normal” again.  The valuations that we are seeing today are absolutely insane, and there is no possible way that they are sustainable.

When the crash happens, many people will be pointing their fingers at Trump, but it won’t be his fault.

Instead, it will be the Federal Reserve that will be at fault, and hopefully this coming crisis will convince the American people that it is time to end this insidious debt-based central bank for good.

Have We Just Reached Peak Stock Market Absurdity?

Have you ever wondered how tech companies that have been losing hundreds of millions of dollars year after year can somehow be worth billions of dollars according to the stock market?  Because I run a website called “The Economic Collapse“, there are naysayers out there that take glee in mocking me by pointing out how well the stock market has been doing.  This week, the Dow is flirting with 21,000 and the Nasdaq crossed the 6,000 threshold for the first time ever.  But a lot of the “soaring stocks” that have been fueling this rally have been losing giant mountains of money every single year, and just like the first tech bubble this madness will eventually come to an end in a spectacular fiery crash in which investors will lose trillions of dollars.

Anyone that cannot see that we are in the midst of an absolutely insane stock market bubble simply does not understand economics.  Every valuation indicator that you can possibly point to says that we are in a bubble of epic proportions, and history teaches us that all bubbles inevitably come to an end at some point.

Earlier today, I came across an article by Graham Summers in which he persuasively argued that the price to sales ratio indicates that stock prices are far more inflated than they were just prior to the great stock market crash of 2008…

Sales cannot be gimmicked. Either money comes in the door, or it doesn’t. And if a company is caught messing around with its sales numbers, someone is going to jail.

For this reason, Price to Sales is perhaps the single most objective and clear means of measuring stock valuations.

This metric, above all others, you can point to and say, “this is definitively accurate and has not been messed with.”

On that note, as Bill King recently noted, today the S&P 500 is sporting a P/S ratio that is massively higher than it was in 2007 and is only marginally lower than it was during the Tech Bubble (the single largest stock bubble of all time for most measures).

To me, looking at profitability is even more important than looking at sales.

Large tech companies such as Twitter certainly have lots of revenue coming in, but many of them are deeply unprofitable.

In fact, Twitter has never made a yearly profit, and over the past decade it has actually lost more than 2 billion dollars.

But despite all of that, investors absolutely love Twitter stock.  As I write this article, Twitter has a market cap of 11.5 billion dollars.

How in the world is that possible?

How can a company that has never made a single penny be worth more than 11 billion dollars?

Twitter is never going to be more popular than it is now.  If it can’t make a profit at the peak of its popularity, when will it ever happen?

And guess what?  ABC News says that Twitter actually just reported a decline in revenue for the most recent quarter…

Twitter has never turned a profit, and for the first time since going public in 2013, it reported a decline in revenue from the previous year. Its revenue was $548.3 million, down 8 percent.

Net loss was $61.6 million, or 9 cents per share, compared with a loss of $79.7 million, or 12 cents per share, a year earlier.

The only reason why financial black holes such as Twitter can continue to exist is because investors have been willing to pour endless amounts of money into them, but now that bubble is starting to burst.

In his most recent article, Simon Black discussed how Silicon Valley investors are starting to become more cautious because so many of these “unicorns” are now going bust.  One of the examples that he cited in his article was a company called Clinkle…

(Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.)

The company went on to burn through just about every penny of its investors’ capital.

There were even photos that surfaced of the 21-year old CEO literally setting bricks of cash on fire.

At the end of the farce, Clinkle never actually managed to build its supposedly ‘world-changing’ product, and the website is now all but defunct.

Most of you may have never even heard of Clinkle, but I bet that you have definitely heard of Netflix.

Netflix has revolutionized how movies are delivered to our homes, and that revolution helped drive movie rental stores to the brink of extinction.

There is just one huge problem.  It turns out that Netflix is losing hundreds of millions of dollars…

Netflix might be my favorite example.

The company’s most recent earnings report for the period ending March 31, 2017 shows, yet again, negative Free Cash Flow of MINUS $422 million.

Not only is that a record loss, it’s 62% worse than in Q1/2016, and over twice as bad as Q1/2015.

Netflix just keeps losing more and more money.

But even though Netflix is losing money at a pace that is exceedingly difficult to imagine, investors absolutely love the company.

I just checked, and at this moment Netflix has a market cap of 68.4 billion dollars.

Sometimes I just want to scream because of the absurdity of it all.

Companies that are losing hundreds of millions of dollars a year at the peak of their popularity should not be worth billions of dollars.

Nobody can possibly argue that these enormously inflated stock prices are sustainable.  Just like with every other stock market bubble in our history, this one is going to burst too, and I have been warning about this for quite a long time.

But for the moment, the naysayers are having their time to shine.  Despite the fact that U.S. consumers are 12 trillion dollars in debt, and despite the fact that corporate debt has doubled since the last financial crisis, and despite the fact that the federal government is 20 trillion dollars in debt, they seem to be convinced that this irrational stock market bubble can keep inflating indefinitely.

Perhaps they can all put their money where their mouth is by pouring all of their savings into Twitter, Netflix and other tech company stocks.

In the end, we will see who was right and who was wrong.

+ More