Investing

Just A Coincidence?: The Dow Goes From Being 567 Points Down To 567 Points Up At The Closing Bell

Seriously?  We were expecting that Tuesday would be an unusual day on Wall Street, and that was definitely the case.  At the low point, the Dow Jones industrial average was down 567 points, but at the closing bell it was up 567 points.  That is a swing of more than 1000 points, but what is more surprising is the exact symmetry of those numbers.  Is this just some sort of bizarre coincidence?

At the opening bell, stock prices collapsed and many were concerned that we were heading for another really bad day for investors.  According to CNBC, the Dow was down 567 points at the lowest point…

The Dow Jones industrial average opened with a big whoosh lower, then rallied all the way back. As of 3:41 p.m. ET, the Dow is 600 points higher and trading at a new session high. At its session low it was down by 567 points.

But then momentum shifted and the Dow soared.  By the end of the Day, the Dow Jones industrial average was up 567 points.  The following comes from CNN…

The Dow plunged 567 points at the open on Tuesday and briefly sank into correction territory — a drop of 10% from its record high. But those losses quickly vanished, and the index ended the day up 567.

It was the Dow’s biggest point gain since August 2015 and the fourth-largest in history. The percentage gain of 2.3% is the biggest since January 2016.

It is not unusual to see market swings of this magnitude during times of high volatility.  Even during times of panic, at some point the sellers get exhausted and investors looking for buying opportunities come surging in.  On Tuesday, this shift in momentum came almost immediately after the opening…

“I thought we were going to see the bottom within five minutes of when we opened. I think that’s basically what we’re seeing,” said Ed Keon, portfolio manager at QMA, the quantitative and dynamic asset allocation business of PGIM. “At these levels, stocks represent pretty good value and we’re adding to equity exposure.” Keon said it’s too early to call a bottom but he expects that the worse is over.

But just because the Dow was up more than 500 points today does not mean that the crisis is over.

It is important to remember that there are wild swings both ways during any market crisis.  For example, 9 of the 20 best days in stock market history were right in the middle of the financial crisis of 2008.  So if a new financial crisis is indeed brewing, we would certainly expect to see days when the Dow rises dramatically.

Markets tend to do well when things are calm, and they tend to go down when things get choppy.  So the fact that there was such volatility on Wall Street today is not a good sign.

Hopefully things will settle down, because the markets will not be able to handle too much more shaking.  There is so much leverage on Wall Street today, and as Carl Icahn recently told CNBC, one of these days all of this leverage is “going to blow up the market”…

Billionaire Carl Icahn told CNBC on Tuesday there are too many exotic, leveraged products for investors to trade, and one day these securities are going to blow up the market.

The market is a “casino on steroids” with all these exchange-traded funds and exchange-traded notes, he said.

These funds, especially the leveraged ones, are the “fault lines” that will eventually lead to an earthquake on Wall Street, he said. “These are just the beginnings of a rumbling.”

Wednesday will be a key day.  If the markets are nice and calm, that will be a really good sign.

But if we see tremendous movement in one direction or the other, that could indicate that more shaking is on the way.

In any event, the absurdly inflated stock prices of today are simply not sustainable.  Stock valuations always return to their long-term averages eventually, and that will be true in this case as well.

What goes up must come down, and we have certainly witnessed this with Bitcoin and other cryptocurrencies lately.  As far as stocks are concerned, the best that we can hope for in the long-term is a soft landing, but history tells us that is usually not how giant financial bubbles come to an end.

Michael Snyder is a pro-Trump 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.

-1,175 Points! We Just Witnessed The Largest One Day Stock Market Crash Ever

The mainstream media seems so surprised that the stock market is crashing, but the truth is that it isn’t a surprise at all.  In fact, this crash is way, way overdue.  If the Dow Jones industrial average fell another 10,000 points, stock prices would still be overvalued.  I have been warning and warning and warning that this would happen, because stock valuations always return to their long-term averages eventually.  On Monday, the Dow was down a staggering 1,175 points, which was the largest single day decline that we have ever seen by a very wide margin.  In fact, it shattered the old record by nearly 400 points.

Shortly after 3 PM, all hell broke loose on Wall Street.  The Dow dropped by more than 800 points in just 10 minutes.  At one point on Monday, the Dow was down nearly 1,600 points, but a brief rally cut those losses roughly in half.  However, the rally did not last long and stock prices collapsed hard as the market closed.  At this moment, the Dow is already down more than 2,200 points from the peak of the market, and we are not too far from officially entering “correction” territory.

Once stocks start falling, it can trigger a massive rush for the exits, and that is what happened on Monday.  In particular, investors started to panic once the Dow broke through the 50-day moving average…

“As soon as we broke the 50-day moving average … we saw volatility spike,” said Jeff Kilburg, CEO of KKM Financial. “It’s just been downhill from there.”

Other waves of selling were triggered once the 25,000 and 24,000 barriers on the Dow were breached.  In order to protect against losing too much money, many investors have stop losses set at psychologically-important levels.  The following comes from MarketWatch…

Amplifying the slump was computer-programmed trade set to dump shares at certain levels. According to traders, the Dow DJIA, -4.60% was set to trigger trades once it fell below 25,000 and 24,000, for example, and 2,700 for the S&P 500.

Markets almost always go down faster than they go up, and once panic begins to spread on Wall Street it doesn’t take much to create a massive stampede.

In the end, this next financial crisis will be far worse than it should have been.  The Federal Reserve and other global central banks have endlessly manipulated the financial markets, and they created the biggest financial bubble in human history.

When an irrational financial bubble is growing, it can seem like things are wonderful.  But all such bubbles eventually burst, and the bursting of the bubble often does far more damage than the good that was accomplished by the manipulation of the markets.

So was there anything specific that caused the panic on Wall Street on Monday?

Yes, interest rates are rising, but as Bloomberg has noted, there wasn’t really anything noteworthy in the news that triggered the selling…

While Friday’s market rout came amid U.S. wage data on Friday that pointed to quickening inflation, which would lead to higher rates and, in turn, rising borrowing costs for companies, the selling Monday came amid few major data points.

“I think sentiment was a little too optimistic,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “What was driving the market up in January? It wasn’t the fundamentals, as good as they were, it was excessive confidence.”

Ultimately, time simply runs out on all irrational financial bubbles.  It is interesting to note that the Tulip price index began to crash on this exact date in 1637, and we may look back and point to February 5th as the key moment when the “financial crisis of 2018” started.

Once again, let us hope for some type of a bounce tomorrow.  Often stock prices do rebound quite a bit after an enormous decline, and many are hoping that stock prices will soar on Tuesday.

But so far the news after the market closed in New York has all been bad.  For example, CNBC is reporting that XIV has fallen more than 80 percent after hours…

An exchange-traded security which is supposed to be a bet on calm markets was collapsing after hours.

The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) is down more than 80 percent in extended trading Monday. The security, issued by Credit Suisse, is supposed to give the opposite return of the Cboe Volatility index (VIX), the market’s widely followed turbulence gauge.

And as I write this article, it looks like markets all over Asia are going to be way down at the opening.

If stock prices keep collapsing, it could actually cause a major financial crisis.  So many financial institutions are deeply leveraged today, and many of them simply would not be able to handle a stock market decline of 30, 40 or 50 percent.

In particular, if things start to really unravel it will be important to pay special attention for any mention of “derivatives” in the financial news.  Once those dominoes start falling, we will see financial pain on a scale unlike anything that we have ever seen before in U.S. history.

Also, let us not forget that trouble signs continue to emerge for the “real economy”.  Just today, we learned that another major retail chain has filed for bankruptcy…

Bon-Ton Stores, the corporate parent of several department store chains, tumbled into Chapter 11 bankruptcy protection as the company seeks a fresh lease on life.

Bon-Ton, whose brands include Boston Store, Carson’s, Elder-Beerman and Younkers, had been on a fast track toward bankruptcy court after it recently announced plans to close 47 of its 260 stores.

I cannot stress enough that what happened on Monday is not a surprise.  The only surprise is that it took this long to happen.

Stock valuations need to fall another 40 or 50 percent just to get back to their long-term averages, and whether that happens very rapidly or takes an extended period of time, the truth is that stock valuations will return to those long-term averages.

Unfortunately for us, the central banks have created a bubble of such enormity that it could potentially collapse the entire global financial system when it finally fully bursts.

Let us hope for calmer markets on Tuesday, but let us also be mindful that at some point we are going to pay an exceedingly great price for years and years of horribly foolish decisions.

Michael Snyder is a pro-Trump 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.

-666 Points: We Just Witnessed The 6th Largest Single Day Stock Market Decline In U.S. History

On Friday, the Dow Jones Industrial Average fell 666 points (665.75 points to be precise), and many are pointing out that this was the 6th largest single day crash that we have ever seen.  This decline happened on the 33rd day of the year, and it was the worst day for the stock market by far since President Trump entered the White House.  I have been repeatedly warning that we are way overdue for a stock market crash, and many are concerned that we may be on the precipice of another great financial crisis.  We shall see what happens on Monday, because that will set the tone for the rest of the week.  If we see another huge decline early Monday morning, that could easily set off full-blown panic selling on Wall Street.

Rising interest rates appear to have been the trigger for the enormous market drop on Friday.  The following comes from the New York Post…

“We all know that many bull markets have ended by the Federal Reserve as they raise the rates to the point of slowing the economy down perhaps too much,” Quincy Krosby, chief market strategist at Prudential Financial, told The Post.

“It’s come on quickly and it caught the market off guard,” Krosby said.

The Dow sell-off brought it below the 26,000 plateau — to 25,520.96 — the biggest points drop since Dec. 1, 2008.

It is quite rare for the market to drop this much in a single day.  The largest single daily decline was a 777 point drop in 2008, and overall the Dow has fallen by more than 600 points less than 10 times throughout history…

The index posted a loss of nearly 666 points, its sixth-worst decline ever on a points basis.

The last time the index posted a drop of more than 600 points was June 24, 2016, the day after the Brexit vote.

The eight other times the Dow closed more than 600 points lower all took place in the last 18 years. Half occurred during the financial crisis in 2008.

My readers have heard me explain over and over that markets tend to go down a lot faster than they go up.

Once a market landslide begins, the movement can be absolutely breathtaking.  But none of this should come as any sort of a surprise, because even the Washington Post admits that “speculation of a market pullback” has been seemingly everywhere in recent days…

The airwaves and online chatter have been flooded in recent weeks with speculation of a market pullback like the one that thundered in on Friday.

“It looks like the beginning of a market correction,” said Luke Tilley, chief economist at Wilmington Trust, the wealth and investment advisory arm of M&T Bank. “It’s not something that is very surprising, given the low volatility that we saw in 2017.”

Right now we are in the terminal phase of a historic “double bubble” in both stocks and bonds.  Many times we will see one or the other get clobbered on a particular day, but Friday was a “bloodbath” for all asset classes…

Yesterday’s US equity market collapse and simultaneous bond market bloodbath was the biggest combined loss since December 2015, but perhaps more ominously, the week’s combined loss in bonds and stocks was the worst since Feb 2009.

So what will next week bring?

Hopefully things will settle down and we will see the markets start to bounce back.  After a huge decline, that is often what happens.

But it would be foolish to ignore the fear that appears to be growing on Wall Street.  At this point, even Bloomberg is openly wondering if this “is the start of something big?”…

Looking at the week’s drumbeat, you can’t help but wonder, is this the start of something big? Warnings about valuations have been pouring forth from bears for so long that barely anyone listens anymore. With the S&P 500 up almost 50 percent in less than two years, some see the end of the blissfully easy money that equities have spewed out for 13 straight months.

“It’s the turning point of volatility,” said Jeffrey Schulze, chief investment strategist at Clearbridge Investments, which manages $137 billion. “We were all very fortunate to go through a year like 2017. But there’s a number of different dynamics this year that will make volatility more part of the equation than it has been in quite some time.”

If the stock market does crash in 2018, it will not be a surprise.

The only surprise will be that it took this long to happen.

As I have stated over and over again, stock prices would need to fall by at least 40 or 50 percent just to get valuations back to their long-term averages, and stock prices always return to their long-term averages eventually.

Hopefully our day of reckoning has not arrived and this financial bubble can continue for a little while longer.

But if financial markets do begin to crash horribly this year, nobody will be able to say that they were not warned well ahead of time.

Michael Snyder is a pro-Trump 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.

Panic Grips U.S. Financial Markets As The Dow Falls 362 Points – Worst Drop In More Than A Year

It isn’t going to be a surprise when U.S. stock prices fall 50, 60 or 70 percent from where they are today.  The only real surprise is that it took this long for it to happen.  Even after falling 362 points on Tuesday, the Dow Jones industrial average is still ridiculously high.  In fact, the only two times in our entire history when stocks have been this overvalued were right before the stock market crash of 1929 and right before the dotcom bubble burst.  Not even before the financial crisis of 2008 were stock valuations as absurd as they are right now.

At one point on Tuesday, the Dow had declined by more than 400 points, and we have not seen this sort of panic in the stock market in a very long time.  In fact, we have to go all the way back to June 24, 2016 to find the last time that the Dow fell by at least this much.  The Dow has dropped by triple digits on back to back days for the first time since last April, and a lot of analysts are wondering what is coming next.

Of course most in the financial community have been waiting for some sort of a decline, because even mainstream analysts are openly admitting that what we have been witnessing is “not sustainable”…

“We’ve had a unilateral move higher [in stocks] to start things off and people are realizing this is not sustainable,” said Art Hogan, chief market strategist at B. Riley FBR. “You’re also seeing some cracks in the global story with interest rates rising.”

But where will things go from here?

Some believe that this is just a bump in the road and that the markets still have room to grow.  But others are warning that this “is not the time to take on more risk”…

Howard Marks warned investors about investing more funds in the stock market at its current level.

“We are living in a low return world, characterized by significant uncertainty,” Marks said on CNBC’s “Halftime Report” Tuesday. “This is not the time to take on more risk. Things have been going awful well for almost 10 years. That’s not the time to turn up the wick.”

And then there are the bears such as John Hussman that are warning that we are on the precipice of one of the worst stock market crashes in American history…

I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this cycle. My impression is that future generations will look back on this moment and say “… and this is where they completely lost their minds.”

I agree with John Hussman’s assessment.  Stock prices would need to decline by at least 50 percent from current levels in order for stock valuations to get back to their long-term averages.

And even though it may take a while, stock prices always return to their long-term averages.

Nothing about the long-term outlook has changed.  I have been warning about a devastating stock market crash for a very long time, and I will continue to warn my readers about one.  Because whether it happens next week, next month or next year, the reality of the matter is that all throughout our history stocks have always crashed after stock valuations have soared to these kinds of irrational levels.

On a personal note, I want to apologize for not writing very much this month.  I just returned from a very long campaign trip, and our hard work on the campaign trail has prevented me from getting much work done.

The good news is that the campaign is going incredibly well.  We are far ahead of where we thought we would be at this point, and with less than four months to go the race is incredibly close.

On Sunday, the very first debate was held in Coeur d’Alene, and all of the candidates were there.  To say that the fireworks were flying would be a major understatement.  If you have not seen the debate yet, you can watch it on YouTube right here.

The overwhelming consensus was that we were the hands down winner of this six-way debate. Here are some of the comments that were made by people that were watching the debate online as it was happening…

-“Michael was leaps and bounds set apart from the herd of politicians on that panel”

-“Michael has been more knowledgeable, pro-active and touched more people with his conservative message than everyone else up there combined”

-“Michael outshines them all! It is not about the money! it is about the power of people and the deplorables are WIDE AWAKE these days and we want the the right leaders in Congress to support our President!!!!”

-“Michael Snyder was the hands down Winner!! Great Job!!”

-“Michael Snyder was full of fervor and he spoke from the spirit! He is not an established candidate, he’s a true statesman!”

There were dozens more like that, but I think that you get the point.  It was exceedingly difficult to get all of the candidates to agree to come to this event, because there were some that were afraid that this sort of thing might happen, and now it will be even harder to get all of them to come out for similar events in the future.

The bad news is that a couple of my opponents are better funded than we are, and we need to close that gap.  Thanks to a tremendous surge in interest in our campaign, we desperately need to print up more campaign materials.  If you would like to help us print up more signs, more brochures and more mailers, you can contribute online right here…

https://www.michaelsnyderforcongress.com/contribute.html

May 15th is right around the corner, and if we all pull together we can win this race.  We need more people praying, more people volunteering, and more people donating.  This is our opportunity to take our government back, and if you believe in our positive conservative message, I truly hope that you will join our team.

Michael Snyder is a pro-Trump 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.

2017 Has Been The Best Year For The Stock Market EVER

We have never seen a better year for stocks in all of U.S. history.  Just five days after Donald Trump entered the White House, the Dow Jones Industrial Average hit the 20,000 mark for the first time ever.  On Monday, the Dow closed at 24,792.20, and there doesn’t seem to be any end to the rally in sight.  Overall, the Dow Jones Industrial Average is up more than 5,000 points so far in 2017, and that absolutely shatters all of the old records.  Previously, the most that the Dow had risen in a single year was 3,472 points in 2013.

Yes, I know that it may seem odd for a website that continually chronicles our ongoing “economic collapse” to be talking about a boom in stock market prices.  But of course there has not been a corresponding economic boom to match the rise in stock prices.  This artificial stock market bubble has been created by unprecedented central bank intervention, and every previous stock market bubble in our history has ended with a horrible crash.

But for the moment, it is certainly appropriate to be in awe of what has transpired in the financial markets in 2017.  Never before have we seen the Dow close at a record high 70 times in a single year, and we still have almost two weeks to go.

Stocks have risen every single month in 2017, and that is the very first time that has ever happened as well.  No matter how much bad news has come out, stock prices have just kept climbing and climbing and climbing.

Since Donald Trump’s surprise election victory last November, the Dow is up a whopping 34 percent.

34 percent!

Wall Street has never seen better times than this.  Overall, U.S. stockholders have seen more than 5 trillion dollars in paper gains since Trump was elected, and this has created a real estate boom in some of the wealthier areas of the nation.

Of course markets go down a lot faster than they go up, and that 5 trillion dollars in paper gains could be wiped out very rapidly in the event of a major disaster, but for the moment investors are absolutely thrilled with what has been happening.

Of course there are red flags all over the place, but not too many people are even paying attention at this point. Right now the S&P 500 is the most overbought that it has been since 1958, and earlier today a CNBC article declared that U.S. stocks are “very, very overbought”, but this will probably just encourage people to buy even more.

These days, if stocks are up that is a signal to buy, and if stocks are down that is a signal to buy.

Of course we witnessed similar euphoria just before the dotcom bubble burst and just before the financial crisis of 2008, but most Americans have extremely short memories.

For most of us, those crashes might as well be ancient history.

But just like in each of those cases, market euphoria tends to hit a peak before things completely fall apart.  Bill Stone, the chief investment strategist for PNC Asset Management Group, recently made this point very succinctly…

“It is going to get to a point where it can’t get any better anymore,” he said. “In the market it’s always brightest before it gets dark.”

Others are being even more blunt.  For example, trends forecaster Gerald Celente is convinced that “equity markets around the world are going to crash” in 2018…

“Yes.  Everyone knows that the markets are overvalued.  The Schiller PE ratios rival those of the pre-1929 stock market crash and the Dot-Com bubble…The Black Swan Event: When war breaks out in the Middle East, the equity markets around the world are going to crash.  The Black Swan that is going to create ‘Market Shock’ is going to be an outbreak of war in the Middle East.  And when that happens, you are going to see gold and silver skyrocket.  That’s our forecast for one of the top 10 trends of 2018.”

Personally, I never believed that the stock market bubble could ever be inflated to such absurd proportions, and so I am just in awe at what is taking place on Wall Street.

Since the last financial crisis our national debt has doubled, corporate debt has doubled, U.S. consumers are now 13 trillion dollars in debt, our economic infrastructure continues to be gutted, more than 40 million Americans are living in poverty and our financial institutions are being more reckless than at any other point in our entire history.

But for the moment, it is working.  We have been on the greatest debt binge in world history since the end of the last recession, and most people seem to believe that the debt-fueled standard of living that we are currently enjoying is somehow going to be sustainable.

Nothing about our long-term economic outlook has fundamentally changed.  Just because the authorities were able to extend this bubble for a little while longer does not mean that we are going to get to escape the consequences of decades of incredibly foolish decisions.

We just keep on mortgaging the future, but the funny thing about the future is that eventually it shows up.

And when our day of reckoning finally does arrive, the pain that it is going to cause is going to be absolutely off the charts.

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.

The Dow Peaked At 14,000 Before The Last Stock Market Crash, And Now Dow 24,000 Is Here

The absurdity that we are witnessing in the financial markets is absolutely breathtaking.  Just recently, a good friend reminded me that the Dow peaked at just above 14,000 before the last stock market crash, and stock prices were definitely over-inflated at that time.  Subsequently the Dow crashed below 7,000 before rebounding, and now thanks to this week’s rally we on the threshold of Dow 24,000.  When you look at a chart of the Dow Jones Industrial Average, you would be tempted to think that we must be in the greatest economic boom in American history, but the truth is that our economy has only grown by an average of just 1.33 percent over the last 10 years.  Every crazy stock market bubble throughout our history has always ended badly, and this one will be no exception.

And even though the Dow showed a nice gain on Wednesday, the Nasdaq got absolutely hammered.  In fact, almost every major tech stock was down big.  The following comes from CNN…

Meanwhile, big tech stocks — which have propelled the market higher all year — were tanking. The Nasdaq fell more than 1%, led by big drops in Google (GOOGL, Tech30) owner Alphabet, Amazon (AMZN, Tech30), Apple (AAPL, Tech30), Facebook (FB, Tech30) and Netflix (NFLX, Tech30).

Momentum darlings Nvidia (NVDA, Tech30) and PayPal (PYPL, Tech30) and red hot gaming stocks Electronic Arts (EA, Tech30) and Activision Blizzard (ATVI, Tech30) plunged too. They have been some of the market’s top stocks throughout most of 2017.

Many believe that the markets are about to turn down in a major way.  What goes up must eventually come down, and at this point even Goldman Sachs is warning that a bear market is coming…

“It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,” Goldman Sachs International strategists including Christian Mueller-Glissman wrote in a note this week. “All good things must come to an end” and “there will be a bear market, eventually” they said.

As central banks cut back their quantitative easing, pushing up the premiums investors demand to hold longer-dated bonds, returns are “likely to be lower across assets” over the medium term, the analysts said. A second, less likely, scenario would involve “fast pain.” Stock and bond valuations would both get hit, with the mix depending on whether the trigger involved a negative growth shock, or a growth shock alongside an inflation pick-up.

Nobody believes that this crazy stock market party can go on forever.

These days, the real debate seems to be between those that are convinced that the markets will crash violently and those that believe that a “soft landing” can be achieved.

I would definitely be in favor of a “soft landing”, but those that have followed my work for an extended period of time know that I do not think that this will happen.  And with each passing day, more prominent voices in the financial world are coming to the same conclusion.  Here is one recent example…

Vanguard’s chief economist Joe Davis said investors need to be prepared for a significant downturn in the stock market, which is now at a 70 percent chance of crashing.  That chance is significantly higher than it has been over the past 60 years.

The economist added, “It’s unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue.”

A stock market crash has followed every major stock bubble in our history, and right at this moment we are in the terminal phase of one of the greatest stock market bubbles ever.  There are so many indicators that are screaming that we are in danger, and one of the favorite ones that I like to point to is margin debt.  The following commentary and chart were recently published by Wolf Richter…

This chart shows margin debt (red line, left scale) and the S&P 500 (blue line, right scale), both adjusted for inflation to tune out the effects of the dwindling value of the dollar over the decades (chart by Advisor Perspectives):

Stock market leverage is the big accelerator on the way up. Leverage supplies liquidity that has been freshly created by the lender. This isn’t money moving from one asset to another. This is money that is being created to be plowed into stocks. And when stocks sink, leverage becomes the big accelerator on the way down.

Markets tend to go down much faster than they go up, and I have a feeling that when this market crashes it is going to happen very, very rapidly.

The only reason stock prices ever got this high in the first place was due to unprecedented intervention by global central banks.  They created trillions of dollars out of thin air and plowed those funds directly into the financial markets, and of course that was going to inflate asset prices.

But now global central banks are putting on the brakes simultaneously, and this has got to be one of the greatest sell signals that we have ever witnessed in modern financial history.

Even Federal Reserve Chair Janet Yellen says that she is concerned about causing “a boom-bust condition in the economy”, and yet she insists that the Fed is going to continue to gradually raise rates anyway…

Federal Reserve Chair Janet Yellen said the central bank is concerned with growth get out of hand and thus is committed to continuing to raise rates in a gradual manner.

“We don’t want to cause a boom-bust condition in the economy,” Yellen told Congress in her semiannual testimony Wednesday.

While Yellen did not specifically commit to a December rate hike, her comments indicated that her views have not changed with her desire for the central bank to continue normalizing policy after years of historically high accommodation.

I never thought that this stock market bubble would get this large.  We are way, way overdue for a financial correction, but right now we are in a party that never seems to end.

But end it will, and when that happens the pain that will be experienced on Wall Street will be unlike anything that we have ever seen before.

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.

Bank Of America Analyst: A ‘Flash Crash’ In Early 2018 ‘Seems Quite Likely’

Is the stock market bubble about to burst?  I know that I have been touching on this theme over and over and over again in recent weeks, but I can’t help it.  Red flags are popping up all over the place, and the last time so many respected experts were warning about an imminent stock market crash was just before the last major financial crisis.  Of course nobody can guarantee that global central banks won’t find a way to prolong this bubble just a little bit longer, but at this point they are all removing the artificial support from the markets in coordinated fashion.  Without that artificial support, it is inevitable that financial markets will experience a correction, and the only real question is what the exact timing will be.

For example, Bank of America’s Michael Hartnett originally thought that the coming correction would come a bit sooner, but now he is warning of a “flash crash” during the first half of 2018…

Having predicted back in July that the “most dangerous moment for markets will come in 3 or 4 months“, i.e., now, BofA’s Michael Hartnett was – in retrospect – wrong (unless of course the S&P plunges in the next few days). However, having stuck to his underlying logic – which was as sound then as it is now – Hartnett has not given up on his “bad cop” forecast (not to be mistaken with the S&P target to be unveiled shortly by BofA’s equity team and which will probably be around 2,800), and in a note released overnight, the Chief Investment Strategist not only once again dares to time his market peak forecast, which he now thinks will take place in the first half of 2018, but goes so far as to predict that there will be a flash crash “a la 1987/1994/1998” in just a few months.

That certainly sounds quite ominous.

Just so that there is no confusion, let me give you his exact quote…

“A flash crash (à la ’87/’94/’98) in H1 2018 seems quite likely, in our view, as the major sedative of volatility, the central banks, start to withdraw liquidity.”

Hartnett is making the same point that I have made repeatedly in recent weeks.  As the central banks withdraw the artificial support that has been propping up the markets ever since the last financial crisis, we will see if the markets can really maintain these absolutely ridiculous price levels on their own.

And we are not just talking about stock prices either.  In fact, Bill Blain believes that the coming crash will actually originate in the bond market…

The 2008 crisis, which was about consumer debt, was triggered by mortgages. We still have consumer debt crisis problems ahead, warns Blain, adding the next financial crisis is likely to be in corporate debt.

“More immediately, the realization a crisis is coming feels very similar to June 2007 when the first mortgage-backed funds in the US started to wobble.” He said it explains why “we’re seeing the highly levered sector of the junk bond markets struggle, and companies correlated to struggling highly levered consumers (such as health and telecoms) also in trouble.”

Stock markets don’t matter, according to the strategist. “The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market,” he said.

Asset prices of all classes have been pushed to absolutely absurd levels by the central banks.

If it wasn’t for central bank manipulation, stock prices would have never gotten this high, and the bond market would have never been pushed to such irrational extremes.

And it isn’t just the Federal Reserve that has been intervening directly in U.S. markets.

For example, did you know that the Swiss National Bank is now the eighth largest public holder of U.S. stocks in the entire world?

According to John Mauldin, the Swiss central bank has poured 17 billion dollars into our stock market so far this year, and overall they now own approximately 80 billion dollars worth of our stocks…

The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).

They have bought roughly $17 billion worth of US stocks so far this year. And they have no formula; they are just trying to manage their currency.

Think about this for a moment: They have about $10,000 in US stocks on their books for every man, woman, and child in Switzerland, not to mention who knows how much in other assorted assets, all in the effort to keep a lid on what is still one of the most expensive currencies in the world.

Switzerland is now the eighth-largest public holder of US stocks. And apparently they are concentrating on the largest of the large-cap stocks. The own 19 million shares of Apple (as of March 31).

They have made these purchases with money that they have literally created out of thin air.

If that sounds like “cheating” to you, that is because that is exactly what it is.

How in the world can stock prices possibly fall when global central banks are creating colossal mountains of money out of thin air and are using that money to buy stocks?

The central banks created this ridiculous stock market bubble, and they can also burst the bubble by pulling back on the level of artificial support, and that is precisely what we see happening right now.

So don’t buy into the hype.  All that really matters is what the central banks choose to do, and if they wanted to continue to pump enormous amounts of money into the financial markets they could continue to pump up this absurd financial bubble that we are currently witnessing.

But at the moment they appear to be pulling back, and that makes a very “interesting” 2018 for the financial markets much more likely.

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.

The Yield Curve Has Not Been This Flat In 10 Years, And Many Believe This Is A Sign That A Recession Is Imminent

Whenever we see an inverted yield curve, a recession almost always follows, and that is why many analysts are deeply concerned that the yield curve is currently the flattest that it has been in about a decade.  In other words, according to one of the most reliable indicators that we have, we are closer to another recession than we have been at any point since the last financial crisis.  And when you combine this with all of the other indicators that are screaming that a new crisis is on the horizon, a very troubling picture emerges.  Hopefully this will turn out to be a false alarm, but it is looking more and more like big economic trouble is coming in 2018.

The professionals on Wall Street take the yield curve very, very seriously, and the fact that it has gotten so flat has many of them extremely concerned.  The following comes from Business Insider…

In the past, including before the Great Recession of 2007-2009, an inverted yield curve, where long-term interest rates fall below their short-term counterparts, has been a reliable predictor of recessions. The bond market is not there yet, but a sharp recent flattening of the yield curve has many in the markets watchful and concerned.

The US yield curve is now at its flattest in about 10 years — in other words, since around the time a major credit crunch of was gaining steam. The gap between two-year note yields and their 10-year counterparts has shrunk to just 0.63 percentage point, the narrowest since November 2007.

If the yield curve continues to get even flatter, it will spark widespread selling on Wall Street, and if it actually inverts that will set off total panic.

And with each passing day, even more of the “experts” are warning of imminent market trouble.  For example, just consider what Art Cashin told CNBC the other day…

Investors may want to take cover soon.

Art Cashin, UBS’ director of floor operations at the New York Stock Exchange, says a “split personality” is manifesting itself in the stock market, and it could hit Wall Street where it hurts at any moment.

“We’ve been setting record new highs, and often the breadth has been negative. We’ve had more declines than advances,” Cashin said Thursday on CNBC’s “Futures Now.”

When the financial markets finally do crash, it won’t exactly be a surprise.

In fact, we are way, way overdue for financial disaster.

Since the last financial crisis, we have been on the greatest debt binge in human history.  U.S. government debt has gone from $10 trillion to $20 trillion, corporate debt has doubled, and U.S. consumer debt has now risen to nearly $13 trillion.

Debt brings consumption from the future into the present, and so it increases short-term economic activity at the expense of long-term financial health.

But we simply cannot continue to grow debt much, much faster than the overall economy is growing.  I have never talked to anyone that believes that our debt binge is sustainable, and I doubt that I ever will.

The only reason why we have even gotten this far is because interest rates have been pushed to historically low levels.  If the average rate of interest on U.S. government debt even returned to the long-term average, we would be paying more than a trillion dollars a year in interest on the national debt and the game would be over.  Unprecedented intervention by the Federal Reserve and other global central banks has pushed interest rates way below the real rate of inflation, and that has bought us extra time.

But now the Federal Reserve and other global central banks are reversing course in unison, and global financial markets are already starting to decline.

The only way we can keep putting off the next financial crisis is if we continue our unprecedented debt binge and if global central banks continue to artificially prop up the financial markets.

Of course more debt and more central bank manipulation would just make the eventual financial disaster even worse, but that is what we are faced with at this point.

Most people simply don’t understand the gravity of the situation.  Nothing was ever fixed after the last financial crisis.  Instead, we went on the greatest debt binge that humanity has ever seen, and central banks started creating trillions of dollars out of thin air and recklessly injected that hot money into the financial system.

So now we are in the terminal phase of the largest financial bubble in human history, and there is no easy way out.

We basically have two choices.  We can have a horrific financial crisis now, or we can have one a little bit later.

Usually the choice is “later”, and that is why our leaders have been piling on the debt and global central banks have been recklessly creating money.

But it is inevitable that our bad choices will catch up with us eventually, and when that happens the pain that we are going to experience is going to be absolutely off the charts.

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.

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