Crash – Page 2 – The Burning Platform

Permanently High Plateaus Have Poor Precedents

“Stock prices have reached what looks like a permanently high plateau.”

Irving Fisher, October 21, 1929

“Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits.”

Hyman Minsky

“Participants in the speculative situation are programmed for sudden efforts at escape. Thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated.”

John Kenneth Galbraith

Despite a near-term outlook that remains rather neutral (though with negative skew), we believe that one requires either a disregard or an ignorance of market history to dismiss the likelihood of a 40-55% market retreat over the completion of the current market cycle. From present valuations, a market loss of that magnitude would not be a worst-case scenario, but merely a run-of-the-mill completion of the current market cycle. On a longer horizon, we presently estimate that S&P 500 nominal total returns are likely to average just 0-2% annually over the coming 10-12 years, with negative expected real returns on both horizons. Since the dividend yield on the S&P 500 exceeds 2% here, that also implies that we fully expect the S&P 500 Index to trade at a lower level in 10-12 years than it does today.

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The good news here is that in order to achieve a zero 10-12 year return despite deep interim losses, we should also expect opportunities for strong market advances over this horizon. As I’ve noted frequently over the years, the most favorable market return/risk profile we identify is associated with a material retreat in market valuations that is then joined by an early improvement in our measures of market action. I have every expectation that this opportunity will emerge over the completion of the current market cycle.

Based on valuation measures having the strongest correlation with actual subsequent market returns across history, equity valuations have approached present levels in only a handful of instances: 1901 (followed by a -46% market retreat over the following 3-year period), 1906 (followed by a -45% retreat over the following year), 1929 (followed by a -89% collapse over the following 3 years), 1937 (followed by a -48% loss over the following year), 2000 (followed by a -49% market loss over the following 2 years), and 2007 (followed by a -57% market loss over the following 2 years). A few lesser extremes occurred in the 1960’s and 1970’s, followed by market losses in the -35% to -48% range.

Read Hussman’s Weekly Letter

In Biggest Victory For Saudi Arabia, North Dakota’s Largest Oil Producer Suspends All Fracking

But, but, but Wall Street shysters, CNBC, and dozens of oil company cheerleaders all told me shale oil was still profitable at $30 a barrel. WTF??? Why would the biggest Bakken fracker stop fracking? Was someone telling fibs? Those Wall Street and MSM jokesters!!!

Submitted by Tyler Durden on 02/24/2016 21:48 -0500

Yesterday, during his speech at CERAWeek in Houston, Saudi oil minister Ali al-Naimi made it explicitly clear that Saudi Arabia would not cut production, instead saying that it is high-cost producers that would need to either “lower costs, borrow cash or liquidate” adding that there is “no need for cuts as marginal barrel will get out of the market.” He was right.

Today his wish is slowly coming true after news that North Dakota’s largest producer, Whiting Petroleum, would suspend all fracking, and that Continental Resources has effectively done the same after reporting that it no longer has any fracking crews working in the Bakken shale.

As Reuters reports, Whiting said it would “suspend all fracking and spend 80 percent less this year, the biggest cutback to date by a major U.S. shale company reacting to the plunge in crude prices.”

It was also confirmation that the Saudi plan to put high-cost producers on ice is working, if only temporarily.

After sliding 5.6% to $3.72, Whiting stock jumped 8% to over $4 per share in after-hours trading as investors cheered the decision to preserve capital, even if it means generating far less revenue.

Whiting’s cut is one of the largest so far this year in an energy industry crippled by oil prices at 10-year lows. The cuts will have a big impact in North Dakota, where Whiting is the largest producer.The Denver-based company said it would stop fracking and completing wells as of April 1. Most of its $500 million budget will be spent to mothball drilling and fracking operations in the first half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance.

Continue reading “In Biggest Victory For Saudi Arabia, North Dakota’s Largest Oil Producer Suspends All Fracking”

The Financial Markets Are One Big Cartoon Network

Guest post by Investment Research Dynamics

It seems to never end. The markets do the opposite of what would be expected based on undeniable evidence about the fundamentals and common sense. Just this morning, for instance, the S&P 500 pops up overnight and then promptly goes red after the NYSE opens. Then one of the Fed sock-puppets makes a comment about oil bottoming and the S&P 500 takes off like Roman candle. Overnight Gold was also up about $4. A report hit the tape that some of the ECB members wanted more money printing. Money printing is a fundamental event that should send gold inexorably higher. Instead, gold was slammed $10 as soon at the news item hit the tape.

This drool that is served up from the policy makers and political leaders in the U.S. is nothing short of a laughable insult to our collective intelligence. But, then again, it would seem that this country has slid down that slippery slope into idiocy. I received this email from a colleague who is an investment advisor. He’s one of the few that understand what is happening in this country. Clearly his clients have been mesmerized by the clown show:

I can’t tell you how many times I have been in meeting with investors and explained common sense truths, only to have their eyes completely glass over. Usually, they immediately proceed to ask me about Amazon, Netflix, Apple and Google. People really are that clueless. One of my clients, that owns PHYS, told me he really didn’t want any more than 10% gold and wanted me to look at cloud computing stocks.

I had another client leave me recently because we had an allocation to gold, cash and stocks. They went to Fidelity and purchased 4 growth funds and long term bonds. They told me that Fidelity was a bigger company and they were bullish stocks. I laughed myself to sleep that night and watched their account fall 8% the first week of 2016.

It is totally insane how clueless your average person with investable assets is. I can’t even imagine how insanely ignorant the people that are that live paycheck to paycheck. It’s truly scary because those people really and truly believe it’s the rich that keep them poor and they believe the government is their only ally.

Continue reading “The Financial Markets Are One Big Cartoon Network”

MAYBE VALUATIONS DO MATTER

The raging bulls were so sure of themselves a few months ago. Valuation measures were for suckers. This time was different. It’s the new Obama economy. Profits are so old school. I suddenly sense a little panic amongst the big swinging dick Wall Street traders. Not too much scorn and laughter being directed towards John Hussman lately.

I wonder if the brainless twits and shills on CNBC will be telling their audience that the S&P 500 is now lower than it was in May 2014. That’s right. Anyone in the stock market over the last 20 months hasn’t gained a penny. The S&P 500 is now down 11% from its all-time high in May 2015. Only 40% or 50% more to go to reach fair value.

Remember the can’t miss hot stocks being touted by Wall Street and their CNBC mouthpieces? The IPOs were being rolled out like crazy in 2015 and the stocks would soar to heights not seen since the good old Dotcom bubble. Let’s take a look at those fantastic can’t miss opportunities of a lifetime:

Continue reading “MAYBE VALUATIONS DO MATTER”

HAPPY “CHINESE” NEW YEAR

Isn’t it funny how those in power feel the need to shut down the free market when stocks plunge by 7%? Would they shut down the market if prices had soared by 7%? Welcome to 2016 folks. The markets have been rigged for years. The debt levels are unsustainable. The jig is up. Shit is hitting the fan. Just buy and hold. That’ll work out real well for ya.

China Halts Stock Trading For Day After Entire Market Crashes

Submitted by Tyler Durden on 01/04/2016 01:11 -0500

Following the initial halt in CSI-300 Futures at the 5% limit down level, the afternoon session opened to more carnage and amid the worst ‘first day of the year’ in at least 15 years, Chinese stocks collapsed further to a 7% crash. At 1334 local time, stock trading was halted for the rest of the day across all exchanges (at least two hours early).

As Bloomberg reports,

Chinese stock trading was halted for the rest of the day after the CSI 300 Index plunged more than 7 percent.

Trading of shares and index futures was halted from about 1:34 p.m. local time, according to data compiled by Bloomberg.

Stocks fell as manufacturing contracted for a fifth straight month and investors anticipated the end of a ban on share sales by major stakeholders.

Under the mechanism which only became effective Monday, a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent close the market for the rest of the day. The CSI 300 of companies listed in Shanghai and Shenzhen fell as much as 7.02 percent before trading was suspended.

Not a happy new year…

Dow futures are now down over 150 points from NYE close, Gold and Treasuries are bid, and offshore Yuan has plunged most since the August devaluation.

THIS TIME ISN’T DIFFERENT

Last year ended with a whimper on Wall Street. The S&P 500 was down 1% for the year, down 4% from its all-time high in May, and no higher than it was 13 months ago at the end of QE3. The Wall Street shysters and their mainstream media mouthpieces declare 2016 to be a rebound year, with stocks again delivering double digit returns. When haven’t they touted great future returns. They touted them in 2000 and 2007 too. No one earning their paycheck on Wall Street or on CNBC will point out the most obvious speculative bubble in history. John Hussman has been pointing it out for the last two years as the Fed created bubble has grown ever larger. Those still embracing the bubble will sit down to a banquet of consequences in 2016.

At the peak of every speculative bubble, there are always those who have persistently embraced the story that gave the bubble its impetus in the first place. As a result, the recent past always belongs to them, if only temporarily. Still, the future inevitably belongs to somebody else. By the completion of the market cycle, no less than half (and often all) of the preceding speculative advance is typically wiped out.

Hussman referenced the work of Reinhart & Rogoff when they produced their classic This Time is Different. Every boom and bust have the same qualities. The hubris and arrogance of financial “experts” and government apparatchiks makes them think they are smarter than those before them. They always declare this time to be different due to some new technology or reason why valuations don’t matter. The issuance of speculative debt and seeking of yield due to Federal Reserve suppression of interest rates always fuels the boom and acts as the fuse for the inevitable explosive bust.

Continue reading “THIS TIME ISN’T DIFFERENT”

The Deadly Truth About the Great Boom and This “Recovery”

Guest Post by Harry Dent

Harry_headshot-150x150 A Yahoo Finance headline this morning reads: “Unhappy New Year: The U.S. Economy Is Stalling Out.”

We recently learned that existing home sales in November crashed 10.5% from the month before.

Guess when the last time was when we saw these levels? The housing crisis of the mid- to late-2000s!

I also recently shared a chart showing a cataclysmic 82% drop in the ratio of new home sales to the U.S. population. To put it simply, we won’t need more real estate for decades to come, with baby boomers increasingly dying to offset rising millennial home purchases.

I and a few other experts like David Stockman have continued to argue that this re-bound since 2009 has been all smoke and mirrors – artificial stimulus that has only created greater bubbles in financial assets like stocks, and financial engineering to create rising corporate profits. None of it goes toward real expansion for future jobs, productivity and growth… things like new office space and industrial capacity.

Wall Street analysts and corporate CEOs can argue against this with their “this is not a bubble” logic, but this chart tells the real story.

Below is a chart that shows the office space per worker in square feet. It shows a rise into the height of the financial crisis, after which it’s fallen like a rock!

Continue reading “The Deadly Truth About the Great Boom and This “Recovery””

DEJA VU ALL OVER AGAIN

Janet Yellen will increase interest rates for the first time in nine years on Wednesday. She isn’t raising them because the economy is strengthening. The economy just happens to be weakening rapidly, as global recession takes hold. The stock market is 3% lower than it was in December 2014, and has basically done nothing since the end of QE3. Wall Street is throwing a hissy fit to try and stop Janet from boosting rates by an inconsequential .25%. Janet would prefer not to raise rates, but the credibility and reputation of her bubble blowing machine is at stake. The Fed has enriched their Wall Street benefactors over the last six years, while destroying the real economy and the middle class.

The quarter point increase will be reversed in short order as soon as we experience market collapse part two. It will be followed with negative interest rates and QE4, as these academics have only one play in their playbook – print money. They created the last financial crisis and have set the stage for the next – even bigger collapse. John Hussman explains how their zero interest rate policy has driven speculators into junk bonds as the only place to get any yield.

Continue reading “DEJA VU ALL OVER AGAIN”

Dislocation Watch: Getting Run Over on Third Avenue

Guest Post by Pater Tenebrarum

Trouble in High Yield Bonds Begins to Spread

It has become clear now that the troubles in the oil patch and the junk bond market are beginning to spread beyond their source – just as we have always argued would eventually happen. Readers are probably aware that today was an abysmal day for “risk assets”. A variety of triggers can be discerned for this: the Chinese yuan fell to a new low for the move; the Fed’s planned rate hike is just days away; the selling in junk bonds has begun to become “disorderly”.

Photo credit: ORF

Recently we said that JNK looked like it may be close to a short term low (we essentially thought it might bounce for a few days or weeks before resuming its downtrend). We were obviously wrong. Instead it was close to what is beginning to look like some sort of mini crash wave:

Continue reading “Dislocation Watch: Getting Run Over on Third Avenue”

Is This What Happens On Monday?

Submitted by Tyler Durden on 12/11/2015 17:45 -0500

Four months ago, China decided to devalue the Yuan sending a shudder up and down collateral chains globally and forcing carry trade unwinds and derisking everywhere. Friday August 21st saw notable weakness as that weakness washed ashore in US equities.. and then Black Monday struck. The ensuing debacle stalled The Fed and shocked markets.

The last week, we have seen China devalue the Yuan very significantly, EM capital markets turmoiling, and today, that was ashore in US equities… what happens next?

Deja vu?

As a reminder, JPMorgan’s “seer” Marko Kolanovic warned this week that…

Continue reading “Is This What Happens On Monday?”

PLAIN TRUTH CHART OF THE DAY

The three quotes below sum up my views on the chart below. The stock market is the most overvalued in history. You’ve been warned.

“Facts do not cease to exist because they are ignored.” ― Aldous Huxley

“That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.” ― Aldous Huxley

“Sooner or later we all sit down to a banquet of consequences” ― Robert Louis Stevenson

THE WORSE THINGS GET FOR YOU, THE BETTER THEY GET FOR WALL STREET

On October 2 the BLS reported absolutely atrocious employment data, with virtually no job growth other than the phantom jobs added by the fantastically wrong Birth/Death adjustment for all those new businesses springing up around the country. The MSM couldn’t even spin it in a positive manner, as the previous two months of lies were adjusted significantly downward. What a shocker. At the beginning of that day the Dow stood at 16,250 and had been in a downward trend for a couple months as the global economy has been clearly weakening. The immediate rational reaction to the horrible news was a 250 point plunge down to the 16,000 level. But by the end of the day the market had finished up over 200 points, as this terrible news was immediately interpreted as good news for the market, because the Federal Reserve will never ever increase interest rates again.

Over the next three weeks, the economic data has continued to deteriorate, corporate earnings have been crashing, and both Europe and China are experiencing continuing and deepening economic declines. The big swinging dicks on Wall Street have programmed their HFT computers to buy, buy, buy. The worse the data, the bigger the gains. The market has soared by 1,600 points since the low on October 2. A 10% surge based upon lousy economic info, as the economy is either in recession or headed into recession, is irrational, ridiculous, and warped, just like our financial system. This is what happens when crony capitalism takes root like a foul weed and is bankrolled by a central bank that cares only for Wall Street, while throwing Main Street under the bus.

Continue reading “THE WORSE THINGS GET FOR YOU, THE BETTER THEY GET FOR WALL STREET”

Don’t Believe the Propaganda… This Golden Goose is Dead

Via Casey Research

Oil companies are drilling a lot less in North Dakota than they were a year ago…

Today’s chart shows the number of active oil rigs in North Dakota. From 2011 to 2014, the number of active rigs held steady at around 190. Today, there are only 68 rigs operating in the state.

The number of active rigs has plummeted by two-thirds in just a year. That’s because it’s almost impossible for oil companies in North Dakota to make a profit when oil is $45/barrel.

The huge drop in production isn’t just creating problems for the state’s oil industry. The North Dakota Petroleum Council says that each active rig translates into 120 total jobs. The crash in oil could end up costing North Dakota’s economy up to 15,000 jobs.

This once-booming oil town is quickly turning into a ghost town…

If you follow the oil market, you may have heard of Williston, North Dakota. It’s small…home to just about 30,000 people. And it’s in the middle of nowhere…about an hour south of the U.S.-Canada border. But it’s also right in the thick of the Bakken Formation…

The Bakken is the second largest oil patch in the United States. It covers 200,000 square miles, making it about 20% bigger than the state of California. It holds an estimated 400 billion barrels of oil.

Oil companies have known about the Bakken’s rich oil supply for decades, but until recently, it wasn’t economical to drill for it. That’s because oil in the Bakken is trapped deep within rocks. It’s called “shale oil,” and it’s much more expensive to drill for than conventional oil.

But a few years ago, rapid advances in drilling technology and high oil prices made it economical to drill for shale oil. This triggered a huge U.S. energy boom.

Continue reading “Don’t Believe the Propaganda… This Golden Goose is Dead”

4 Warnings And Why You Should Pay Attention

Submitted by Lance Roberts via STA Wealth Management,

When I was growing up my father, probably much like yours, had pearls of wisdom that he would drop along the way. It wasn’t until much later in life that I learned that such knowledge did not come from books, but through experience. One of my favorite pieces of “wisdom” was:

“Exactly how many warnings do need before you figure out that something bad is about to happen?”

Of course, back then, he was mostly referring to warnings he issued to me “not” to do something I was determined to do such as jumping off the roof with a bedsheet convinced it was a parachute. After I had broken my wrist, I understood what he meant.

Over the weekend, those warnings came to mind as the recent bounce in the financial markets once again has individuals scrambling to grab “bedsheets” to jump off the roof once again. Of course, much of their behavior is driven by mainstream commentary suggesting that the recent market rout is over.

However, there are currently plenty of warning signs that suggest that individuals might want to reconsider the risks before taking that leap. Here are four warnings to consider.