Stock market crash – Page 6 – The Burning Platform

Why We’d Welcome a Depression

Guest Post by Bill Bonner

Connecting the Dots

DUBLIN – Dow down 252 on Wednesday – or 1.5%. Chevron, Apple, and Goldman Sachs leading the retreat. The press blamed China, North Korea, oil, and “geopolitical concerns.”

So far this year, the Dow has lost 3% of its value [ed. note: as of Thursday’s close it has lost a little over 5%]. Let’s see… We believe it is headed for a 50% loss. So, at this rate… we’ll be there by June!

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A less than joyous start to the new year: the DJIA has so far delivered its worst first trading week since at least 1900. That’s the year 1900 in case you were wondering – click to enlarge.

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THE HERD IS HEADING FOR A CLIFF

You would think investors (muppets) would be grateful for the extended topping process of the stock market, as it has given them the opportunity to exit before the inevitable crash. As CNBC and the rest of the mainstream media spin bullish stories to keep the few remaining mom and pop investors sedated and the millions of passive working Americans invested in their 401ks, the Wall Street rigging machine siphons off billions in ill-gotten gains, while absconding with fees for worthless advice.

Does the average schmuck know the S&P 500 stood at 2,063 on November 21, 2014 and currently sits at 2,056, thirteen months later? Based on the media narrative, we are still in the midst of a raging bull market. John Hussman provides the counterpoint to this narrative with unequivocal factual evidence based upon a hundred years of stock market data and valuations. Anyone investing in today’s market should expect ZERO returns over the next ten years and a 40% to 55% plunge in the near future. And as a cherry on top, a recession has arrived.

The summary of this outlook is straightforward. I view the equity market as being in the late-stage top formation of the third financial bubble in 15 years. Based on a century of evidence relating the most historically reliable valuation measures to actual subsequent market returns, neither a market plunge of 40-55% over the completion of the current cycle, nor the expectation of zero 10-12 year S&P 500 nominal total returns, nor the likelihood of substantially negative 10-12 year real returns should be viewed as worst-case scenarios – they are all actually run-of-the-mill expectations from current extremes. Based on the joint behavior of the most reliable leading economic measures (particularly new orders plus order backlogs, minus inventories), widening credit spreads, and clearly deteriorating market internals, our economic outlook has also moved to a guarded expectation of a U.S. recession.

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Skew (S&P 500 Crash Risk) Rises To Highest Level Ever!

Guest Post by Anthony Sanders

The CBOE Skew index, a measure of tail risk for the S&P 500 index, just exploded.

It is now at the highest level on record.

It looks like an S&P 500 index downturn follows the SKEW breaching the 140 level.

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THIS BEAR IS JUST WAKING FROM HIBERNATION

“Every man has a right to his own opinion, but no man has a right to be wrong in his facts” ― Bernard M. Baruch

“The main purpose of the stock market is to make fools of as many men as possible.” ― Bernard M. Baruch

As the market drops 200 to 300 points daily on a fairly frequent basis these days, and has now dropped 13% in the last four months, John Hussman’s valuation analysis based upon historical facts is proving to be accurate. He’s not an “I told you so” type of person, but I am. The MSM stories follow the same old storyline – this is just a correction, time to buy the dip, stocks are undervalued, the Fed won’t let the market fall. We’ve been here before, twice in the last fifteen years. Wall Street and their media mouthpieces attempted to spread misinformation about the nature of the markets in 2000 and 2007, as epic bear markets were just getting underway. John Hussman cut through their crap then and he is cutting through it now.

“Is our profession really so lazy that we would advise people to risk their financial security based on tinker-toy models and pretty pictures that we don’t even have the rigor to test historically? Investors appear eager to ‘scoop up’ so-called ‘bargains’ on the belief that stocks are ‘cheap relative to bonds.’ All of this is predicated on the belief that profit margins will remain at record highs, that the Fed Model is correct, and that P/E ratios based on extremely elevated measures of earnings should be evaluated based on norms for much more restrained measures of earnings. Based on daily closing prices, the S&P 500 has not even experienced a 10% correction, yet the recent decline has been characterized as if investors are acting ‘like the world is about to end.’ This is not the pinnacle of human irrationality, but in fact, quite a shallow selloff from a historical standpoint. The fact that Wall Street is branding it otherwise is evidence that investors have completely forgotten how deep the market’s losses can periodically become.”

Hussman Weekly Market Comment, August 2007
Long-Term Evidence on the Fed Model and Forward Operating P/E Ratios

“Given the damage already wrought on the Nasdaq, there is a natural inclination to buy the dip. We believe that there is little merit in doing so. The current market climate is characterized by extremely unfavorable valuations, unfavorable trend uniformity, and hostile yield trends. This combination is what we define as a Crash Warning, and this climate has historically occurred in less than 4% of market history. That 4% of market history includes the 1929 crash and the 1987 crash, as well as a number of less memorable crashes and panics. We prefer to hedge until there is a rational prospect for market gains. When valuations are favorable, stocks are attractive from the standpoint of ‘investment’ – meaning that stock prices are attractive compared to the conservatively discounted value of cash flows which will be thrown off in the future. When trend uniformity is favorable, stocks are attractive from the standpoint of ‘speculation’ – meaning that regardless of valuation, investors are displaying an increased tolerance for risk which favors a further advance in prices.”

Hussman Investment Research & Insight, November 2000

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TWO OUTS IN THE BOTTOM OF THE NINTH

The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.

The millions in upfront fees, along with their lack of conscience in bribing Moody’s and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child’s play compared to the last six years).

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S&P 500 EARNINGS HAVE FALLEN AND CAN’T GET UP

It’s a long way down folks. S&P 500 earnings are already down 12% from their all-time highs. They reached these heights due to the Federal Reserve ZIRP and QE, along with the pocket protector wearing accountants at the FASB knuckling under to Bernanke and Geithner and allowing the Wall Street banks to report fake profits. Reversing hundreds of billions in loan loss reserves booked in 2009 while “earning” billions from parking money at the Fed has allowed Wall Street banks to report $700 billion of fake profits since 2010.

The massive corporations that make up the S&P 500 have generated increasing profits by refinancing their debt at the artificially lowered rates from the Fed, raising prices, moving jobs to foreign countries, and giving their workers 2% raises. Revenue growth among the S&P 500 has been non-existent. The game is up. There are no more employees to fire. There are no more loan loss reserves to reverse. There is no more debt to refinance. QE is done. The Fed can’t lower interest rates below 0%.

Profits are falling and will continue to fall. The stock market will follow.

Chart of the Day

With Q2 earnings largely in the books (over 97% of S&P 500 firms have reported), today’s chart provides some long-term perspective on the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today’s chart illustrates the dramatic nature of the earnings plunge during the financial crisis as well as the recovery that followed — a recovery that took earnings from levels not seen since the Great Depression to a new record high. Over the past two quarters, however, S&P 500 inflation-adjusted earnings have declined by a significant 12% from their record highs — a significant concern going forward.

100% risk of a 50% stock crash

Guest Post by Paul B. Farrell

Another $10 trillion loss, long recession dead ahead

Republican 2016 U.S. presidential candidate businessman Donald Trump talks with fellow candidate and former Florida Gov. Jeb Bush during a commercial break at the first official Republican presidential candidates debate of the 2016 U.S. presidential campaign in Cleveland Aug. 16.

“Who will get the Dreary Recovery Going?” taunts Mort Zuckerman in a Wall Street Journal op-ed. The head of U.S. News & World Report warns America that a recession is coming: “They occur about every eight years and America is ill-prepared to weather the one on the horizon.” Ill-equipped.

Yes, the clock is ticking, every 8 years. 2000. 2008. Next 2016, even with a President Trump.

Another great newsman, Bill O’Neill, publisher of Investors Business Daily, author of perennial best-seller “How To Make Money in Stocks,” agrees: Markets have peaked and crashed roughly every four years for the last century, with bigger crashes, long recessions, every eight years. And still most investors will be ill-prepared.

Sounds like a double-teamed confirmation of Jeremy Grantham’s famous BusinessInsider prediction for 2016: “Around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse.”

Get it? A mega crash is coming, dropping half off its peak, down below Dow 5,000. Not just another 1,000-point correction like last month. But a heart-stopping collapse coinciding with the 2016 elections … then a long systemic recession … probably lasting till the 2020 presidential election, maybe longer … no matter who’s in the White House, Doanld Trump, Jeb Bush or Hillary Clinton.

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THE VALUE OF “EXPERTS”

“We will not have any more crashes in our time.” – John Maynard Keynes (1927)

“There will be no interruption of our permanent prosperity.” – Myron E. Forbes, President, Pierce Arrow Motor Car Co. (January 12, 1928)

“There is no cause to worry. The high tide of prosperity will continue.” – Andrew W. Mellon, Secretary of the Treasury. (September 1929)

“There may be a recession in stock prices, but not anything in the nature of a crash.” – Irving Fisher, Leading U.S. Economist, New York Times (Sept. 5, 1929)

“Secretary Lamont and officials of the Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal ReserveBo ard.” – New York Times (October 14, 1929)

“This crash is not going to have much effect on business.” – Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago (October 24, 1929)

“We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.” –Goodbody and Company Market-letter Quoted in The New York Times (Friday, October 25, 1929)

“Financial storm definitely passed.” – Bernard Baruch, cablegram to Winston Churchill (November 15, 1929)

“The Government’s business is in sound condition.” – Andrew W. Mellon, Secretary of the Treasury (December 5, 1929)

“President Hoover predicted today that the worst effect of the crash upon unemployment will have been passed during the next sixty days.”WashingtonDispatch (March 8, 1930)

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CHINESE BLACK MONDAY

If it looks like a crash, walks like a crash, and talks like a crash, it’s a CRASH. The Chinese stock market crashed by 8.5% last night. An equal level crash in the U.S. would be about 1,400 Dow points. I wonder if that would get Jimmy Cramer’s attention and send the CNBC bimbo spokes models into a tizzy.

The Chinese stock market has fallen 20% in one week and it can’t get up. Fraud, corruption, debt, greed, and now massive amounts of fear have combined for an epic debacle. The reverberations are being felt around the world. Welcome to the Fourth Turning Part Deux.

But don’t you worry. U.S. Stock futures are only down 850 points. That would bring the 5 day loss on the Dow to about 1,900 points, or 11% in one week. Poof!!! Months of ephemeral profits gone in the blink of an HFT supercomputer.

I’m sure the 30 year old Lemmings ( I mean Wall Street investment gurus) have got everything under control. Their HFT super computer algorithms will surely tell them what to do. Here is an actual picture of the Wall Street titans of investing prowess arriving at their trading terminals this morning.

You were warned by smart, honest, upstanding analysts, based on facts and history. If you chose not to listen, tough shit. You deserve what you get. When the market rebounds by 400 or 500 points sometime this week. Don’t think that means this is over. The dramatic bounces always happen during raging bear markets. The path is down. The fat lady hasn’t even warmed up yet.

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THEY’RE GONNA NEED A BIGGER BALANCE SHEET

Driving home from work on Friday night I found it terribly amusing listening to the “business journalists” on the local news station trying to explain the 531 point plunge in the Dow and the 1,105 point plummet from the Tuesday high. The job of these faux journalist mouthpieces for the status quo is not to report the facts, analyze the true factors underlying the market, or seek the truth. Their job is to calm the masses, keep them sedated, and paint the rosiest picture possible.

The brainless twit who reported the stock market bloodbath immediately went into the mode of counteracting the impact of what was happening. She said the market is overreacting, as the country has strong job growth, low inflation, a strongly recovering housing market, and an improving economy. The fact that everything she said was a complete and utter falsehood was exacerbated by her willful ignorance of the Fed created bubble leading to the most overvalued stock market in history. How can these people pretend to be business journalists when they haven’t got a clue about stock market valuations and just say what they are told to say?

Anyone who listens to a mainstream media pundit, talking head, or spokes bimbo deserves the reaming they are going to receive. They are paid to lie, obfuscate, spin, and propagandize on behalf of their corporate media executives, who are beholden to Wall Street bankers, mega-corporations, and the government for their advertising dollars. The mainstream media is nothing but entertainment for the masses, part of the bread and circuses designed to distract the dumbed down, iGadget addicted, ignorant masses.

The entire stock market bubble has been created and sustained by the Federal Reserve and their QE and ZIRP schemes to prop up insolvent Wall Street banks, enrich corporate executives, and produce the appearance of a recovering economy. The wealth was supposed to trickle down to the masses, but the trickle has been yellow in appearance and substance. The average American is far worse off today than they were in 2007, with the Greater Depression Part 2 underway.

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Wall Street Prepares To Reap Billions From Another Main Street Wipe Out

Submitted by Tyler Durden on 07/21/2015 22:00 -0400

On Monday evening, we noted that market participants are reducing the size of their trades and turning to derivatives in order to avoid the perils associated with what are increasingly illiquid markets.

While we’ve been pounding the table on bond market liquidity for years, the rest of the world (operating on the standard 2-3 year time lag) has just begun to wake up to how thin markets have become. Now, pundits, analysts, billionaire bankers, and incorrigible corporate raiders alike are shouting from the rooftops about the pitfalls of illiquidity. The secondary market for corporate credit has received the lion’s share of the attention (for reasons we outlined yesterday) and as Carl Icahn was at pains to explain to Larry Fink last week, ETFs are a large part of the problem.

The story is simple. Shrinking dealer inventories (the result of a post-crisis regulatory regime wherein the term “prop trader” is taboo) have made it harder to transact in size without having an outsized effect on prices for corporate bonds. Meanwhile, artificially suppressed borrowing costs and the attendant hunt for yield have led to record corporate issuance and voracious investor demand. In short, the primary market is booming while the secondary market has become a veritable no man’s land. If you need an analogy, try this: the crowded theatre is getting larger and more crowded while the exit keeps getting smaller.

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THE SONG REMAINS THE SAME

I love reading quotes from Hussman in 2000 and 2007. The air is getting pretty thin up here. A stock market driven by Google, Apple, Netflix and a few other tech darlings with no earnings does not make a market. Time is running out for the bulls. The same morons on CNBC ridiculed and scorned his facts then and they scorn and ridicule him now. Do I trust Jim Cramer and Steve Liesman or John Hussman? Guess. Here is the most pertinent portion of Hussman’s weekly analysis:

“The Nifty Fifty appeared to rise up from the ocean; it was as though all of the U.S. but Nebraska had sunk into the sea. The two-tier market really consisted of one tier and a lot of rubble down below. What held the Nifty Fifty up? The same thing that held up tulip-bulb prices long ago in Holland – popular delusions and the madness of crowds. The delusion was that these companies were so good that it didn’t matter what you paid for them; their inexorable growth would bail you out.”

Forbes Magazine during the 50% market collapse of 1973-74

Last week was a rather exasperating exercise in two-tiered markets; a type of divergence between the broad market and a handful of glamourous “concept” stocks that has often marked the wildest and most joyous points of reckless abandon in the market cycle, at least for speculators not tethered by traditional measures of value or historical experience. I’ll spare the list of names, which should be obvious to investors by their confetti.

Near the end of speculative runs, the market’s most glamourous concept stocks often carry significant market capitalizations, and therefore drive movements in the capitalization-weighted indices without broad participation from the rank-and-file. In the short-term, that can be uncomfortable for hedged-equity strategies that are long a broad portfolio of value-oriented stocks and hedged with an offsetting short position in the major indices. Even if the cap-weighted indices outperform the portfolio of individual stocks by a few percent, that difference shows up as a loss of a few percent in the overall hedged position. It’s easier to be patient when one recognizes that these episodes are temporary, and typically represent a significant red flag for the equity market.

A progressive internal deterioration of the market has been increasingly evident in recent months, and became severe last week. For example, the chart below compares the S&P 500 Index to the same 500 component stocks, but weighted equally rather than by market capitalization. While the difference may not seem significant, it also implies that even an equally-weighted portfolio of S&P 500 stocks, hedged with the S&P 500 index itself, would have lost several percent since mid-April.

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