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October 2018 is turning out to be a lot like October 2008. The S&P 500 has now fallen for 12 of the last 14 trading days, and it is on pace for its worst October since the last financial crisis. But the U.S. is actually in much better shape than the rest of the world at this point. Even though they have fallen precipitously in recent days, U.S. stocks are still up 3 percent for the year overall. On the other hand, global stocks (excluding the U.S.) are now down more than 10 percent for the year, and they are down more than 15 percent from the peak of the market in January. All it is going to take is a couple more really bad trading sessions to push global stocks into bear market territory.

And even though U.S. stocks are still outperforming the rest of the world, many are anticipating that the U.S. is definitely heading for a bear market as well.

According to Bank of America, 14 out of their 19 “bear market indicators” have now been triggered…

“Expect a long bout of volatility,” Bank of America strategists led by Savita Subramanian wrote in a report published on Sunday.

Bank of America keeps a running tally of “signposts” that signal looming bear market. The bad news is that 14 of these 19 indicators, or 74%, have been triggered. Two more were toppled earlier this month: the VIX volatility index (VIX) climbed above 20 and a growing number of Americans expect stocks to go up.

Of course not all 19 indicators need to be triggered in order for a bear market to happen. These indicators are simply signposts, and what they are telling us is that big trouble could be brewing for the financial markets.

…click on the above link to read the rest of the article…

The Dow Has Fallen Nearly 1,500 Points From The Peak Of The Market, And Many Believe This “October Panic” Is Just Beginning…

October 19, 2018

The Dow Has Fallen Nearly 1,500 Points From The Peak Of The Market, And Many Believe This “October Panic” Is Just Beginning…

We haven’t had an October like this in a very long time. The Dow Jones Industrial Average was down another 327 points on Thursday, and overall the Dow is now down close to 1,500 points from the peak of the market. Unlike much of the rest of the world, it is still too early to say that the U.S. is facing a new “financial crisis”, but if stocks continue to plunge like this one won’t be too far away. And as you will see below, many believe that what we have seen so far is just the start of a huge wave of selling. Of course it would be extremely convenient for Democrats if stocks did crash, because it would give them a much better chance of doing well in the midterm elections. This is the most heated midterm election season that I can ever remember, and what U.S. voters choose to do at the polls in November is going to have very serious implications for the immediate future of our country.

After a very brief rally earlier in the week, stocks have been getting hammered again. The S&P 500 has now fallen for 9 out of the last 11 trading sessions, and homebuilder stocks have now fallen for 19 of the last 22 trading sessions. It was a “sea of red” on Thursday, and some of the stocks that are widely considered to be “economic bellwethers” were among those that got hit the hardest…

Several stocks seen as economic bellwethers fell sharply in the U.S., including United Rentals and Textron, which dropped at least 11 percent each. Snap-on and Caterpillar, meanwhile, fell 9.6 percent and 3.9 percent, respectively.

…click on the above link to read the rest of the article…

The Dangers of Investing Based on Phony Government Statistics

June 14, 2018

The Dangers of Investing Based on Phony Government Statistics

President Donald Trump recently took to Twitter to boast, “The U.S. has an increased economic value of more than 7 Trillion Dollars since the Election. May be the best economy in the history of our country. Record Jobs numbers. Nice!”

“We ran out of words to describe how good the jobs numbers are,” reported Neil Irwin of the New York Times, amplified in a Trump retweet.

Increase

If you believe the headline numbers, joblessness is at a generational low with the economy booming.

Trillions in nominal value added to the stock market since Trump’s election. GDP up over 3% in the second quarter. 223,000 jobs added in May. Unemployment at an 18-year low of 3.8%.

On the surface, this all paints a beautiful picture for the economy and stock market. But dig a little deeper, and the numbers aren’t quite as bright they appear. All that glitters is not gold.

Headline Unemployment Number Is Fake News

Donald Trump himself put his finger on one of the main flaws with the unemployment number back when he was a private citizen.

“Unemployment rate only dropped because more people are out of labor force & have stopped looking for work. Not a real recovery, phony numbers,” he posted on September 7th, 2012.

The headline unemployment number isn’t any less phony in 2018. Though it has improved under Trump’s presidency – in large part because of his pro-growth tax cuts and deregulation – the statistic is still derived from a dubious formula.

Back in 2012, Trump rightly pointed to the large numbers of workers who had dropped out of the labor force but weren’t counted among the ranks of the unemployed.

The labor force participation rate currently comes in at just 62.7%. That means 33.7% of the population is currently not employed in the labor force. The vast majority of these jobless Americans aren’t among the 3.8% officially “unemployed.”

…click on the above link to read the rest of the article…

Investing in Collapse

May 22, 2018

Investing in Collapse

For years, I’ve been writing about Venezuela, describing it as the “movie” by which we can view the future of other jurisdictions that are presently in decline.

The reason is that declining nations follow the same pattern, time and time again, over the centuries. This is not coincidence. The pattern exists because human nature never changes, regardless of the era or the locale. Political leaders make the same mistakes as their forebears, and the people of a nation react in kind.

For this reason, countries have a sort of “shelf life.” They rise in prominence, due to work ethic and productivity. They then go through a period of abundance, which eventually deteriorates, due to complacency and apathy. Finally, they collapse into a period of bondage.

If we recognize that this pattern has played out countless times over the millennia, we can track any given country and assess where it is at present, in the pattern. For example, Europe and North America are presently in the last stages prior to collapse, Venezuela is in the process of collapse and Cuba is in the post-collapse recovery.

But, although this may be historically interesting, of what value is it to us in terms of our own lives and the choices we make for our future?

Well, we can observe Venezuela and see the effects of the present policies evident in our own country, if we happen to live in one that’s on the verge of collapse.

For example, we can see that ever-increasing largesse by a government—on the backs of productive taxpayers—is a major destructive trend. “Protective” tariffs and capital controls also lead to collapse. And excessive debt is a pathway to economic collapse.

We can see from the recent history in Venezuela how these political mistakes caused their collapse, and we can now observe how that collapse plays out.

…click on the above link to read the rest of the article…

TOM CLOUD UPDATE: Rising Interest Rates To Impact The Metals & Large Investors Make Up 70% Of Gold & Silver Buying

May 3, 2018

TOM CLOUD UPDATE: Rising Interest Rates To Impact The Metals & Large Investors Make Up 70% Of Gold & Silver Buying

Today, Tom Cloud provided another interesting precious metals update. He discusses how rising interest rates will impact the precious metals and why the Federal Reserve is forced to continue increasing rates. Tom also explains what is going on with official gold reserves in China and Russia.

Tom also mentions how his precious metals sales volume has changed since 2007. I spoke with Tom on the phone this week to get an update as he hears a lot of what is going on in the industry. I asked him if he could look at his precious metals sales figures and see how the small and larger investor buying volume has changed:

If you look at the chart below, the smaller precious metals investor had, the larger pie in gold and silver volume during the 2007-2009 period. According to Tom’s sales figures, the small investor, $50,000 or less, accounted for 62% of total volume while the large investor was 38%. This trend changed in the next period, 2013-2017 as the large investor made up 58% of total volume while the small investor fell to 42%.

Tom said that so far this year, the large investor accounted for 70% (or more) of total precious metals sales as smaller investor buying fell further to only 30%. So, the little guy is not participating in the precious metals market as they were in 2007-2009 when the stock and economy was disintegrating.

However, the larger gold and silver buyer is usually the wiser investor. The small investor is more fickle and has to wait until panic comes back into the market before they start buying once again. Furthermore, the small investor is also the one that loses faith much easier and is known to flip-flop by getting out frustrations by writing negative comments about gold and silver.

…click on the above link to read the rest of the article…

The Stock Market Falls Another 724 Points! What In The World Is Happening On Wall Street?

March 23, 2018

The Stock Market Falls Another 724 Points! What In The World Is Happening On Wall Street?

We just witnessed the 5th largest single day stock market crash in U.S. history. On Thursday the Dow Jones Industrial Average plunged 724 points, and many believe that this is just the beginning of another huge wave down for stock prices. After this latest dramatic decline, the Dow is now down 3.1 percent so far in 2018, and overall it is down 9.99 percent from the all-time high in January. A 10 percent decline is officially considered to be “correction” territory, and that means that we are just about there.

So why are stock prices falling so much? Well, USA Today is blaming the potential for a trade war with China, the latest Facebook scandal and “the impact of rising interest rates on the economy”…

U.S. stocks sold off sharply Thursday, with the Dow tumbling more than 700 points amid growing fears of a trade fight between the U.S. and its trading partners after President Trump said he will impose billions of dollars in tariffs on Chinese imports.

The heavy selling on Wall Street was exacerbated by continued weakness in shares of Facebook as well as concerns about the impact of rising interest rates on the economy.

Of course the possibility of a trade war between the two largest economies on the planet is certainly the greatest concern that the markets are grappling with at the moment. According to Ian Winer, any sign of retaliation by China “will really spook people”…

“A global trade war, whether it’s real or perceived, is what’s weighing on the market,” said Ian Winer, head of equities at Wedbush Securities. “There’s this huge uncertainty now. If China decides to get tough on agriculture or anything else, that will really spook people.”

Trump announced tariffs on about $50 billion worth of Chinese imports on Thursday afternoon. It’s not clear which products will be hit, but the action is aimed at curbing China’s troubling theft of US intellectual property.

And we can be quite sure that China will retaliate.

…click on the above link to read the rest of the article…

The Dow Jones Industrial Average Falls Another 420 Points As Investors Panic About A Potential Trade War

March 2, 2018

The Dow Jones Industrial Average Falls Another 420 Points As Investors Panic About A Potential Trade War

Many had been hoping that the financial shaking on Wall Street that we witnessed in February would subside in March, but so far that is definitely not the case. On Thursday, the Dow fell another 420 points as investors fretted about the potential for a trade war. Over the past month, we have seen many days when stock prices have been way down and other days when stock prices have been way up. This is precisely the sort of wild volatility that we would expect to see if a major financial crisis was brewing, and the truth is that our financial system is far more vulnerable today than it was back in 2008.

Many Americans have assumed that the U.S. economy must be in great shape since the stock market has just kept going up for the past several years. But the reality of the matter is that stock prices are no longer connected to economic reality whatsoever. The U.S. economy has not grown by 3 percent or more in 12 years, but stock prices have been shooting into the stratosphere thanks to relentless central bank intervention.

But what goes up must eventually come down, and on Thursday we witnessed another stunning decline…

The Dow Jones industrial average closed 420.22 points lower at 24,608.98 after rising more than 150 points earlier in the day. The 30-stock index fell as much as 586 points.

The S&P 500 declined 1.4 percent to end at 2,677.67 — erasing its year-to-date gains — with industrials as the worst-performing sector. It also briefly broke below its 100-day moving average, a key technical level. The Nasdaq composite fell 1.3 percent to 7,180.56 and dipped below its 50-day moving average.

So why did this happen?

Well, the mainstream media is placing the blame for Thursday’s decline on Trump’s new tariffs…

…click on the above link to read the rest of the article…

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

February 6, 2018

-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…

…click on the above link to read the rest of the article…

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

February 5, 2018

-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.

…click on the above link to read the rest of the article…

2017 Year In Review

December 27, 2017

Tortoon/Shutterstock

2017 Year In Review

Markets fiddle while Rome burns

Every year, friend-of-the-site David Collum writes a detailed “Year in Review” synopsis full of keen perspective and plenty of wit. This year’s is no exception. As with past years, he has graciously selected PeakProsperity.com as the site where it will be published in full. It’s quite longer than our usual posts, but worth the time to read in full. A downloadable pdf of the full article is available here, for those who prefer to do their power-reading offline. — cheers, Adam

Introduction

“He is funnier than you are.”

~David Einhorn, Greenlight Capital, on Dave Barry’s Year in Review

Every December, I write a survey trying to capture the year’s prevailing themes. I appear to have stiff competition—the likes of Dave Barry on one extreme¹ and on the other, Pornhub’s marvelous annual climax that probes deeply personal preferences in the world’s favorite pastime.² (I know when I’m licked.) My efforts began as a few paragraphs discussing the markets on Doug Noland’s bear chat board and monotonically expanded to a tome covering the orb we call Earth. It posts at Peak Prosperity, reposts at ZeroHedge, and then fans out from there. Bearishness and right-leaning libertarianism shine through as I spelunk the Internet for human folly to couch in snarky prose while trying to avoid the “expensive laugh” (too much setup).³ I rely on quotes to let others do the intellectual heavy lifting.

“Consider adding more of your own thinking and judgment to the mix . . . most folks are familiar with general facts but are unable to process them into a coherent and actionable framework.”

~Tony Deden, founder of Edelweiss Holdings, on his second read through my 2016 Year in Review

“Just the facts, ma’am.”

~Joe Friday

…click on the above link to read the rest of the article…

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

November 21, 2017

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.

…click on the above link to read the rest of the article…

The Last Time These 3 Ominous Signals Appeared Simultaneously Was Just Before The Last Financial Crisis

November 17, 2017

The Last Time These 3 Ominous Signals Appeared Simultaneously Was Just Before The Last Financial Crisis

We have not seen a “leadership reversal”, a “Hindenburg Omen” and a “Titanic Syndrome signal” all appear simultaneously since just before the last financial crisis. Does this mean that a stock market crash is imminent? Not necessarily, but as I have been writing about quite a bit recently, the markets are certainly primed for one. On Wednesday, the Dow fell another 138 points, and that represented the largest single day decline that we have seen since September. Much more importantly, the downward trend that has been developing over the past week appears to be accelerating. Just take a look at this chart. Could we be right on the precipice of a major move to the downside?

John Hussman certainly seems to think so. He is the one that pointed out that we have not seen this sort of a threefold sell signal since just before the last financial crisis. The following comes from Business Insider…

On Tuesday, the number of New York Stock Exchange companies setting new 52-week lows climbed above the number hitting new highs, representing a “leadership reversal” that Hussman says highlights the deterioration of market internals. Stocks also received confirmation of two bearish market-breadth readings known as the Hindenburg Omen and the Titanic Syndrome.

Hussman says these three readings haven’t occurred simultaneously since 2007, when the financial crisis was getting underway. It happened before that in 1999, right before the dot-com crash. That’s not very welcome company.

In fact, every time we have seen these three signals appear all at once there has been a market crash.

Will things be different this time?

We shall see.

If you are not familiar with a “Hindenburg Omen” or “the Titanic Syndrome”, here are a couple of pretty good concise definitions…

…click on the above link to read the rest of the article…

This Is What A Pre-Crash Market Looks Like

November 13, 2017

This Is What A Pre-Crash Market Looks Like

The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed. Will things be different for us this time? We shall see, but without a doubt this is what a pre-crash market looks like. This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention, but now global central banks are removing the artificial life support in unison. Meanwhile, the real economy continues to stumble along very unevenly. This is the longest that the U.S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close. Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.

If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider. The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter…

The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent. The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?

…click on the above link to read the rest of the article…

The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History

November 6, 2017

The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History

Why have stock prices risen so dramatically since the last financial crisis? There are certainly many factors involved, but the primary one is the fact that the Federal Reserve has been creating trillions of dollars out of thin air and has been injecting all of that hot money into the financial markets. But now the Federal Reserve is starting to reverse course, and this has got to be the greatest sell signal for financial markets in modern American history. Without the artificial support of the Federal Reserve and other global central banks, there is no possible way that the massively inflated asset prices that we are witnessing right now can continue.

The chart below comes from Sven Henrich, and it does a great job of demonstrating the relationship between the Fed’s quantitative easing program and the rise in stock prices. During the last financial crisis the Fed began to dramatically increase the size of our money supply, and they kept on doing it all the way through the end of October 2017…

Unfortunately for stock traders, the Federal Reserve has now decided to change course, and that means that the process that has created these ridiculous stock prices is beginning to go in reverse. In fact, according to Wolf Richter this reversal just started to go into motion within the past few days…

On October 31, $8.5 billion of Treasuries that the Fed had been holding matured. If the Fed stuck to its announcement, it would have reinvested $2.5 billion and let $6 billion (the cap for the month of October) “roll off.” The amount of Treasuries on the balance sheet should then have decreased by $6 billion.

…click on the above link to read the rest of the article…

Top Financial Expert Warns Stocks Need To Drop ‘Between 30 And 40 Percent’ As Bankruptcy Looms For Toys R Us

September 19, 2017

Top Financial Expert Warns Stocks Need To Drop ‘Between 30 And 40 Percent’ As Bankruptcy Looms For Toys R Us

Will there be a major stock market crash before the end of 2017? To many of us, it seems like we have been waiting for this ridiculous stock market bubble to burst for a very long time. The experts have been warning us over and over again that stocks cannot keep going up like this indefinitely, and yet this market has seemed absolutely determined to defy the laws of economics. But most people don’t remember that we went through a similar thing before the financial crisis of 2008 as well. I recently spoke to an investor that shorted the market three years ahead of that crash. In the end his long-term analysis was right on the money, but his timing was just a bit off, and the same thing will be true with many of the experts this time around.

On Monday, I was quite stunned to learn what Brad McMillan had just said about the market. He is considered to be one of the brightest minds in the financial world, and he told CNBC that stocks would need to fall “somewhere between 30 and 40 percent just to get to fair value”…

Brad McMillan — who counsels independent financial advisors representing $114 billion in assets under management — told CNBC on Monday that the stock market is way overvalued.

“The market probably would have to drop somewhere between 30 and 40 percent to get to fair value, based on historical standards,” said McMillan, chief investment officer at Massachusetts-based Commonwealth Financial Network.

McMillan’s analysis is very similar to mine. For a long time I have been warning that valuations would need to decline by at least 40 or 50 percent just to get back to the long-term averages.

…click on the above link to read the rest of the article…

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