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A 50-percent decline will only be a correction and not a bear market.

I know. Right now, you are thinking, how could anyone suggest a 50-percent decline in the market is NOT a bear market. Logically you are correct. However, technically, we need an essential distinction between a “correction” and a “bear market.”

In March 2020, the stock market declined a whopping 35% in a single month. It was a rapid and swift decline and, by all media accounts, was an “official” bear market. But, of course, with the massive interventions of the Federal Reserve, the reversal of that decline was equally swift. As YahooFinance pointed out at the time.

“The S&P 500 set a new record high this week for the first time since Feb. 19, surging an eye-popping 51% from its March 23 closing low of 2,237 to a closing high of 3,389 on Tuesday. This represents the shortest bear market and third fastest bear-market recovery ever.” – Sam Ro

50-percent decline, A 50-Percent Decline Will Only Be A Correction

However, as I discussed at the time, March 2020, much like the “1987 crash,” was in actuality only a correction. To understand why March was not a “bear market,” we must define the difference between an actual “bear market” and a “correction.”

Defining A Correction & A Bear Market

Start with Sentiment Trader’s insightful note following the 2020 recovery to new highs.

“This ended its shortest bear market in history. Using the completely arbitrary definition of a 20% decline from a multi-year high, it has taken the index only 110 days to cycle to a fresh high. That’s several months faster than the other fastest recoveries in 1967 and 1982.”

Note their statement that the media’s definition of a “bear market” consisting of a 20% decline is “completely arbitrary.” Given that price is nothing more than a reflection of the psychology of market participants, using the 20% definition may not be accurate any longer.

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

Trader: “The Facts Are Lining Up For A Nasty Correction In The S&P 500”

April 30, 2019

Trader: “The Facts Are Lining Up For A Nasty Correction In The S&P 500”

U.S. Equity Optimism Is Starting To Look Misplaced

It’s time to turn bearish on the S&P 500, at least for a few weeks. The benchmark U.S. equity index just made a fresh record high, but it’s unlikely to keep ignoring warning signs coming from elsewhere in markets.

After having been staunchly bullish global stocks this year, I turned bearish on Asia equities on Monday last week. That negative sentiment will now spread across the Pacific. Asia, and notably China, has led the 2019 global stocks rally, and similarly has the capacity to lead a correction.

There’s not one single looming catalyst that will send equities reeling. The problem is that almost every factor is starting to look like a marginal negative. The positives from Fed dovishness, a solid earnings season and hopes of a trade deal are all generously priced in. Where’s the good news going to come from going forward?

Companies’ guidance hasn’t been encouraging and earnings estimates for later in the year continue to slide. The S&P 500 has a blended 12-months forward price-to-equity ratio of 17 versus the 10-year average of 15. Such a substantial premium is ripe for disappointment.

The data out of Asia over the past week has been terrible. Tuesday’s PMIs out of China emphasize that the market may have got over- optimistic on how quickly the economy can accelerate: All the PMI prints disappointed — private and official, manufacturing and services.

Dollar strength is another marginal negative. As is the surge in oil prices. This week’s lengthy holidays in the world’s second- and third-largest economies, China and Japan, don’t help. And, of course, May is historically a tough month for emerging markets.

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

Get Real

April 28, 2019

Get Real

The final phase of a bull cycle is the most deceiving. It is the time when things are at their best, optimism runs wild, equities can do no wrong and any warning signs are dismissed as equity price action valiantly defies the reality that is to come.

It is also a time when complacency makes a comeback as big rallies emerge following initial larger corrections. 2018 was a year of big corrections. 10% in February, 20% in Q4. Now a 25% rally. Not signs of a stable bull market. It is precisely the aggressive counter rallies near the end of cycles that can be the most awe-inspiring and reason defying, yet they can also be the most dangerous while being the best opportunities to sell at the same time.

Let’s get real: The liquidity machine can hide reality only for so long and that is: Things keep slowing down. Cycles don’t turn on a dime, they take time and that is what we are seeing unfold and the signs are plentiful. From Japanese industrial production going negative the past 3 months to home sales in the Hamptons slowing to the slowest level in 7 years. I’m using these couple rather random examples to illustrate a point: The slowdown is as broad as it global:

Oh yes, even Friday’s Q1 GDP report reeked of deceit and the headline is hiding theslowdown in plain sight:

“The economy isn’t doing nearly as well as that 3.2% annual growth rate for gross domestic product reported Friday by the Commerce Department.

The heart of the real economy — private-sector consumption and investment — slowed sharply in the first quarter to a 1.3% annual rate, the slowest growth in nearly six years.

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

Ron Paul: The Market Correction Could Make Things ‘Worse Than 1929’

December 17, 2018

Ron Paul: The Market Correction Could Make Things ‘Worse Than 1929’

Former presidential candidate, Dr. Ron Paul says that the current market conditions are ripe for a correction of 50% and Wall Street is vulnerable to depression-like conditions in the next year. “It could be worse than 1929,” Dr. Paul said recently in an interview.

Paul said Thursday on CNBC‘s “Futures Now that “Once this volatility shows that we’re not going to resume the bull market, then people are going to rush for the exits.” Paul added that “it could be worse than 1929.” He was referencing the fateful day in October of 1929 when the stock market crashed, and the United States was flung into the Great Depression that lasted ten years. During that year, a worldwide depression was ignited because of the U.S.’s market crash. The stock market began hemorrhaging and after falling almost 90 percent, sent the U.S. economy crashing a burning.

And of course, no one believes it could happen again. But Dr. Paul is continuously warning against the media’s constant optimism. As well-known Libertarian, Paul has been warning Wall Street that a massive market plunge is inevitable for years. He’s currently projecting a 50 percent decline from current levels as his base case, citing the ongoing U.S.-China trade war as a growing risk factor. “I’m not optimistic that all of the sudden, you’re going to eliminate the tariff problem. I think that’s here to stay,” he said. “Tariffs are taxes.” And these tariffs are a direct tax on the American economy and consumer.

Paul places the blame for the inevitable future crash on the Federal Reserve’s “easy money policies” also known as quantitative easing. He contended the Federal Reserve’s quantitative easing has caused the “biggest bubble in the history of mankind.” And this time, it’s an everything bubble.

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

Why Another 50% Correction Is Possible

December 10, 2018

Why Another 50% Correction Is Possible

All of sudden….volatility.

Well, that is what it seems like anyway after several years of a steady grind higher in the markets. However, despite the pickup in volatility, the breaks of previous bullish trends, and a reversal in Central Bank policy, it is still widely believed that bear markets have become a relic of the past.

Now, I am not talking about a 20% correction type bear market. I am talking about a devastating, blood-letting, retirement crushing, “I am never investing again,” type decline of 40%, 50%, or more.

I know. I know.

It’s the “doom-and-gloom” speech to try to scare investors into hiding in cash.

But that is NOT the point of this missive.

While we have been carrying a much higher weighting in cash over the last several months, we also still have a healthy dose of equity related investments.

Why? Because the longer-term trends still remain bullish as shown below. (Note: The market did break the bullish trend with a near 20% correction in 2016, but was bailed out by massive interventions from the ECB, BOE, and BOJ.)

Now, you will note that I keep saying a 20% “correction.” Of course, Wall Street classifies a bear market as a decline of 20% or more. However, as I noted recently:

“During a bull market, prices trade above the long-term moving average. However, when the trend changes to a bear market prices trade below that moving average. This is shown in the chart below which compares the market to the 75-week moving average. During ‘bullish trends’ the market tends to trade above the long-term moving average and below it during ‘bearish trends.’”

In other words, at least for me, it is the overall TREND of the market which determines a bull or bear market. Currently, that trend is still rising. But such will not always be the case, and we may be in the process of the “trend change” now.

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

Is Cliffhanger Market Just Beginning?

October 30, 2018

Is Cliffhanger Market Just Beginning?

The following is an example of the type of research we provide members of The Lyons Share— on top of daily commentary covering our outlook on the markets and analysis of all the pertinent current charting developments.

Swift corrections from market highs have, at times, marked the beginning of longer-term bear markets.

The recent (ongoing) stock market selloff seems to have blindsided many investors. And perhaps what caught them most off guard was the swiftness of the decline — in particular, given that it was coming directly off of all-time highs in the large-cap averages. Though, we also saw a similarly swift selloff from the January highs, it is relatively rare to see the market sell off this much so soon after hitting new highs.

Specifically, at the lows today (October 26, 2018), the S&P 500 was down more than 10% from its late September all-time high. Going back 60 years, this is just the 13th unique time the index has sold off by at least 10% within 30 days of hitting a multi-year high.

Below are the dates of the occurrences identified by the blue markers on the chart.

If you simply look at the median and % positive returns, it doesn’t strike one as too “scary”. In fact, they are not that far off of normal aggregate returns. However, the risk is asymmetrically skewed. Why do we say that? Because 4 of the prior 12 signals marked precise cyclical market tops. There have only been a handful of cyclical bear markets over this time frame and to have 4 of them marked by these swift corrections from multi-year highs t least gives us pause in assuming the median returns will be necessarily be close to normal, at least in the long-term.

Will the current cliffhanger lead to another cyclical bear market? It remains to be seen. There certainly is enough evidence out there, though, to consider that a legitimate possibility.

Is The Long-Anticipated Crash Now Upon Us?

October 27, 2018

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Is The Long-Anticipated Crash Now Upon Us?

Is this the market’s breaking point?

I admit: I’m a permabear.

This is no surprise to those who know and have followed me over the years. But I’m publicly proclaiming my ‘bearishness’ because doing so might open up a needed and long overdue dialog.

Here’s my fundamental position: Infinite growth on a finite planet is impossible.

Cutting to the chase, this is why I predict a major crash/collapse across stocks, bonds and real estate is on the way.

The recent market weakness seen over the past two weeks is nothing compared to what’s in store. As we’ve been carefully chronicling, bubbles burst from ‘the outside in’, starting at the weaker places at the periphery before progressing to the center.

Emerging market equities are now down -26% from their January highs and -18% year-to-date. China’s stocks market is down -32%, even with substantial intervention by the government to prop things up.

The periphery has been weakening all year, and the contagion has now spead worldwide.

Taken as a whole, global equities have shed some $13 trillion of market capitalization for a -15% decline:

The rot has spread to the core with surprising speed. Now even the formerly bullet-proof US equity markets are stumbling.

The S&P 500 is now negative on the year:

It’s been obvious for a long time to those who have watched The Crash Course that endless growth is simply not possible. Not for a bacteria colony in a petrie dish, not for an economy, not for any species on the planet. Eventually, when finite resources are involved, limits matter.

But the vast majority of society pretends as if this isn’t true.

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

Has “It” Finally Arrived?

October 13, 2018

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Has “It” Finally Arrived?

Is this week’s 6% market drop the start of the Big One?

With the recent plunge in the S&P 500 of over 5%, has the long-anticipated (and long-overdue) market correction finally begun?

It’s hard to say for certain. But the systemic cracks we’ve been closely monitoring definitely got an awful lot wider this week.

After nearly a decade of endless market boosting, manipulation and regulatory neglect, all of the trading professionals I personally know are watching with held breath at this stage. The central banks have distorted the processes of price discovery and market structure for so many years now, that it’s difficult to know yet whether their grip on the markets has indeed failed.

But what we know for certain is that bubbles always burst. Inevitably. Each is built upon a fallacy; and when that finally becomes apparent to enough people, the mania ends.

And today, there are currently massive bubbles in stocks, bonds and real estate. Every one courtesy of the central banks (as we have written about in great detail here at PeakProsperity.com over the years).

And with no Plan B in place to gracefully exit the corner they have painted themselves — and thereby the global economy — into, the only option available to them is to double-down on the pretense that we’d all be screwed without their stewardship. They have to do this I suppose. To admit the truth would throw the world into panic and themselves out of a job.

Who knows what they think privately? But in public, they give us real gems like these:

Williams Says Fed Rate Hikes Helping Curb Financial Risk-Taking

U.S. interest-rate increases will help reduce risk-taking in financial markets, Federal Reserve Bank of New York President John Williams said.

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

Hammer Time

October 12, 2018

Hammer Time

Looks like somebody threw a dead cat onto Wall Street’s luge run overnight to temporarily halt the rather ugly 2000 point slide in the Dow Jones Industrial Average — and plenty of freefall in other indices, including markets in other countries. A Friday pause in the financial carnage will give the hedge funders a chance to plant “for sale” signs along their Hamptons driveways, but who might the buyers be? Hedge funders from another planet, perhaps? You can hope. And while you’re at it, how do you spell liquidity problem?

Welcome to the convergence zone of the long emergency, where Murphy’s law meets the law of unintended consequences and the law of diminishing returns, the Three Amigos of collapse. Here’s where being “woke” finally starts to mean something. Namely, that there are more important things in the world than sexual hysteria. Like, for instance, your falling standard of living (and that of everyone else around you).

The meet-up between Kanye West and President D.J. Trump was an even richer metaphor for the situation: two self-styled “geniuses” preening for the cameras in the Oval Office, like kids in a sandbox, without a single intelligible idea emerging from the play-date, and embarrassed grownups all standing ‘round pretending it was a Great Moment in History. You had to wonder how much of Kanye’s bazillion dollar fortune was stashed in the burning house of FAANG stocks. Maybe that flipped his bipolar toggle. Or was he even paying attention to the market action through all the mugging and hugging? (He did have his phone in hand.) Meanwhile, Mr. Trump seemed to be squirming through the episode behind his mighty Resolute desk as if he had “woke” to the realization that ownership of a bursting epic global financial bubble was not exactly “winning.”

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

“This Is Becoming Dangerous” Morgan Stanley Warns, As Forced Liquidations Loom

October 11, 2018

“This Is Becoming Dangerous” Morgan Stanley Warns, As Forced Liquidations Loom

Today is adding to the accumulated pain of the last few days for most funds. Momentum has retraced nearly all of its YTD gains and names with high active ownership are underperforming names with high active ownership by 3 standard deviations.

This is becoming dangerous because as managers give back P/L and approach flat on the year a broader de-risking is more likely. While a crude estimate, the below shows rolling returns of reported longs per 13F filings versus the broader market. On the left is the last 2 weeks – nearly as negative as late July, while on the right is the last 3 months (so combines July and now) – the worst underperformance since Feb 2016.

So far the unwinds are rotational, keeping index dispersion in-line with historical averages. Notably most of that dispersion is at the sector level while most single names within sectors are trading together, indicating the pain is in sector/factor/thematic trades.

But given the overlap of crowded stocks with the market (i.e. Tech = largest sector), the pain is spreading to the index level. And on the back of today’s moves there will now be some systematic supply – QDS estimates $10 to $15bn total over the next several days. This supply could start to move the volatility from sectors / factors into the index level as correlation increases.

“It’s Just Beginning”: US Futures Plunge As Global Rout Hammers Asia, Europe

October 11, 2018

“It’s Just Beginning”: US Futures Plunge As Global Rout Hammers Asia, Europe

It is a sea of blood red this October morning as the biggest market rout since February and the longest selloff of the Trump administration triggered a surge of global selling from the U.S. through Asia and spreading to Europe on Thursday, with markets from Tokyo to London slumping amid fresh fears the decade-old bull market may be coming to an end.

“Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty,” summed up analysts at ANZ.

The sell-off that started in the U.S. ripped across Asian stock markets Thursday, with indexes in Japan, Hong Kong and China all tumbling.

All but one stock listed on Japan’s Nikkei 225 Stock Average retreated, while the country’s Topix index posted its steepest decline since March losing around $207 billion in market value, falling 3.5%. China’s Shanghai Composite sank 5.2%, its biggest drop since February 2016 to close at its lowest since November 2014, while the Hang Seng Index lost 3.5%. Taiwan’s Taiex index led the rout with a 6.3% slump.

The MSCI Asia Pacific Index had its worst day since June 2016, when the U.K. voted to leave the EU, with the index plunging 3.5% and closing in on entering a bear market.

Turbulence spiked in Asian markets as the Nikkei Stock Average Volatility Index surged 44%. The MSCI Asia Pacific Index ex Japan closed down 3.6%, hitting its lowest level since March 2017. China’s main indexes had slumped over 5 percent

The Asian regional benchmark gauge has slumped 13 percent this year as uncertainties such as the U.S.-China trade war weigh on investor sentiment. The Shanghai Composite Index has lost 22 percent in 2018, while Japan’s Topix is down 6.4 percent.

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

“This Is The Tipping Point”: One Bank Is Calling For A 30% Market Correction

October 10, 2018

“This Is The Tipping Point”: One Bank Is Calling For A 30% Market Correction

While some believe that it is the level (or stock) of the 10Y yield during a rate rout that determines the resulting revulsion toward equities, while others claim that it it speed of the sell off (the “flow” angle) that matters, the reality is that the higher rates rise – whether fast or slow – the less attractive risk assets become (in a recent analysis, Bank of America calculated what the great un-rotation “magic number” is for yields).

And while violent interest rate repricings certainly have an impact on risk assets – if only over the short-term, until rate vol normalizes – as today’s market action confirms, a more comprehensive theory suggests that the US dollar (the world’s reserve currency) and US interest-rates (world’s risk-free-rate) cycle play a vital role in determining changes in asset prices and the global economy, especially after the gold standard was abolished in 1971.

In a new note from Nedbank’s Neels Heyneke and Mehul Daya, the strategists explain why they believe “we are approaching historical thresholds”, where tighter monetary conditions in the US have traditionally been the “straw that breaks the camel’s back” for the equity market and economic growth, and why “this time should be no different.”

To begin, Nedbank defines US real interest rate as the spread between the US 10-year bond yield and the natural rate of interest (r*). The Laubach-Williams r* estimate is basically the real short-term interest rate at which the US economy is at equilibrium, i.e., where unemployment and inflation are at the 2% target. This allows to determination of monetary conditions in the US relative to the underlying economy.

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

Think You’re Prepared For The Next Crisis? Think Again.

October 6, 2018

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Think You’re Prepared For The Next Crisis? Think Again.

Even the best-laid preparations have failure points

No plan of operations extends with any certainty beyond the first contact with the main hostile force.

~ Helmuth von Moltke the Elder

Everybody has a plan until they get punched in the mouth.

~ Mike Tyson

Scottish poet Robert Burns aptly penned the famous phrase: “The best laid schemes o’ mice an’ men/Gang aft a-gley.” (commonly adapted as “The best laid plans of mice and men often go awry.”)

How right he was.

History has shown time and time again that the only 100% predictable outcome to any given strategy is that, when implemented, things will not go 100% according to plan.

The Titanic’s maiden voyage. Napolean’s invasion of Russia. The Soviet’s 1980 Olympic hockey dream team. The list of unexpected outcomes is legion.

Dwight D. Eisenhower, the Supreme Commander of the Allied Expeditionary Forces in Europe during WW2, went as far as to say: “In preparing for battle, I’ve always found that plans are useless but planning is indispensable.”

This wisdom very much applies to anyone seeking safety from disaster. Whether preparing for a natural calamity, a financial market crash, an unexpected job loss, or the “long emergency” of resource depletion — you need to take prudent planful steps now, in advance of crisis; BUT you also need to be mentally prepared for some elements of your preparation to unexpectedly fail when you need them most.

Here are two recent events that drive that point home.

Lessons From Hurricane Florence

A family member of mine lives in Wilmington, NC, which received a direct hit last month from Hurricane Florence.

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

Why Gold & Silver Won’t Crash Along With The Stock Markets

April 30, 2018

Why Gold & Silver Won’t Crash Along With The Stock Markets

When it comes to what happens during the next major market correction-crash, we can count on that “this time will be different” for the gold and silver prices. While many precious metals investors believe that gold and silver will crash along with the broader markets, the charts and data suggest the opposite.

In my newest video, Why Gold & Silver Won’t Crash Along With The Stock Markets, I provide charts and updated information on the break-even analysis of the primary gold and silver mining industry. According to my research, the gold market price has not fallen below the production cost of the top gold miners in the past two decades.

Some analysts, such as Harry Dent, believe the gold price will fall to $700 this year. Dent reconfirmed his forecast in the following article, Why We Are Heading Toward $700 Gold In 2018:

Investors are fleeing to gold in a desperate attempt to weather the recent market volatility… but is this long time “safe-haven” actually poised to collapse wiping out trillions of dollars of wealth in the process?

While many economists will argue that gold is not in a bubble… and insist it will soar to $2,000, $5,000 and even $10,000, my research has said otherwise. I’ve never been more certain of anything in over 30 years of economic forecasting.

Market volatility, worries over the Europe Central Bank, negative interest rates, and China are among a laundry list of events that are driving panicked masses to buy the yellow metal. But this is only inflating the gold bubble that is poised to pop at any moment.

Mr. Dent states the due to the current market volatility, worries over Central banks, negative interest rates, and fears about China’s massive credit bubble are driving investors into gold. BUT, according to Dent, this gold bubble is about to POP.

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

What Kind of Hyper-Enthusiastic Market is this that Blindly Keeps Pursuing Scams to Make a Fortune Overnight, even if They Already Crashed the First Time?

April 3, 2018

What Kind of Hyper-Enthusiastic Market is this that Blindly Keeps Pursuing Scams to Make a Fortune Overnight, even if They Already Crashed the First Time?

It’ll take many more sell-offs and the collapse of many more iffy stocks before this hyper-enthusiasm, after nine years of central bank nurturing, is finally wrung out of the market.

Shares of “blockchain” company LongFin (LFIN) plunged 17% today to $14.31, the sixth trading day in a row of plunges. Intraday on Friday, March 23, shares still traded at $73. The astonishing thing isn’t that they’ve plunged 81% over those six trading days, but that they had more than doubled over the prior two weeks, and that they’re still trading above penny-stock status to begin with.

LFIN started trading on December 13, following their IPO. On December 15, LongFin announced – with what I called it “a mix of gobbledygook, hype, and silliness” – that it had acquired a “Blockchain-empowered solutions provider,” namely a website that belonged to a Singapore corporation that is 95% owned by Longfin’s CEO and chairman.

Though neither the announcement nor the transaction passed the smell-test, shares skyrocketed 2,700% to an intraday high of $142.55 on December 18, giving it a market cap of $7 billion and making it the role model for a bevy of other “blockchain” companies. Then, as stock jockeys grappled with reality, shares plunged. As did the shares of other “blockchain” companies.

But then on March 12, it started all over again, when index provide FTSE Russell announced that LongFin would be added to some of its indices, including the widely-tracked Russell 2000, effective March 16:

Then all kinds of things happened.

On March 26, short-seller Citron Research tweeted: “If you are fortunate enough to get a borrow, indeed $LFIN is a pure stock scheme. @sec_enforcement should not be far behind. Filings and press releases are riddled with inaccuracies and fraud.”

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

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