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Why Morgan Stanley Thinks The S&P Is About To Crash

Why Morgan Stanley Thinks The S&P Is About To Crash

Echoing Guggenheim’s fears that US equities are in for a dramatic collapse, Morgan Stanley’s Mike Wilson warns that “…if equity markets fail one more time at our key resistance point, we believe the reversal is likely to be sharper and deeper than one might expect, even if the earnings recession is more benign than we expect.

Via Morgan Stanley,

Breaking out is hard to do. 

The S&P 500 remains the pied piper for global risk markets yet it continues to struggle with current levels for the third time in the past 18 months. While our 2400–3000 call from 18 months ago may look vulnerable, we think this latest surge will fail again, as we don’t expect a Fed cut to rekindle growth the way market participants may be hoping,and now pricing.

Market internals remain weak…

While the S&P 500 has made new highs, leadership remains decidedly defensive, with bond proxies and high-quality stocks disproportionately contributing to performance.

Underperformance of broader indices like the Russell 2000, Wilshire 5000,and equal-weighted S&P 500 suggest poor breadth, which is not a healthy development.

… Because fundamentals remain weak. 

We have been consistent in our view that growth would disappoint this year on both the earnings and economic fronts. Earnings forecasts have fallen significantly since the beginning of the year and economic surprises have skewed to the downside.

We have been consistent in our view that growth would disappoint this year on both the earnings and economic fronts. Earnings forecasts have fallen significantly since the beginning of the year and economic surprises have skewed to the downside.

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

Big disappointments in capital spending and business surveys suggest growth could slow further in 2H. Our economists are forecasting a material deceleration in 2H US GDP vs 1H.

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

Trump Blaming Fed for Next Market Crash – Dave Janda

Trump Blaming Fed for Next Market Crash – Dave Janda

Radio host Dr. Dave Janda says everybody in Washington knows the next big crash is right around the corner. It’s been 10 years since the Fed reflated the last meltdown, and Dr. Janda says President Trump is already blaming the Federal Reserve for killing the economy that his policies revived. Dr. Janda explains, “President Trump has been pointing the finger at the Fed. He’s been pointing the finger at the Fed, and that is exactly where he should be pointing. The globalist syndicate’s tentacle is the central banking system, and, in particular, in the United States, the Federal Reserve. The Federal Reserve is one of the entities that is directly responsible for this financial mess our country is currently in. You would never see Obama or the Bushes, or Bill Clinton, point at the Fed and say what Trump has said. Trump said, ‘I think the Fed has gone crazy. I think the Fed is making a mistake. They’re so tight with interest rates. I think the Fed has gone crazy.’ Just the other day, Trump said, ‘My biggest threat is the Fed. . . . The Fed is raising rates too fast, and it’s too independent.’ Now, wait a minute, listen to that. It’s too independent. When was the last time a president of the United States said the Fed was too independent? . . . . Banking groups, that is their priority. So, when the President says the Fed is raising rates too fast, and it’s my biggest enemy, and too independent, what he is saying is they are looking out for their own interests. They are not looking out for the interests of our country or for you or for me or for any American, and he’s right. I don’t know of any other president that has had the guts to say this.”

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

Weekly Commentary: Rude Awakening Coming

Weekly Commentary: Rude Awakening Coming

Please join Doug Noland and David McAlvany this Thursday, October 18th, at 4:00PM EST/ 2:00pm MST for the Tactical Short Q3 recap conference call, “Market Contagion is Back.” Click here to register.
There’s little satisfaction writing the CBB after a big down week in the markets. Motivation seems easier to come by after up weeks, perhaps my defiant streak kicking in. I find myself especially melancholy at the end of this week. There’s a Rude Awakening Coming – perhaps it’s finally starting to unfold.

Many will compare this week’s market downdraft to the bout of market tumult back in early-February. At the time, I likened the blowup of some short volatility products to the June 2017 failure of two Bear Stearns structured Credit funds – an episode marking the beginning of the end for subprime and the greater mortgage finance Bubble. First cracks in vulnerable Bubbles. Back in 2007, it took 15 months for the initial fissure to develop into the “worst financial crisis since the Great Depression.”

I posited some months back that tumult in the emerging markets marked the second phase of unfolding Crisis Dynamics. I have argued that the global government finance Bubble, history’s greatest Bubble, has been pierced at the “periphery.” More recently, the analytical focus has been on “Periphery to Core Crisis Dynamics.” I’ve chronicled de-risking/deleveraging dynamics making headway toward the “Core.” This week the “Core” became fully enveloped, as the unfolding global crisis entered a critical third phase.

Today’s backdrop is altogether different than that of February. For one, back then “money” was flowing readily into the emerging markets – too much of it “hot money.” “Risk on” was still dominant early in the year. Speculative leverage was expanding, with resulting liquidity abundance on an unprecedented global scale. With such a powerful global liquidity backdrop, a fleeting dislocation in U.S. equities proved no impediment to the hard-charging U.S. bull market.

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

The End of the Bull Stock Market – Buy Gold – Charles Nenner

The End of the Bull Stock Market – Buy Gold – Charles Nenner

Renowned geopolitical and financial cycle expert Charles Nenner says forget what the mainstream media talking heads are telling you about this market. Nenner says, “When unemployment is low, it’s the end of the bull market.  Last Sunday, I published a chart that shows every time the unemployment is around 4.1% or 4.2%, and you can see this in 1973, 1987, 1990 and 2007, and you can go on and on, and now, also, you have a market crash.  I find it amazing that people can come on television and say things that are totally wrong factually, and you can prove it is wrong.”So, Charles Nenner is calling a top right now, but the market is not going to go straight down. Market tops are a process.  Nenner explains, “The cycles saw a market top.  It doesn’t always have to come down immediately, it just means the market will not go higher.  I don’t think we will go back to the highs one more time because the quarterly cycle, and it is a long cycle, did top at the end of last year.  I also want to put in a caveat about all this talk that we are in a 10% correction.  Somebody came up with 10%, and it is not based on anything. . . . The fact is we are totally out of stocks.  What is coming is big, but market tops take time.  I don’t think it’s going to go down immediately.”

When will this new bear market hit bottom? Nenner says, “We should hit a major low in 2020. . . . I have been on record saying that the next bear market goes down to 5,000.  If you are in stocks, I say you could lose everything if the DOW goes to 5,000.  This is the price target I have had for a couple of years.”

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

The Myth of Sound Fundamentals

Cem Ozdel/Anadolu Agency/Getty Images

The Myth of Sound Fundamentals

The recent correction in the US stock market is now being characterized as a fleeting aberration – a volatility shock – in what is still deemed to be a very accommodating investment climate. In fact, for a US economy that has a razor-thin cushion of saving, dependence on rising asset prices has never been more obvious.

NEW HAVEN – The spin is all too predictable. With the US stock market clawing its way back from the sharp correction of early February, the mindless mantra of the great bull market has returned. The recent correction is now being characterized as a fleeting aberration – a volatility shock – in what is still deemed to be a very accommodating investment climate. After all, the argument goes, economic fundamentals – not just in the United States, but worldwide – haven’t been this good in a long, long time.

But are the fundamentals really that sound? For a US economy that has a razor-thin cushion of saving, nothing could be further from the truth. America’s net national saving rate – the sum of saving by businesses, households, and the government sector – stood at just 2.1% of national income in the third quarter of 2017. That is only one-third the 6.3% average that prevailed in the final three decades of the twentieth century.

It is important to think about saving in “net” terms, which excludes the depreciation of obsolete or worn-out capacity in order to assess how much the economy is putting aside to fund the expansion of productive capacity. Net saving represents today’s investment in the future, and the bottom line for America is that it is saving next to nothing.

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

Don’t Trust the “Trump Boom”

Don’t Trust the “Trump Boom”

stockmarket-300x200Call me a bad conservative.

I don’t cheer this past year’s stock market gains. I don’t enthusiastically crow and pump my fist every time the Standard and Poor’s breaks a new record. I don’t breathlessly watch CNBC to see the day’s gains, listening mindlessly to commentators in custom-tailored suits with shiny gelled hair pontificating about what a rise in the futures market of Chinese copper means.

Oh, sure, the few times I check my 401k balance, I’m pleased. But when the closing bell rings and the champagne corks pop and the Financial District bursts into song and dance, I’m more or less indifferent–perhaps less. Perhaps I’m even pessimistic.

It’s because we’ve seen this movie more than a few times before. The wildcat banking of the mid-19th century, the frequent panics of the fin-de-siècle, the Roaring Twenties, Jimmy Carter’s cardigan-covered stagflation, Alan Greenspan’s handiwork in suppressing interest rates to fuel a housing bubble that popped in the fateful autumn of 2008–we live in a cinema where the feature show is never different. America, its economy and its workers, its labor and capital, are stuck in an involuntary pas de deux with some guy named Dow Jones.

The so-called “Trump boom” that’s sending stocks ever skyward was suspect from the beginning, but not for anything the President’s done. Trump’s tax-cut act, his most significant economic policy so far, has no doubt loosened some restriction on the market, freeing up money that would otherwise float down the river of Acheron into D.C.’s dead coffers. That’s certainly been a boon to traders whose job consists of playing god with other people’s dreams of retirement.

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

Doug Casey on Why Gold Could Go “Hyperbolic”

Doug Casey on Why Gold Could Go “Hyperbolic”

Justin’s note: Volatility has come storming back.

Just look at the CBOE Volatility Index (VIX), which measures how volatile investors expect the market to be over the next 30 days.

It’s up 89% since the start of the year. Last week, it hit the highest level since 2016.

Investors aren’t used to this. After all, last year was the least volatile year ever for U.S. stocks. That lulled many investors to sleep. It led them to take risks they would normally never take.

Now, those same people are wondering what to do. They aren’t sure if this is just a run-of-the-mill pullback…or the start of something much worse.

To help answer this question, I called up Doug Casey. I knew he would have an interesting take on this matter…


Justin: Doug, U.S. stocks took a beating recently. Where do you see things going from here?

Doug: Well, I hate to make a firm prediction of timing. The fact that things have held together, against all odds, since 2009, has underlined the old saying about just because something is inevitable doesn’t mean it’s imminent. Predictions of disaster, and all these things unwinding, have been wrong over the last half a decade. And the smart bet is always for muddling through, in the direction of progress. But it seems that we’ve finally reached a peak, a major turning point.

Justin: So, what have you done to protect your wealth?

Doug: At the beginning of the year, I took all my original capital out of cryptos, plus 150% profits. I also took profits on crypto stocks. I got in late, and out a bit late. But it was a happy experience.

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

The Worst Threat We Face Is Right Here At Home

The Worst Threat We Face Is Right Here At Home

The Federal Reserve is ruining us

Last week, volatility made a long-overdue return to the US and global equity markets.

It began with a 2-day back-to-back violent drop. Day 3 saw a big rebound, swiftly followed by two more days of gut-wrentching losses. And then finally, last Friday, the day saw massive swings both high and low, ending with a huge upside run.

During this period the S&P 500 lost more than 300 points.  Since then, though, the market has been steadily rising.

Is the danger past?  Are the markets safe once more?

And if so, did the markets recover organically? Or were they rescued by The Plunge Protection Team (PPT)?

The answer matters.

If such intervention was rare we could almost justify it, if it took the form of simple, pre-arranged circuit breakers that shut the market down for a “cooling off” after they’ve moved too far, too fast. Indeed, these already exist, and are sufficient in our view.

But if such market interventions are routine, persistent, and generally depended on by the major market participants, then they’re highly destructive over the long term.

Sadly, we live with the latter.

Insiders get stinking rich by front-running the scheme (check). Normal adjustments are prevented (check), allowing dangerous bubbles of extreme overvaluation to form (check), while fostering malinvestment (check).

Do this long enough and you end up with a deformed economy, an eroded social structure, and markets that no longer function as appropriate mechanisms for capital distribution and economic signaling.

This is where we find ourselves today.

Modern-Day Soviet Crop Reports

In the former Soviet Union, the communist method of assuring economic progress was to set targets for production. Famous among them were the crop reports.

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

Weekly Commentary: Permanent Market Support Operations

Weekly Commentary: Permanent Market Support Operations 

U.S. stocks posted the strongest week of gains since 2013 (would have been 2011 if not for late-day selling). The S&P500 surged 4.3%, and the Nasdaq Composite jumped 5.3%. The small cap Russell 2000 rallied 4.4%. After closing last Friday at 29.06, the VIX settled back down to a still elevated 19.46. Foreign markets recovered as well. Germany’s DAX rose 2.8%, and France’s CAC 40 gained 4.0%. The Shanghai Composite was closed for the lunar new year. The dollar index was back under pressure this week, sinking 1.5%, giving a boost to commodities prices. Price instability abounds.

While stocks rather quickly recovered a chunk of recent losses, the same cannot be said for corporate bonds. Notably, investment-grade bonds (LQD) rallied little after recent declines.

February 16 – Bloomberg (Cecile Gutscher and Cormac Mullen): “Corporate bond funds succumbed to rate fears that have gripped stocks to Treasuries. Investors pulled $14.1 billion from debt funds, the fifth-largest stretch of redemptions in the week through Feb. 14, according to a Bank of America Merrill Lynch report, citing EPFR data. High-yield bonds lost $10.9 billion alone, the second highest outflow on record. As benchmark Treasury yields traded at a four-year high, it shook the foundations of a key support for risk assets — low rates. ‘Investors don’t sell their cash bonds in a big way until they are forced to, which happens when the outflows start picking up more sustainably,’ Morgan Stanley strategists led by Adam Richmond wrote…”

U.S. junk bond funds suffered outflows of $6.3 billion (from Lipper), the second highest ever. IShares’ high-yield ETF saw outflows of $760 million. U.S. investment-grade bond funds had outflows of $790 million (Lipper), the first outflows since September. This was a big reversal from last week’s $4.73 billion inflow. The iShares investment-grade ETF had outflows of $921 million, the “largest outflow in its 15-year history.” Even muni funds posted outflows ($443 million), along with mortgage and loan funds.
…click on the above link to read the rest of the article…

Reckless Deficit Spending by Congress Set to Wreck the Dollar

Reckless Deficit Spending by Congress Set to Wreck the Dollar

U.S. equities got a free ride on the Trump train after his election, even as Federal Reserve officials hiked interest rates. That ride may have ended last week.

Hiked Rates

If commentators are correct and the blame for recent selling in the stock market falls on the burgeoning fear of rising interest rates, it looks like Fed tightening is finally having the effect many predicted when the cycle began.

Most currently expect the FOMC to continue with hikes at about the same pace set in 2017. They have gotten away with several hikes, but attempting several more will be harder for them.

The question is whether the Fed’s tolerance for pain is any higher under new chairman Jerome Powell. We’d wager that it won’t take much in the way of flagging stock prices and slowing growth to have them reversing course and punching the stimulus button.

No one should bet that last week’s rally in the dollar means the bottom is in. The next few years look downright terrifying for the greenback. Here are some factors to consider:

  • Congressional Republicans embarrassed themselves last week by proving the lip service they pay toward fiscal conservatism is nothing but lies. The Republican leadership shepherded through $300 billion in additional spending. Furthermore, they once again completely suspended the limit on borrowing;
  • The Treasury will be issuing staggering amounts of new debt to fund the Congressional spending spree. Last fall’s tax cut may be good news for taxpayers, but it will also magnify federal deficits. Net new debt in 2018 is expected to be $1.3 trillion – the highest since 2010!
  • President Trump will soon begin the push for a trillion-dollar infrastructure program. That will almost certainly be paid for with additional borrowing.
  • The creditworthiness of the U.S. is once again back in the news. Rating agency Moody’s raised the idea of a downgrade for U.S. debt last week.

Debt

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

“We Are Living In A Reality Distortion” Mark Spitznagel Warns “This Is Not Over Yet”

Just a week before the biggest spike in US equity market volatility ever – something ‘no one’ in the mainstream even thought possible – Universa’s Mark Spitznagel warned “a reckoning always follows…something really big is coming”

This is an age of massive artificial economic imbalances and systemic risks.

Repress change, and you repress all that it means. Repressing it is sheer hubris and, in Dylan’s words, “beyond your command.” You can only defer it, not stop it. (Juxtapose this view with outgoing U.S. Federal Reserve Chair Janet Yellen’s ambitious claim that there will not be another financial crisis “in our lifetimes.”) When we try enforcing stability by decree, a reckoning always follows. An unsustainable boom leads headlong to an inevitable bust. A hard rain falls.

Rather than fear it, we should “tell it and think it and speak it and breathe it.” This is Dylan’s resolve. Something really big is coming. Let the central bankers try to keep standing in its way, but as investors we need to recognize and accept its logical consequence of a return to the meaning of volatility. Change and volatility are good. “There is nothing perpetual but change”—according to Mises, who surely must have loved Dylan just as much as I do.

While this is a common theme from the guru of tail risks, his timing could not have been better. As some might say “nailed it,” and Spitznagel was asked to explain how to spot market crashes coming on Bloomberg TV this week

Spitznagel begins by pointing out the obvious, and crushing the business models of 99% of the mainstream media’s guests:

“My job is not picking the top. My job has always been risk mitigation. Picking crashes is impossible… timing crashes is impossible. If you require a forecast in order for your investment thesis to do well, then I think you’re doing it wrong.

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

Hear What Peter Schiff Says Is Coming Next: ‘There’s No Way To Stop This’

Hear What Peter Schiff Says Is Coming Next: ‘There’s No Way To Stop This’

peterschiff

Peter Schiff, a market analyst who had accurately predicted the 2008 recession and the recent stock market plunge says more is coming.  Wait until you hear what he says is on the horizon for America and the global economy in the Trump era.

In an interview with Infowars‘ Alex Jones, Schiff details what we can all expect from the economy.  And even though Trump has fought to save the economy, the federal reserve is working against the president. “Unfortunately, he is the fall guy. There’s no way to stop this,” Shiff begins.

“The problem is so big that the minute the Fed has to try to solve it, it’s gonna unleash a much bigger one [problem],” Shiff says.  Jones begins his intro by not sugar coating the problem the economy is in thanks to government interference. The economy is a giant bubble and it will pop at some point, not just deflate.

The Fed were dragging their feet in raising rates while Obama was president.  They talked about raising rates but at the end of the day, they barely moved them up. The pace of hikes has increased since Trump was elected, but part of the reason for that…I mean, the media is not talking down the economy; if anything they’re overhyping the economy.  Everybody’s talking about how strong the economy is, how everything is great. Everybody is taking credit for this great economy. The Fed wants to take credit for it, Trump wants to take credit for it, so if everybody wants to talk about how great the economy is, the Fed doesn’t have any excuse if it doesn’t raise rates…in order to keep up the pretense that the economy is as strong as everybody thinks, the Fed is in this box where it has to raise rates.

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

Fever Pitch

In case you’re worked up about the looming federal government shut-down, this is exactly how we’re supposed to roll in the long emergency: everything organized at the gigantic scale is going to wobble and fail. It’s nature’s way of saying, “get smaller, get realer, scale down, and get local.” The catch is, we probably won’t listen to nature. Instead, we’ll just behave like bystanders and do nothing until the full force of failure is upon us, just as we’re doing with climate change — the tragedy of the commons at planetary scale.

The failure of national party politics is deep and systemic, as you would expect from activities nurtured in a shit-hole called Washington, corruption being the manifestation of sepsis. The lethal vector of this illness is money. There’s the money flowing into the “campaign funds” (so-called) of congressmen and senators, of course, but there’s also the “money” that is flowing in and out of the leviathan government — a whole lot of it is not really there. It’s a figment of promises to pay back loans on top of a monumental heap of past promises that will never be kept. The threatened government shutdown is just a symptom of the illness: a society doing things out of scale, trying to run its excessive activities by check-kiting and accounting fraud. What could go wrong?

Not the stock and bond markets, I’m sure. Though… wait a minute… that hockey-stick surge in equities looks a little bit like the action of a thermometer measuring the rising body temperature of a very sick patient. From 25,000 to 26,000 on the Dow — in what? seven days? — is kind of like the flu victim going from 98.6 to 105 after onset. And we know what happens to humans up around the 105 Fahrenheit body temperature level: the brain starts to sputter and smoke. Soon, it’s lights out and don’t let your karma smack you on the butt going through the exit.

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

Oil Plunges To $28 Cycle Lows As Iran Supply Looms, Stocks Slide

Oil Plunges To $28 Cycle Lows As Iran Supply Looms, Stocks Slide

February WTI Crude futures have plunged to new cycle lows at $28.60 (down 2.7%) as Iran supply looms over an already over-glutted global crude market. Brent is down even more (-3.7%). Dow futures are down 60 points at the open.

  • *WTI OIL FALLS AS MUCH AS 2.7%, BRENT CRUDE DROPS 3.7%

Feb futures (which have just rolled) are under $29…

And the new on the run March contract is trading $29.60, down 2.6%…

Weighing on US equities… Dow futures down 65 points

Record Financial Engineering Will Goose Stocks: Goldman

Record Financial Engineering Will Goose Stocks: Goldman

GE, in order to paper over a net loss of $13.6 billion and declining revenues in the first quarter, said on April 10 that it would buy back $50 billion of its own shares. That’s on top of the $10.8 billion in actual buybacks last year. The announcement was beat only by Apple’s $90 billion announcement last year, to which it added another $50 billion on Monday.

It’s going to be a great year, not for revenues and earnings, but for share buybacks. Hence for share prices and executive bonuses, despite crummy revenues and earnings. Goldman Sachs says so.

In a note to clients, Goldman predicted that companies would goose share buybacks by 18% over 2014 and dividends by 7%. That would be a $1-trillion banner year.

The year has started out on the right foot. Repurchase plans, including GE’s mega-dose, have already reached $337 billion through April 24, Reuters reported, based on data from Birinyi Associates. That’s a 34% jump over the same period last year.

The next party of actual repurchases will commence in a week or so, Goldman’s chief U.S. equity strategist David Kostin wrote in the note. Turns out, that’s when about 80% of the S&P 500 companies will have exited their blackout period for share repurchases, which stretches from about five weeks before they report earnings to two days afterwards.

So be it if actual earnings, as reported under GAAP, are in the doldrums. By reducing the number of shares outstanding, companies automatically increase their earnings per share. And EPS is the magic metric, particularly “adjusted” ex-bad items EPS. It performs outright miracles.

 

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

Olduvai IV: Courage
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Olduvai II: Exodus
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