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Are Your Ready for the Big One?

45 comments

The Dow looks to be in the throes of a 420-point plunge, even if sellers were unable to deliver the haymaker yesterday that would have put bulls down for the count. At the final bell, the drop amounted to only 144 points, although it would have been closer to 200 points at the day’s lows.  If our prediction of a further 276-point fall over the very near-term pans out, pushing the blue chip average slightly below 10000, that would be just a very small downpayment on all of the plunging the Dow will still have to do to catch up with a U.S. and global economy that have begun to relapse into deep coma. Dow 5000, anybody?  Whatever happens, it seems clear already that the highs achieved by the broad averages earlier this month marked a last hurrah for the most recent bear-rally cycle, and that the major bear market begun from Dow 14198 in October of 2007 has resumed.

The summer's big rally, bar-by-bar: What could we have been thinking!?

In retrospect, it’s hard to imagine how DaBoyz could have succeeded to the extent they did this summer, manipulating an 1100-point surge in the Dow Industrials since early July. The economic landscape hasn’t looked as dark since the early days of the Great Depression. Unemployment will only rise in the months, or perhaps years, ahead; real estate prices have failed to respond to trillions of dollars worth of direct and indirect stimulus; and all of the Government’s bailouts have produced not even an iota of sustainable economic growth. Put all of these factors together, and many not mentioned, and Wall Street pros who bought into the rally should be wondering, “What were we thinking?”

Threat Is Waxing

Looking ahead, although a bout of further weakness might be satisfying to those who have yearned to see stocks get in line, finally, with the grim realities noted above, it remains to be seen what form the decline of shares will take. We raised the possibility here the other day that a full-blown collapse may already be under way and that only the element of momentum is lacking to put some hair on the chest of a bear that showed its incisors last Wednesday via a 216-point plunge in the Dow. We think the most likely scenario is for stocks to continue to drift lower between now and the November elections, but with sharp rallies along the way to keep bears at bay. As this occurs, however, the chance of an outright crash, with the Dow falling 3000-4000 points in a matter of two or three weeks, will be with us more less constantly. It could begin tomorrow, or next week, or at any time in September or October. But make no mistake, it is surely coming.

Investors who want to avoid disaster should be at least 80% in Treasurys right now, since the preservation of capital is paramount. This next phase of the bear market is going to make the deep economic trough of the early 1970s look like a picnic. Back then, the economy was in a secular credit expansion that resumed following the 1973-4 bear market. This time, credit is collapsing and consumers will be unable to reverse the trend. Economic growth is going to swing negative in 2011, and it’s possible it will remain negative by as much as 2% to 3% for a couple of years.  That the stock markets have yet to discount an economic implosion of this degree implies that the collapse in share values just ahead will be devastating.  If you’ve been hanging onto stocks, lulled by this summer’s hoax into believing there’s no need to rush for the exit, think again.  It’s time to get ready for the most destructive and precipitous phase of this Great-Recession-or-Worse.

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Please do not ask trading questions!

  • Oliver August 23, 2010, 7:36 pm

    Thanks! It seems a complicated story. Here in Germany the on-purpose-reparations story is being insisted on. I guess I have to check deeper into the matter, then.

  • Oliver August 23, 2010, 7:24 am

    Rick: that is a nice myth that the printing presses were run at full speed in order to keep jobs, maybe Americans try to be nice, but no, the inflation itself started well in the war years already around 1915 because of the war efforts (a little complex all that how it was done) and was run full amok on purpose in order to pay for the Versailles reparations with garbage money. Bad Germans. All the soldiers had also just returned from war having no jobs plus the economy had to adjust from war economy to civil economy. The economy only began to pick up 1923 after the hyperinflation had wiped out the middle classes savings, pensions and all of the middle class itself. The roaring 20s in Germany only helped the few rich and whoever could live of their excesses, but that only lasted until 1929.
    Maybe the workplace myth derives from the fact that at some point hyperinflation necessitated that companies were allowed to print their own money to pay wages.

    &&&&&&

    As late as Q2 1921, the German economy was actual in mild disinflation, with no inkling of the hyperinflation that was soon to come. Unemployment was nonetheless very low, and the German government was eager to keep it that way. That is what led to the ramp-up of the money supply; it is the reparations scheme that is a myth.

    Anyone who wants to fully understand what actually happened in Germany in the early 1920s should read Adam Fergusson’s book on the subject. It is the only source I have found that reveals, for one, how all that printing-press money actually got into the hands of German workers. RA

  • mario cavolo August 22, 2010, 9:50 am

    If I have achieved enlightenment then this is the future:

    1. Persistent, essential low interest rates. Average historic stats are shifting as the fundamentals shift. Treasury yields going lower, interest rates staying low. Bond rise just beginning with flight to preservation as Rick noted and other’s beginning to “bail” to go “dark”. Low interest rates is the MUST core fact that sovereign entities with higher debt start with and from which all else is driven. Any uptick in rates is magnified more than ever and must be avoided at all costs. And so it will be…

    2. Currency purchasing power declining, and so…

    3. Continued inflation on the daily goods we need…

    4. Cash reserves go higher and higher on lower and lower yields in the name of capital preservation as they are worth less and less in the real world.

    5. The rise of the 3rd World Country/Asian lifestyle in America over the next 10 years has already begun with 40 million collecting food stamps and unemployment worsening: renting rooms, sharing apartments to cut costs. Local style street life/flea markets/bazaars/back to basics to simply survive with a basic roof over your head and food on the table and off the kiddies go to lousy public school and learn to be happy with it. No or little choice to alter it. Survive and provide like a shoemaker or a barber or a noodle shop, a merchant.

    6. Excesses truly not needed have begun to disappear for the declining lower/middle class, ie., unnecessary cars/car payments with full insurance coverage and similar truly unnecessary middle class luxuries will decline dramatically in daily life.

    6. Stocks supported by low interest rates, bullish, will “relatively” go nowhere which means they will continue rising in “price” with inflation but not “value” . As 3 years from 2004 to 2006 stocks stuck in the 10,000-11,000 range, and went nowhere from 2000 to 2010, that could continue. Volatility because of the elitist trader manipulators doing what they do, but in the end a wash.

    7. Gold, of course, gradually up.

    8. Oil, of course, gradually up.

    9. 30%-50% crashes and bubbles and rebuilds along the way, up and down and round and round, so what?

    10. Upper middle income and upper income wages, including gov’t wages are relatively higher and outrageous (CEO and other executive and middle management level salaries for example) . These millions of gov’t and corporate workers earning great salaries and benefits will continue happy lives because their salaries are now quite high so even with currency devaluation, they are ok.

    11. Asia rising with China leading the way will continue simply because people have so much cash to live and to survive through any persistent downturn. Asians already live “multi-generational” family lifestyles together to preserve so it is not big deal for them. America, on the other hand, has destroyed the marriage and family unit, the divorce mentality has done so much damage. The economic decline won’t really bring the families back together. People will live with room-mates. The downward adjustment will be mentally and emotionally painful for this group. The good side is that this trend will somehow in the end cause people to finally band together on values and principles to rebuild once again with the old American values rising up again.

    That would be nice.

    Cheers, Mario

  • ben August 22, 2010, 7:42 am

    And how can the powers that be stop this deflationary collapse? Inflation! Not the low interest rate-induced inflation that caused housing prices to soar and the value of generally low-yielding assets skyrocket, but the money printing, digit adding type. Every month the national debt goes up by another $150 billion…where is this money coming from? Where is it going to? How long can this go on?

    But I guess I must be talking nonsense since nobody is willing to pay Rick a quadrillion dollars for his house.

  • jj August 21, 2010, 11:19 pm

    Hi Rick, why does it have to be INflation or DEflation can’t we have what Harry S coined BIflation, homes going down in price yet food going up in price?

    Just bought a med coffee at Tim’s and its gone from $1.25 to $1.50 = 20% INflation,no? Is it not costing more money each month for you and your family to live than it did 1-3-5-10 years ago? I’m not talking about buying LCD tv’s, computers etc, but what we all need, food, gas,water,insurance,health care.

    The US$ index fell from 120 to 75 from 2002-07 as the Dow shot almost 100% higher, so a further 30% drop in the US$ value could see the Dow 15-20% higher, no?

    The future could easily have your home worth less, alot less, yet your food bill could be 100% higher and the average wage stagnant at best.

    Great insights with this forum you’ve allowed Rick,

    Cheers!

  • FranSix August 21, 2010, 9:47 pm
  • Oliver August 21, 2010, 8:11 am

    Aaa, economic theories… Very desperate people begin to think that a devaluation of the Dollar is going to bring back more jobs from foreign terrain and that real estate prices will sort of Potjemkinish hold up of sorts in a way.
    Well, forget that theory. All that´s going to happen is that a few freaks will have all the power and the money and joblessness will continue. Brazil, Argentine, Zimbabwe, Italy (pre Euro for decades) etc, etc.
    Jobs will not return into insolvent districts like Vallejo (California/USA), because of the depression and secondly because nobody (in the developed world and also not in Asia) needs anything from the US they can´t make themselves.
    Like Weimar. Broke is broke. Rien ne va plus. There were no jobs in Weimar. And real estate was something called landlord. Or street.
    Greece had a 70% consumer driven “economy”, now it has joblessness of 70% in important core areas (already).
    There´s an economic theory: do not run up too much debt or you will be in real trouble.
    Get cigarettes and canned meat. Prudent investment.

    • Rick August 21, 2010, 8:53 pm

      You’re right — Hollywood movies aside, America no longer produces much of anything that others could not produce for themselves, so devaluing the dollar will have little impact on the trade balance.

      Concerning Weimar of the 1920s, Germany was in fact at full employment just prior to the hyperinflation even though France and England, ironically, were wallowing in joblessness. Germany’s goal of keeping its work force working, and not some plot to screw the Allies out of reparations, provided the initial justification for ramping up the printing presses.

  • Chris T. August 21, 2010, 2:27 am

    Steve:

    here is someone else who has understand what kind of serfs we are and have been.
    Too bad the others just laugh, but don’t seem to internalize. George Carlin was incredibly funny and perceptive, but a Cassandra alas.
    See here:
    http://www.youtube.com/watch?v=hWiBt-pqp0E

    WHile at it, you might also look at his “on war” and his take on “stuff”!

    Enjoy…

  • Chris T. August 21, 2010, 2:17 am

    Rick,
    “Alas, there is no reason to think gold stocks will buck the tide when the broad average finally collapse. ”

    What about that full-mall-store darling, AAPL?
    Will their being just about 10% below the all time high, their outperformance, mitigate any fall, or cause an even more drastic deflation, when THE story stock is caught in the maelstrom you mention?

    While I did not look it up, the AAPL vola should be rel. low right now, if one believes in a bubble-pop here, a good time to get in….?

  • Chris T. August 21, 2010, 2:11 am

    William writes:

    “Well, here’s my theory, buy gold and silver, but not yet! All of those people in the metal ETF’s I think will sell and try to buy bullion …
    The price of gold will plummet along with the market when the ETF selling begins, then true price recognition of gold will have to realized and it will shoot to the moon.
    I think when gold’s importance is fully realized everyone will want delivery and few will be able to get it.”

    You have the right concern, but the wrong solution.

    The operative words are “try to buy” and “everyone will want delivery”.

    When the situation you mention, the realization sinking in, happens, sure PAPER-gold like ETFs and the OTHER derivatives may sink drastically.
    But if you wait to buy at those depressed paper levels, you will find that the decoupling you mention will not allow you to get in to the physical, or at prices nothing like you would want.
    At that point its too late.

    If you live in a valley below a dam, and have enough knowledge to know that at some point it WILL break, then you will survive if you act on that knowledge now.
    But if you wait for your knowledge to be manifest, it will be too late for you, just like all the others who were completely ignorant.

    Small manipulated down moves, that cause physical sellers to adjust down as well (still happens right now) are good opportunities, but the major move you mention won’t allow you to load up.
    A few ounces maybe, but real and meaningful quantities, doubtful.

    WHat you describe really is the basis turning having permanent backwardation as A, Fekete has described previously. Then, you can’t get it at any price.

    In a small way some decoupling of this sort happened in silver over the last 2 years, and even more in palladium.
    When the paper palladium price went below $200 it was IMPOSSIBLE to buy the physical at less than $270+ (premiums close to 50%), and delivery times went to 4 weeks and more.

    You are better off following Marc Fabers advice of regularly buying some PMs, and averaging out the difference. Same sum, different amount each time.

    Of course the larger the number of people delaying, the better the spike when they try to pile in and find they can’t easily do so. Good for those that and held…

  • ricecake August 21, 2010, 1:56 am

    Deflation – Not so fast.

    Must read article by Andy Xie 08.16.2010 18:12
    Inflation, Not Deflation, Mr. Bernanke http://english.caing.com/2010-08-16/100171139.html

    • Rick August 21, 2010, 8:43 pm

      Mr. Ricecake, please don’t take this personally, but I’ve stopped reading links to essays and commentaries that purport to make the case for inflation. In fact, there is no significant inflation at the moment and none on the horizon, and that’s why the burden of proof should rest heavily on those who want to address the subject.

      Unfortunately, their lame arguments, which invariably ignore or evade the pointed questions I’ve posed here, have not improved in 20 years. That’s when inflationists, monetarists and economists started predicting a spectacular outbreak of CPI inflation. They have been aided and abetted all along by economically ignorant pack journalists and editorial writers who have dutifully flak’d the Fed’s cover story about an imminent rate hike that never came.

      Meanwhile, the inflationists blather on about how “The Fed will do whatever it takes,” or “The Fed won’t let deflation happen,” or “Bernanke, a student of the Great Depression, knows how to prevent deflation.” Or whatever. But the simple fact is, deflation IS happening, and it is completely overwhelming the efforts of the piss-ant central banks to halt it, much less reverse it.

      So once again, I say to the inflationists: Wake me when I can sell my home for a gazillion dollars.

  • gary leibowitz August 20, 2010, 10:20 pm

    I am a simple guy with core ideas. Earnings drive the stock market not human pain caused by the economy. In fact the market usually does well during times of corporate layoffs. Lower wages and higher productivity is a given. As for sustainability of those earnings you would need a revamp of jobs, with lower wages, consumers taking on more debt to compensate for the lost higher wage jobs, and the banking system to provide the liquidity.

    Today it is rather clear that jobs, wages, debt, and the banking system is reversing course.

    In regards to the PPT (Plunge Protection Team) it is a fallacy to assume they can have any real long lasting affect on the stock market. In fact they usually precipitate a crash. If they hold back the natural flow of the stock market and the economy grows ever weaker they create a dam with too much water. Somethings got to give.

    The test whether we reach past the elections is upon us. Technically we are entering a strong down pull. head and shoulders pattern breaking down, 1082 on the SPX was a critial support based on moving averages.

    When all 38 economists predicted the Philly Manuf. Index would be rising and it fell suggests this super-tanker of an economy is making a dramatic emergency stop.

    The idea that this summer will be a boring one is gone. Let the games begin!

    • jj August 20, 2010, 11:56 pm

      gary, your comment:
      When all 38 economists predicted the Philly Manuf. Index would be rising and it fell suggests this super-tanker of an economy is making a dramatic emergency stop.

      Or the data was spun? It is released from the Philly Fed Reserve Bnk, seems all of a sudden the TRUTH is being let out in all the Fed economic data, hmm, at the sametime talk of further stimulas will be needed….. plunge it….the S&P…create pain…..pass QE#2 with ease
      Where are all those green shoots!…..follow the golden brick road, lol……liars and cheats and Bears oh my!

    • gary leibowitz August 21, 2010, 2:01 am

      jj,

      The idea of a conspiracy is just paranoia. The TRUTH as you see it has been there for over 2 months. Yes two months of dismall reports that just happened to be ignored. Human nature. After 18 months on the road to recovery, from the abyss, it is natural for people to assume everything is safe. Not logical but natural.

      As for another stimulus package there are only 2 scenarios:
      1 – If the market does not crash before November, the GOP will never allow more spending and larger deficits. hypocracy rules.
      2 – If the market does crash befor November it will not matter what stimulus plan is put in affect. The economy will not be resilient the second time around.

      In other words a stimulus package is a moot point.

    • jj August 21, 2010, 3:03 am

      Gary, the idea of conspiracy is just paranoia….thats what I was thinking when the all the facts were so clearly given by the feds that weapons of mass distruction were hidden everywhere in Iraq, lol
      The only weapons of mass destruction are the OTC derivatives that have still not been delt with in any measure, but thats just my paranoid outlook they don’t really exist because they’ve not been acknowledged by the feds, thank goodness!

      Conspiracy theorists can sometimes be the little guys who bring the big guys to account – including multinational companies and governments. After all, some conspiracy theories turn out to be true. Take the Iran-Contra affair, a massive political scandal of the late 1980s. When claims first surfaced that the US government had sold arms to its enemy Iran to raise funds for pro-American rebel forces in Nicaragua and to help secure the release of US hostages taken by Iran, it certainly sounded like yet another convoluted conspiracy theory, but someone was thinking “outside the box”

      Actually paranoid conspiracy is rather over the top Gar, spin is more suitable, I feel for the 38 well informed thinking “inside the box” economists who lost their jobs being sooo wrong about the Philly index call as they too missed the plain 2 months worth of writing on the wall that you saw so clearly, obviously your not an economist, lol.

      Perhaps thats the problem looking at the possibility of another HUGE stimulas packgage as a moot point….your right what’s another 2.5 Trillion, the S&P, bonds, gold and alike won’t even blink!………..man I’d hate to be paranoid …wheres my box I gotta get back inside with all the other sheeple

      Cheers! all in good fun…
      ps. ignore the man behind the curtain pulling on that PPT lever, as even though we paranoid bunch who make a living trading a global market knew they existed we had to wait for Big Al Green Spin to tell us they were real, lol

  • Myron August 20, 2010, 5:40 pm

    Rick, you wrote:

    ” If you’ve been hanging onto stocks, lulled by this summer’s hoax into believing there’s no need to rush for the exit, think again. ”

    Are you including the gold stocks here?

    &&&&&&

    Alas, there is no reason to think gold stocks will buck the tide when the broad average finally collapse. RA

  • Steve August 20, 2010, 4:49 pm

    When you all talk about gold it seems you talk about its value established by fiat valueless federal reserve notes. Gold and silver are ‘value’. Fiat is nothing except a confidence game in paper tally. Maybe a read of France in late 1790 through 1810 would enlighten a few people.

    Historical cycles of money say fiat fails. Not one fiat currency has survived historically – what are the odds any fiat survives this time – zero to one in ____________ ?

    Rick makes a solid point I was going to write about. Nobody has been able to re-inflate the housing market, and after all of the trillions spent trying – there is still that 400,000.00 sucking sound in the house behind me that has not been turned loose because of criminal accounting rules by the congress.

    I am one of the few in the World who understands the level of slavery in the U.S.

    I do not abuse my cattle in the field. I keep them happy even though they are enslaved to me to give me clean beef. 99.99 percent of Americans believe they are Free Men, not slaves under the 14th Amendment. When the ground gets used up, (that is an analogy to make the point) – the labor of the people is used up – their credit value expended – (please import some Mexicans for their credit) things will begin. The cattle will begin to go lean – that is where we are starting to go as a nation, and a world. Eventually cattle will tear down the fences, go through the hot wire, and head headlong to water, even if there is a bluff in the way.

    Have you been to Head Bashed in Buffalo Jump ?

    Congress cut off some welfare to give teachers raises last week. The rebellion that is coming will not come from teachers and police – they are fat. When the fall comes it cannot be stopped because the FED has nothing of real value – is there any gold in Fort Knoxx ? No one knows, it is a confidence scheme that is not audited.

    If I place my belief, as aligned with four or five like Elliott Wave, in a pot of 300 million who think it cannot happen – in reality nobody is saying the sky is falling. The population’s belief is no where near critical mass. If I am able to place what I have been trained in, “social disorder” and control of that disorder, and aline that with the radical gloom and doomers. I might believe that there will be a crash that scares the wads out of everyone. Then a couple of years from now everyone will think the day has been saved by government taking of what Liberty still remains.

    Right now the only game in town is the congress forcing you and you to loan to bankers, to auto makers, and to bond holders. All profits, of all corporations are the figures of criminal accounting. I’m not saying that some corporations don’t have cash on hand. I am saying that the accounting allowed by the congress is criminal, and thus suspect.

    We are pretty much past the masses of the people volunteering to take on more debt. The anger that is building is building against those who would force the individual to loan their credit to the irresponsible who have taken the inheritance of the people to their own use. That is the new ruling class Obamas, and the old ruling Court Bushy Clintons.

    Stuff is going to happen when the optimists see the darkness of day – realize they have been lied to by congress, and discover they are chattle.

    The government is ready, are you ?

    The government teaches their enforcers that only one thing matters – not what one has, but; what one is willing to take.

    The government teaches their enforcers that one cannot eat metal.

    Dry, warm, fed.

    The government teaches force to take, force to keep.

    What do you teach ?

  • BRUCE August 20, 2010, 4:28 pm

    William—re your comment====Well, here’s my theory, buy gold and silver, but not yet! All of those people in the metal ETF’s I think will sell and try to buy bullion they can hold in their hands. The price of gold will plummet along with the market when the ETF selling begins====

    The moment people sell there gold ETF’s and buy bullion the price of gold will skyrocket. You will not have to wait for the market to do anything.

  • Rich August 20, 2010, 4:20 pm

    Aloha All:
    Well, we got Hindenburg Omen II Confirmation yesterday exactly a week after HO I with a few more near misses. When the train is coming, we get off the tracks.
    So far today, everything down but cash, food and T’s, with miniscule retracements for those trying to get in the game as Cramer would have it.
    The funny math about bonds is from 4% to 3% is a 25% move, from 3% to 2% a 33% move, from 2% to 1% a 50% move and from 1% to 0% a 100% move (;).
    Bet not one person in a million trading this once in a lifetime op(;)
    Nothing ghoulish about profiting and protecting capital…
    Regards*Rich

    • mario cavolo August 20, 2010, 4:52 pm

      whoa Rich and thanks…getting a handle on what you just said is paramount. You mean for example, that T’s for example at 135ish yielding 2% will be around 190 when yielding 1.5% and 270 when yielding 1%…?? …geez this is a wakeup call…Cheers, Mario

    • Keith August 20, 2010, 5:56 pm

      Agreed. But there is more. Interest rates can be cut in half to infinity. 1% to 1/2, 1/16, 1/100 and so on.

    • Rich August 20, 2010, 6:32 pm

      Mario, Time Will Always Tell.
      At some point the Ponzi breaks down…
      Cheers.

  • William August 20, 2010, 2:09 pm

    Gold…….
    Well, here’s my theory, buy gold and silver, but not yet! All of those people in the metal ETF’s I think will sell and try to buy bullion they can hold in their hands. The price of gold will plummet along with the market when the ETF selling begins, then true price recognition of gold will have to realized and it will shoot to the moon.
    I just can’t pull the trigger on buying my gold yet with all of this potentially fraudelent ETF ownership out there. I think when gold’s importance is fully realized everyone will want delivery and few will be able to get it. Anyone else worried about this?
    Thanks!

    • Keith August 20, 2010, 3:32 pm

      If GLD ETF turns out to be a fraud at the same time everyone is scrambling for physical you’ll see a divergence of price. GLD could go to zero at the same time bullion goes to the moon.

      So no, I’m not worried.

  • Jeff August 20, 2010, 1:57 pm

    Rick,

    I am as prepared as I could be, but one reason I think you might be wrong is because, if the crash does happen, it would have been the most forewarned crash of all time. I can count at least five websites/traders (Crawford, Nenner, Prechter, you, Greg Roy,) predicting a crash right off the top of my head, and there are many more predicting at least a retest of the March 2009 lows. Can you address this, plus the already very bearish sentiment that is out there in your next column on Monday? Thanks!

    &&&&&&

    Being bearish when “everyone” else is is the new contrarian. RA

    • Rich August 20, 2010, 6:24 pm

      Bingo…

    • Cameroni August 21, 2010, 4:51 am

      I think I have a concern similar to yours Jeff.

      There is just so much talk of a crash it has almost become anti-climactic. The thing is that with so many mutual fund redemptions having taken place and so many more 401K’s being shifted out of equities it does seem surprising that markets keep floating range-bound. We obviously have our suspicions.

      Mario mentioned an article that suggested as much as 70% of trades being attributed to High Frequency Traders. Off hand I don’t know if that is true but I will say this….

      If HFT trading and insiders (you know who I mean) are artificially inflating the markets on very thin trading and then subsequently supporting each decline in contravention of historical norms then the technicals themselves can be manipulated.

      I do not doubt this for a second. The number of times that we have all seen sell-offs end abruptly, key support levels being just a few dollars shy of enough to make accurate predictions or truncating rises in levels ending prematurely (only to infuriate and confuse the technical guys) suggests to me that market intervention is in full force.

      There are not enough legitimate players remaining in the game to maintain balance in what now appears to many to be a rigged market. There are too many bears too. Too many anticipating a crash and too many buying short positions simultaneously.

      That tells to me that a gold mine of opportunity has arisen to profit off of paranoia, fear and greed and the few remaining participants will capitalize on that opportunity by driving prices as they choose, giving a moments hope here and a heartache there to make it all seem real.

      Of course this does suggest collusion but what the hell, we live in a age of reason and enlightenment and our paranoia is actually pretty well grounded.

      Our doubts are not divined from tea-leaves and smoky incense anymore but from reams of data that can easily be interpreted by most investors. Much of it does look manipulated to the casual observer. It sometimes smacks of criminality under close scrutiny.

      In the meantime, those with short positions, salivating at the impending conclusion to more than 80 years of generally rising stock prices and expecting windfall opportunities in a sudden crash will only find that they have been duped into having their investments eroded away gradually day after agonizing day.

      But there is always that hope! The second and confirming Hindenberg Omen was hardly conclusive though was it? Does that not give anyone pause? That it was a margin call is suspicious to say the least. Enough to convince the uninitiated but not enough to provide a meaningful and solid marker that one could draw a final conclusion from. It was so close…just so on the edge.

      This game will likely play out for quite some time. Beware your 3X short ETF’s because they are certain to drain your funds while you await a stock market Armaggedon that will not materialize in the way you imagine. Like with a drum roll, thunder, lightening and a deafening crash as stocks fall to (zero?).

      Not going to happen. Try a long slow agonizing melt that saps your energy and keeps you on the edge of your seat for months and months on end as you try to anticipate each move up or down. The psychosis of this market knows no ends.

      We hear daily incidentally about this or that person of note who has sold “all” their equity positions to avoid collateral damage and we all know about all the people who are bailing on the markets for the shelter of bonds, T-bills, Gold or old fashioned cash but I am not convinced this is the exact course that should be taken. And certainly no one should consider going all-in on any one of these unless we possess some extraordinary insights into the future that are immutable to all others.

      This is still a market. So play it and stop-loss against risks on a daily basis. I do not expect a hard crash anymore. Just a long, slow ratcheting down of markets where all the money is still to be made playing on the bounces, both up and down even though they may not be such volatile moves most days.

      Aggravating isn’t it. We want action! We want conclusions and some out there desperately want a crash. (stop hoping, we are all losers on that bad day)

      With so many shifting in to short positions, holding and waiting, it is clear to me that this is just a suckers game. Active traders have the advantage now if they have the skill to see the pattern of daily and weekly bounces.

      Buy and hold shorts are in for a disappointing year. At he heart of this; I believe that the measures and the metrics used in technical analysis are under attack and are being subjected to outside forces that are skewing the reliability and the results that many depend on and that therefore there is a surprise in store for those depending on those results.

      So be wary, use your head, the aces are up to bat now and the bases are loaded..

  • SDavid August 20, 2010, 6:49 am

    It’s a day-by-day situation for me anymore. I don’t doubt we are heading down but I don’t have the patience or cash to wait it out.

  • koos August 20, 2010, 6:41 am

    Rick, you been having lunch Nouriel, since when are you so decisive?

  • Erin August 20, 2010, 5:43 am

    Look…Nobody would enjoy a disaster more than me of epic proportions just too prove the failed policies of the fed and all the other dirtbags who constantly prop up and meddle seemingly in every financial instrument on the planet because they know what is stake…But what makes anyone think that they will let the market move down in a way that would scare anyone to death? Is this not their main focus? Think Greenspan comments recently and judging from outflows from mutual funds over the last few months and the market seemingly rising anyway…It would seem fairly simple for them to keep propping the market up without much trouble. It is not like anyone involved really wants to sell anyway…I just don’t see it…As soon as people get short, they paste them against the wall. Then the crap starts all over again..How can you fight a printing press which has a bullseye pasted right on the market?

    • mario cavolo August 20, 2010, 6:08 am

      bingo erin…like I said for example, if HFT’s are 70% of volume then its already a cyborg, they’ve basically taken over and control the system already…they will yank whatever chain they need to yank….average citizens are going to suffer more and more via cost of living/purchasing power…that’s the drain valve…Cheers, Mario

  • Grass Ranger August 20, 2010, 5:20 am

    Keith,
    Dow 15000 only after market recognition of the hyperinflationary reversal of the current deflation we are experiencing.

  • Keith August 20, 2010, 3:12 am

    [Dow 5000, anybody?]

    I think you forgot to put a #1.

    Dow 15,000 , anybody?

  • JohnJay August 20, 2010, 3:11 am

    Rick, I remember when the Dow bottomed out around 6500 you said that because of the method used to claculate the average, for it to go below 6000 would take the end of the world, more or less.
    That was a great call back then.
    Would you go over that thought process again?

  • jj August 20, 2010, 2:40 am

    Ahh the Big One!
    Three thoughts from Canada,eh!
    1) Gold is finally trading like the currency it is, thanks to this summers European hit PIGGS….will be interesting watching the US$ index climb as hedge funds liquidate equities and park in US treasuries and gold is bought aswell this time, different from Q4 08 as a currency trade.
    2) We here in the Great White North have some excellent market advisors,Big Bears… Sprott, Rosenberg, Hoye, Parks and they have been all warning about the oncoming S&P sell off, yet everytime it looks to close below that key 1000 level up its goes, again!
    3) Your bang on Rick as the markets are not seeing the obvious…Trillions later and no real growth, green shoots=weeds, yet until they do, the “EXIT” trade is not in play as the 80% pop in the S&P since its evil 666 low may have been all smoke and mirrors but 80% is 80% yet most know the real problem OTC derivatives haven’t been delt with at all.
    Perhaps Da Boyz will allow the equity pain as selling Q2 to Main St will need some negative fireworks in the background…
    Regards from the true north, owning no paper equities only physical gold bullion………..let the show begin!!

    • mario cavolo August 20, 2010, 4:44 am

      A few questions and some bloviating too. ( I have fallen in love with that word since I first saw it in one of Rick’s articles) to try to ameliorate Rick’s incredibly dark but always intelligent and lucid thoughts.

      Why does the U.S. being recessionary for a few years have to mean that the whole freakin’ world is going to collapse? A global recession is a global recession. We’ll muddle through it, the sun will continue to rise and set. Inflation will continue to eat our purchasing power and that’s how all of this will wind through the system, millions will be worse off, millions will be better off. East is on the rise, West is on the decline. China is today’s California. Go West Then! Follow THE MONEY. There doesn’t need to be a reset button, that’s a delusion for impatient people. Economic waves will continue rolling back and forth across the globe. Euro up, USD down, oil up, gold up, stocks down. China up, U.S. down. All down together? No, no, no….it will just be continued inflation (not a pleasant thing!)….why is that so hard to accept?

      ARE corporate earnings/valuations/PE ratios/price to book values outrageous now or not? What actually IS a reasonable valuation for the Dow and other markets.

      Corporations and other institutions are sitting on a lot of cash. This is my understanding. With that said, if they all decide to just sit on it, then yes, the damn world is going to come to a standstill. Government stimulus debt isn’t being matched by private spending. In the end, money is being hoarded, ala Japan and so we have a recessionary economic scenario. But if people hoard cash, then that will support currency values and lower yields. As Rick points out, preservation becomes a higher priority.

      If that happens to the point where debt defaults get out of control, will asset values decline while currency values remain the same?..or will currency values decline?…which in my mind, means higher prices, which in my mind is more of the same inflation the world has been experiencing for the past 40 years.

      Can asset values collapse and ALSO currency prices collapse together? Can stocks, real estate, gold, oil and commodities all go down together and if they do, what will the USD and other currencies do? Collapse too?

      Impossible. The money has to go somewhere; there is balance somewhere; it is a zero sum game. If we all together say dump USD, dump healthcare/pharmaceutical stocks, dump crude oil to buy Euros, Asia, gold and nuclear, (wise, by the way) then later on when what we bought has risen while what we sold went down, we’ll sell it and buy back the cheap stuff.

      You seem to be suggesting ALL OF IT will lose value. I can’t get my head around that. If the USD goes down in value by 50% while gold related shares go up in value by 50%, then later on I can sell my gold which has doubled to buy those 50% devalued dollars and I’m right back where I started.

      Now I’m the one being too theoretical, not realistic.

      I recently read (a Todd Harrison article) that HFT’s are now responsible for 70% of Wall Street’s trading volume. If that’s true, then the theft of the system is already complete. The system has gone “cyborg”. The banks have literally stolen the game out from under the free markets with complicit government approvals.

      BUT, when all hell breaks loose, people will dump WHAT and flock to WHAT? The USD, because like it or not, it is the world’s reserve currency. We’re entering a decade of global-sized zero interest rate recessionary Japan. The bond run is perhaps then just getting started because what WILL bankrupt the already bankrupt system is any up tick in interest rates. Therefore, that will NOT happen. Japanese have been holding huge savings in their banks with little return. Get used to it. Ahh, I have achieved enlightenment.

      If you want return on your money, become a successful trader, a mercantilist trader. Or combine your money with your sweat and ideas and faith and action to make a profit to feed your family. Chinese on the street are living “street life” in the truest sense of the word. They shine shoes, sell food, trinkets, baked yams; out of the back of their tricycle cart. They wait on their motorcycles when I come up out of the subway to give me a ride home for $.50. Good for them. Then they go back home to the apt they share with 12 other people and eat together. Get ready America. When you need to start a streetside lemonade stand to feed your family and the local govt comes around to remind you about all the barriers to entry which prevent you from doing that (no license, pay a fee, not allowed, food safety laws, zoning laws, etc.) and you tell the local gov’t and cops to piss off because you need to feed your family, that’s the day I’m waiting to see and it may be coming in the next chapter of America.

      Cheers all, Mario

      &&&&&

      Zero sum game? Not hardly. Trillions of dollars worth of asset valuation are being lost every time the game changes. Earlier, I made this point once and for all, and it demands no further proof than the in-one’s-face evidence all around us. RA

    • Benjamin August 20, 2010, 11:06 am

      @mario cavolo August 20, 2010 at 4:44 am:

      “Can stocks, real estate, gold, oil and commodities all go down together and if they do, what will the USD and other currencies do? Collapse too? ”

      Interesting post there, Mr. Cavolo. I don’t recall the last time I saw you put so much to word on this forum. I’m going to copy/save that for future reference. Anyway, the quote above is one place where an answer just jumped out and screamed at me.

      Answer: I don’t know, but why not? At some point, the Continental wouldn’t buy a loaf of bread in any quantity. Confederate dollars, Soviet rubles… I have several Mexican coins and notes that aren’t worth anything because they went dead at one point or another. All fiat currencies are destined to die, to zero-out, evaporate, etc. The dollar is destined for the ashes, but who knows what phoenix will arise from them and what that will do for assets?

      It’s impossible _to know_ until it happens, but not impossible to happen.

    • Rich August 20, 2010, 6:23 pm

      Zero Sum Game:
      Money does not disappear.
      It changes hands…

      &&&&&

      Money absolutely does disappear. If Goldman Sachs shares were to open $50 lower tomorrrow morning, the money those shares were worth today would have disappeared. Similarly, the October 87 Crash was not a zero-sum game. Just ask anyone who was holding Cray Research shares on Friday @ $70, as I was, only to see them repriced at $37 when the markets opened on Monday.

      And if your home is mortgaged for $400,000 but would fetch only $280,000 at sale, I can assure you that $120,000 of valuation has indeed disappeared. The only question is, who will take the hit: homeowner or lender.

      RA

    • Max Power August 20, 2010, 6:29 pm

      “Why does the U.S. being recessionary for a few years have to mean that the whole freakin’ world is going to collapse? ”

      This is because of the reason the US is in a recession, and all the financial circumstances behind it. Prior to the recession, borrowing (i.e., adding money) by consumers reached into the area of 1 trillion per year. That is what was needed to keep the economy going due to the massive trade deficit at the time (i.e., jobs lost to other countries). Consumers stopped borrowing, and government picked up the slack. But government did not pick up enough slack, and now things are sputtering out once again. Pressure is on government to stop borrowing. So be it. This will lead to millions more becoming unemployed, and with that a further reduction in government revenues which will lead to government bond defaults and a collapsing stock market. This will clobber pension plans and the real estate market. Worse yet, this will likely lead to civil unrest. Bottom line – jobs need to be restored to the US and there are only two ways to do this: (1) devalue the US dollar by printing more or (2) trade controls (that will have the same effect as devalue the US dollar, by increasing the cost of everything). Either one will have the same effect – full(er?) employment with the cost of living rising for everyone. But the fly in the ointment here, and its a massive fly, is how clueless people in general are. They seem to think everything will get better if consumers and government quit borrowing and that the currently unrealistic buying power of the US dollar (made possible by being propped up by borrowing) can be maintained indefinitely. They don’t want the government to outright print more money, since it will lose its value (well folks, that’s the idea). I guess more unemployment, a even more devastated real estate sector, decimated pension plans and civil unrest are better than having the US dollar fall in value???

    • mario cavolo August 20, 2010, 6:31 pm

      Hi Benjamin, waking up from your slumber at 4:44am to ponder the global future? 🙂 ….. Today I just had the sort of “moment” that low interest rates are the current Magna Carta of the world’s governments….all else flows from that fact….

      Meanwhile Rick is saying it is not a zero sum game and of course I’m no expert so I listen and read carefully here…but I’m still not getting my head around it all; well if I was I’d be alot wealthier than I am….Cheers, Mario

    • Benjamin August 21, 2010, 12:23 am

      @Mario

      Funny you should mention awaking from slumbers… for some reason, about an hour after I posted that, I thought I’d “rest my eyes for a minute”, and before I know… It’s almost 5:00. PM (central time; I posted that maybe 4 AM central)! I hate it when that happens!

      Anyway, I hadn’t quite heard it put the way Rick puts it either, so I try to keep that in mind and look for it. I think what he’s saying is along the lines of why Friedman was wrong (why fluctuating currencies are anything but competitive, ie). I’m at a loss as to explain it, but I can see it… No, it’s not a zero sum game. There’s definitely losses on each swing.

      Now, the other day, you mentioned China’s exports being up 38% on the year. But if it’s main customers are those paying only with debt… Well, if Walmart reported that shoplifting was up 38% on the year, I wouldn’t exactly be confident that Walmart was going to be doing so well in the future. Surplus production is fine, but if you can’t turn a profit on it it’s not going to stay that way.

      And unfortunately for China (or rather, mass production in general), making profit on surplus production is of absolute nessecity. And in the specific case of China, that’s not good news because if they can’t turn real profits on that surplus, they won’t be able to keep on growing so that the other half billion poor can start living (in your own words) like New Californians. Indeed. California…. here they come! And CA is the new cesspit of the nation.

      Owe that zero interest. It’s not the stablizing, all-saving, zero sum force that it’s made out to be. It’ll transfer wealth, certainly, as the China miracle proves. But for it to stay there is like holding on to the live wire long after the other guy has been fried to a crisp.


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