|»The Daily Reckoning by Bill Borner|
A dramatic crash seems imminent
24 AUGUST 2015
- By Bill Bonner
We hadn't even had our morning coffee on Friday when we got an alarming message from Stephen Jones, who does quantitative research for us.
He has been working on a simple system to tell us when markets are over- or under-valued and what the likely returns will be going forward. We've already reported his LongTerm Forecast to you: he expects US stock prices to lose about 10% per year for the next 10 years. So, if the Dow is around 8,500 in August of 2015, Stephen will be proven right.
But what about now? What can we expect in the short-term?
We don't know, but on Friday Stephen sent us a "Crash Alert" - the first time he's ever issued such a signal. Stephen's alert:
The Minsky Moment:
As historical returns slow, investor sentiment slows. Soon, a point, or "moment" is reached where investors turn negative. After this point, a self-fulfilling decline ensues
The similarities [between the crashes of 2000...2008...] are quite striking.... Our current environment suggests the same.
We take no pleasure in a stock market rout. Not personally anyway. We make our living by offering economic commentary and financial advice. This will be bad for business.
Still, we can enjoy it vicariously... And okay...well, maybe a little dark smile crosses our lips...the kind the Germans have a word for - schadenfreud. The cronies are on the run. Mr. Market, Main Street, the real economy, working people are finally striking back. All those stock buy-backs - at record high prices - are beginning to look like what they were all along: looting the company treasuries by the insiders. All that blather about stimulating a recovery is beginning to sound like the BS it always was.
Plus, here at the Diary we have a deep and abiding 'amor fati.' We like it when what should happen actually does happen. It settles our nerves. Pope Francis is in the Vatican. Janet Yellen sits in the comfiest chair at the Fed. And stocks are falling; all is right with the universe.
But Friday's market break has made everybody jittery...running scared...sweating. MSN Money on Friday afternoon, after the Dow registered a 534 point drop:
The Nasdaq Composite lost more than 3 percent, also closing in correction territory and joining the other major averages in negative territory for the year.
Apple lost about 6 percent, into bear market territory, and the iShares Nasdaq Biotechnology ETF (IBB) plunged 2.5 percent.
"Right now there is a feeling of fear in the marketplace and all news is interpreted negatively and it's interpreted indiscriminately," said Tom Digenan, head of U.S. equities as UBS Global Asset Management.
"Biggest U.S. Stocks Look Like Global Havens to Bank of America," said another.
The big trigger for selling this week was yet more evidence of a slowdown in China's economy, but there were plenty of other worrisome developments weighing on the market. A look at a few of them, and why you may not want to panic, yet.
And Suze Orman, about the smartest financial expert on the planet, next to Janet Yellen of course, was quick to go to the heart of the matter. She reminds us that the fix is in:
Have faith, dear reader. Have faith. Saint Janet will not forsake us.