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Each week we lay out the horrors that we see concerning the global economy, the debt loads and the desperations. We put out so much of it; one could start to wonder if we enjoy relating all this horrid news. To that I say, no not at all. Which brings up the simple question…is another crash a certainty or not? Is all the bad news simply fear mongering for eyeballs like a car wreck attracts “rubber neckers?”
Is It Coming?
The alternative media is full of folks that suggest that the 2008 crash was a warm up, a prelude to the bigger crash that’s coming. And yet when one looks around, what do we see? We see lots of shiny new cars driving around, we see mid to upper tier restaurants full, we see folks spending 5000 per ticket for the super bowl, we see air travel pushing record levels, etc. If this is the prelude to a horrid crash, it certainly doesn’t “look” like it.
I happen to live in Sarasota Florida. Sarasota is a “haven” for snowbirds that come down each winter to escape the harsh weather of the north. Each year between December and May our roads are so congested that many of the natives try not to leave the house. Our world famous beach and its parking lot are full by 10 am, and they literally shuttle people in from distant church parking lots. Unless you are okay with waiting an hour and a half for a table, there’s no hope of going out to eat during “season”. The “spring break” influx grows each year as hundreds of thousands of college kids yearn for some sun and fun.
This is a prelude to a crash?? If you landed here from Mars you’d have to figure that the people are flush with cash, the economy must be booming and things couldn’t get much better. What else could they think? Our Lexus dealer can’t get enough cars to supply the demand. Our TV stations tell us daily about how wonderful the stock market is. Our hotels are booked till June. New million dollar a unit condo complexes are sprouting up like weeds. If this is a crash scene, then crashes must be pretty darned pleasant things.
So it is very easy to dismiss the onslaught of bad news that we often present as “doom and gloom” talk. I really do understand the confused looks people give us when we suggest that things aren’t quite as they appear. I understand the occasional Email I get calling me crazy for suggesting that truly ugly things are on the horizon. Why am I “okay” with it? Easy folks, this “ain’t my first rodeo”.
After the run up of the late 90’s, I started hammering the idea that stocks were going to crash and you’d be best served selling tech stocks and buying gold. Well you cannot imagine the deluge of hate mail I got. I was called every name in the book, I was “schooled” about how the Internet age was going to change everything, and I was told in no uncertain terms that to suggest selling these Internet high flyers was paramount to “killing my subscribers”.
But of course history shows that maybe we weren’t nuts. The NASDAQ did crash and gold started a 13 year journey to all time highs. Many of the same people that wrote in to call us doom and gloom quacks, wrote back and asked “why didn’t I listen??” Many rode themselves into financial ruin.
But rotating bubbles is all we have in the post Nixonian era of faith based money, and soon it wasn’t stocks causing burger flippers to quit their jobs and be traders, it was houses. Housing started to take off around 2002 and by 2005 had reached bubble mass. Once again… as we began to say it was time to sell your speculation homes, and stay out of the housing market we were the nut jobs. “Houses only go up” we were told. People were lining up to have bidding wars on the front lawns of newly posted homes. Insanity was building to “stock bubble” levels. For about two years we were ridiculed, and called the doom and gloom guys.
I fondly remember chatting to one of my neighbors back in the bayside town of Tuckerton NJ in about 2005. I said to him that one day” I’ll be able to buy up houses on this street for 150 grand”, to which he rolled his eyes and laughed out loud. Why? Because at the time, houses that were worth about 140K were trading for 425,000. He really did think I was loony- tune.
But you all know what happened. Housing did crash and with it went the financial system. The housing bubble burst, and took with it the existing debt swap bubble. By 2008 we were in the worst crash since 1930. But guess what? By 2009 and 10 there were all the houses in Tuckerton that you wanted for 150K. One home in particular, I offered to buy for 170K. The owner refused, remembering the glory days of 2004. He ended up selling for 129 a year later.
So I’m not “new” to being called all manner of stupid. I’ve “been there, done that”. The question simply becomes, is this time any different? Is this the time where we tell you all the nasty things that are out there and predict a major crash but it never happens? Could that be?
I guess anything is possible. I guess they could continue to find new ways to keep the charade alive, but I don’t really believe it folks. In the history of mankind, they’ve devised all manner of ways to try and get a free lunch, to get around debts, to keep the ponzi schemes alive, only to see them crash and burn. Yes some of their schemes last a long time, longer than you think they can. But they always end. I tend to think this one will be no different in the “LONG” run. In the short run however, I’ll be the very first to admit that they’ve kept the plates spinning longer already than I thought they could.
Timing is the impossible part of my job. I got “lucky” in 2000 and called the market top within a couple weeks. It was pure luck. In housing, I started screaming the end was near in late 2005 and we didn’t really see the crash until late 2007. In stocks, I didn’t think they could run the market past say January of 07…it made new highs in November of that year, before finally rolling over for the 08 crash. See, it’s the timing that is so hard.
In this current market run up, there’s no doubt that I’ve gotten the timing of the “end” wrong. Why is that? Simply because we are now dealing with a situation that has never been seen before. Never in history have central banks admitted they support stock prices. Never before in history has the Central banks produced the trillions they’ve created. Never before have we had TARP, and Cash for clunkers, and the Treasury buying Fannie and Freddie, or a trillion in stimulus spending, or QE 1, 2, 3 and 4. Never before has the US had “zero” percent overnight interest rates. On and on it goes with the desperation “never seen before” programs. So, as long as they keep pulling rabbits out of their hats, the longer the game goes on.
But does it change the underlying situation? No it doesn’t. The bottom line is that we’re dead broke, in debt to our receding hairlines, and covered in derivative toxic waste. There’s no mathematical way out of it all. They either have to continue creating new money and debt out of thin air for ever, or there’s got to be a gigantic “reset” button.
I believe in the reset. I think they’re going to renege on our debts. I think that they’re not worried about all the debt they’re creating because they know they’re going to default eventually and the entire globe is going to have to “reprice” itself. Between now and that “reset”, it’s apparent they can keep kicking the can down the road. How long? I don’t know. There’s only been two solutions to hopeless debt in all of human history. Flat out default, or war. We’re going to get one, if not both of these at some point.
So yes, I believe it is coming. I believe there’s a massive economic event in our future. All the signs point to it. I believe it will be every bit as big as the 08 crash, and won’t be solved with more money printing, it will be solved via currency revaluations around the globe. Of course that could all get short-cut by a true hot war between NATO/US and Russia. If that hits, all bets are off. All of them.
So enjoy the illusion that all is well. Enjoy life with your family, and hug your kids. We’re merely pawns in this giant chess game, and we can’t change things. All you can do is live your life to the fullest, but take a few precautions for the rough days we figure are coming. I do NOT see some “mad –Max” scenario where we’re all forced to live like savages eating bugs. I do however think that 2008 wasn’t as bad as things can get. I wish I was wrong about that. I’d be happy to be “dead wrong” in fact.
With the market closed on Monday, they had a lot of time to stew about things going on around the world like the Greek situation and the “tense” cease fire over Ukraine. So Tuesday, we figured that they’d sort of dig in their heels and try to just hold onto the gains they made Friday, as we had indeed hit an all time S&P high. Well that happened as we hugged the flat line all day, until a surge at 3:56 pushed the market up into the close. It reeked of a show of bravado versus some real reason for the buying.
Today it was all about the “Fed minutes”. See, here’s the deal. The market is desperate to know if the Fed’s are going to hike rates this year. My feeling is that yes, they’re going to toss a .25 rate hike at us. But the street isn’t convinced of that, which places us in some volatile water. A lot of the push/pull lately has been over this very topic.
The reason the minutes are important is this… the Fed’s have to “telegraph” their moves ahead of actually doing them. That way no one is totally unaware of what’s happening, and the markets don’t get blindsided. So they were looking to see if there was going to be anything in the minutes from the last meeting that helps them figure if yes, they’re going to hike…or no, not yet.
Well when they hit, they tended to side with the idea of the Fed’s being patient. The release of the minutes contained a lot of back and forth between members suggesting they don’t want to move too quick, that they were concerned about this and that….
However the minutes were from a meeting held back in January, BEFORE their tarted up jobs report. So traders liked what they heard, but instantly worried that now as the Fed’s had more employment news, the minutes might just be “old news”. A full hour after the release the DOW was still down 15, the S&P red by a couple.
When the final bell rang, we had lost about 17 DOW points and a fraction on the S&P. Evidently they just didn’t find the minutes that inspiring. So where’s that leave us? Well the S&P had broken into an all time high last week, but the DOW still had a way to go. Now for two days the DOW has flirted with breaking above its all time high, but it hasn’t been able to pull it off.
If you consider the Dec 26 close of 18,053 being the high, we ended at 18047 yesterday and 18029 today. So it’s decision time for the market. Can it find the firepower to bust free and start another leg up, or is this going to serve as some kind of short term top? We simply don’t know,but I’d have to side with the idea of them trying to break us free again. They’ve pushed us too hard for too long to just give it up on one or two tries.
That said, if they don’t get “up and over” this level fairly quickly, they’ll be in danger of fading back down to the supports you might find at the 17880 level.
Any time the market is at a resistance level you have to respect the idea that it might not make it through, and for you traders out there, you have to be a bit cautious. Looking at the put/call ratio, the way the market could punish the most amount of people this week is to slightly fade lower. The market loves to take the most money from the most people.
So my best guess is some soggy, sideways trading into the weekend and then next week a push to try and break us out. In our Insiders club, we took on a new position today, adding CTSH to the pot. It had a nice session and I’m hopeful it can hold those gains into tomorrow. Have a great day folks and we’ll see you all on Sunday.
On Friday we got the non farm payroll report, and boy…if the powers that be ever wanted to paint something to look perfect, this was their Rembrandt moment. Not only did the headline number beat the estimates of a gain of 235K by coming in at 257K; they went back and did some of the most aggressive “revisions” to prior reports that I’ve ever seen.
Let me paint the picture for you. According to our Government bean counters the last few reports have shown the most job gains in 17 years. They say that wage growth was the best since 2008, as they told us wages grew by 0.5%. The BLS did revisions to the entire year of 2014, and remember the “polar vortex” last January? They said at the time we only got 144K jobs. Now they say that looking back, it was really 247K. But that was nothing compared to what they did to November. Now they say November posted a gain of 465K jobs. That’s the most monthly gains since the tech bubble boom of the late 90’s. A time when there really were jobs galore.