I love Paul Farrell (not in that way) - he's almost as crazy as I am. He recently published, "The Crash of 2014: Like 1929 you'll never hear it coming" Actually, a lot of technicians I've read recently think they would have seen 1929 coming. These are swing traders who key off of support levels and when those key levels break, they exit. Quickly. However, my prediction is that no one will see this one coming. It will be what I call a "HALO" crash. High Altitude, Low Opening. There will be no preliminary sell-off and failed bounce as there was in 1929 AND 1987. When global liquidation begins, markets won't be falling in a linear-predictable fashion. There is no comparison whatsoever to the amount of combined leverage in the markets now as there was in those previous periods.
NO ONE IS GOING TO GET A MEMO AHEAD OF TIME
Farrell's article is of course completely right and completely "wrong". Everyone will see the crash coming. As he says in the article "the warnings are so loud now, that no one hears them". There were loud warnings in 1999 and 2007, but those were ignored as well.
The Lost Decade Plus
As Farrell points out, and as I've shown recently, stocks only just broke even on an inflation adjusted basis at the end of 2013 after 13 years in negative territory.
The Generation That Sold Its Soul and Its Grandchildren's Future. For Nothing.
Taking into account dividends, I just calculated using the SHY (S&P ETF) that on an inflation adjusted basis, since February 1999 - exactly 15 years ago, the annual total return of the stock market has been 2.27% per year i.e. the meager dividend yield. The compound return over 15 years is 40% - much lower than Treasury bonds, yet stocks endured two massive declines in that period of time. At the lows in 2009, stocks were back at 1996 levels. In other words twice, stock investors were buried on their 15 year investment. All while insiders cashed trillions out of the stock market at the public's expense. That's why the stock market exists, so insiders can cash out. It's their personal ATM machine. 401k investors are on the other side of the ATM machine, pumping their monthly investments straight into insiders' offshore bank accounts.
This is a society that has decided to impoverish its grandchildren for a 2% return on investment (which will prove highly ephemeral). It's a morally bankrupt society, doing everything possible to become financially bankrupt.
This is a society that has decided to impoverish its grandchildren for a 2% return on investment (which will prove highly ephemeral). It's a morally bankrupt society, doing everything possible to become financially bankrupt.
HALO CRASH
What makes a HALO crash extremely probable is:
- Impossibility of hedging
- NYSE margin debt at all time high (see below)
- Stock market volumes at 15 year low
- HFT-dominated trading (making low volumes even more precarious)
- Mass complacency
- Massively hollowed out real economy under constant attack from frat boys desperate to make their quarter
- Historically unprecedented carry trade leverage which be force unwound into a declining market
- As I just showed, most stocks are already primed for collapse identically to 2008
These conditions have never been seen before in global stock markets. We are in totally uncharted territory. The selling will occur mostly off-hours 24x7 in a rolling global dislocation. Pre-market futures will create the dreaded gap and run stock market opening wherein HFT bots are forced to step aside or get stuck holding the bag. Bid/Ask spreads will be chasmic.
The stage is set. I won't be wrong. You can't declare a winner while the game is still being played.
NYSE Margin Debt At New All Time High
