Is It 1987, 1937, 1929 ? This Is Going To Be A Crash For The Ages!

 

It will be a crash like we’ve never seen before.

This doom porn, the skeptics will say, is almost as old as Deep Throat(released in 1972). Markets crash from time to time, but they always bounce back. Central banks and governments come to the rescue with fiscal stimulus (increased government debt) and unlimited fiat debt. Why should we worry now?

There are a number of reasons. When the world was less indebted, a fiat currency unit’s worth of debt produced more than a fiat currency unit’s worth of expanded output of goods and services. Sometime within the last year or two, the marginal economic effectiveness of all that government and central bank debt reached zero, and is negative after debt service.

With the world saturated in debt, another fiat currency unit of debt produces no increase in output. Kick in the costs of servicing and repaying that debt, and increasing debt is actually retarding economic growth. It accounts for the long-term slowing growth trend, flat incomes, and “secular stagnation” that puzzle so many economists.

It also accounts for the lack of inflation that puzzles so many central bankers, at least in the price indexes they look at. They are looking at the wrong indexes. The relevant indicia are stock, high-grade bond, real estate, and cryptocurrency prices, still at or close to record highs, and corporate and securitized-debt credit spreads to treasury benchmarks at record lows (indicating massive complacency about corporate credit risk). Here inflation—the speculative kind that blows bubbles—is alive and thriving.

With the Federal Reserve now taking steps to shrink its balance sheet and other central banks making noises about doing the same, global fiat debt creation may go into reverse for the first time in many years. Brandon Smith at Alt-Market.com argues that this is part of plan leading to a crash and global, centralized monetary control.

He may or may not be on to something, however, valuation extremes and sentiment indicators point to the same conclusion concerning a crash. SLL maintains financial markets are exercises in crowd psychology, impervious to government and central bank efforts to control them, designed to separate the maximum number of speculators from a maximum amount of their money.

Robert Prechter, of Elliott Wave International, has written the chapter and the verse on markets and psychology. (SLL reviewed his groundbreaking tome, The Socionomic Theory of Finance.) Consider the following from Elliot Wave International’s October “Financial Forecast.”

Every month another sentiment indicator seems to pop to a frothy new extreme. Last month it was the percentage of cash that members of the American Association of Individual Investors harbored in their investment portfolios. At 14.5%, it was the smallest allocation to this safe alternative since January 2000, the same month that the Dow Industrials began a 38% decline that lasted through October 2002. Last month, we also showed a new bullish extreme for the five-day average of Market Vane’s Bullish Consensus survey of advisors. On September 15, the average pushed to 71%, a new ten-year extreme.

The most recent Commitment of Traders Report shows that Large Speculators in futures on the CBOE Volatility Index (VIX) have amassed a record net- short position of 172,395 contracts.

This record bet on subdued volatility sets the stage perfectly for the period of “high volatility” that EWFF called for in August.

…Large Speculators in the E-mini DJIA futures have pushed their net-long position to 95,976 contracts, more than four times the number of contracts they held in January 2008, shortly after the Dow started its largest percentage decline since 1929. So, investors are betting to a record degree that the stock market will continue to rise and volatility will continue to remain subdued. Paradoxically, these measures indicate that exact opposite.

Various media accounts confirm that a rare complacency now dominates the stock market.

One doesn’t have to buy in to socionomics to realize that virtually everyone is now on the same side of the boat, a condition generally followed by the boat capsizing. Using conventional valuation measures, the only time stocks have been more highly valued is just before the tech wreck in 2000.

If one does buy into socionomics, the last few upward squiggles in the stock market will put the finishing touches on intermediate, primary, cycle, supercycle, and grand supercycle Elliot Waves dating back to 2016, 2009, 1974, 1932, and the 1780s, respectively. In other words, this is going to be a crash for the ages.

Article Continues Below

https://www.theburningplatform.com/2017/10/11/hard-core-doom-porn/

Global economic recovery may not last, warns IMF – The Guardian

Fund cuts UK and US growth forecasts, and also tells governments not to get complacent in its latest World Economic Outlook

The International Monetary Fund has said the global economy’s recent recovery may not last, despite a pickup in activity in all western countries except the UK.

Marking the 10th anniversary of the onset of the financial crisis, the IMF said in its World Economic Outlook (WEO) there was a risk that governments could be lulled into a false sense of security by booming markets and policymakers needed to guard against complacency.

Maurice Obstfeld, the IMF’s economic counsellor, cited high asset prices, rapid credit growth in China, political turmoil in Catalonia and a cliff-edge Brexit as risks to an improving global outlook.

https://www.theguardian.com/business/2017/oct/10/global-economic-recovery-may-not-last-warns-imf-international-monetary-fund?utm_term=Autofeed&CMP=twt_b-gdnnews#link_time=1507642245

SITUATION HYPER-CRITICAL: IMF WARNS MAJOR BANKS IN TROUBLE.

This could be big trouble.

The International Monetary Fund on Wednesday said nine of the world’s biggest financial institutions may find it hard to thrive in the new global economy and deserve heightened attention from regulators.

http://www.marketwatch.com/story/imf-names-9-biggest-banks-that-warrant-heightened-attention-from-regulators-2017-10-11

Investors face ‘extreme mental exhaustion’ in markets where nothing is ‘normal’
All in all, central banks are still providing around $1.5 to $2 trillion in liquidity a year … noninvestment grade U.S. corporate debt over Treasurys is historically low, ..

http://www.marketwatch.com/story/investors-face-extreme-mental-exhaustion-due-to-high-valuations-low-volatility-2017-10-10

 

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