THE STOCK MARKET CRASH OF 2012: A MASSIVE OF SHOCKS IS HITTING THE SYSTEM
It seems, just as everyone knew but really did not want to admit, that AAPL is the core (pun intended) of the entire risk-rally. With the re-appearance of the bond-market this morning after their long-weekend, risk-assets everywhere have caught the tech companies’ cold with EURUSD at one-week lows – back under 1.2900, S&P futures tumbling back towards pre-QEternity levels and having wiped out all of last week’s gains, as AAPL is down over 2% (seemingly picking up speed once we noted the 10% iCorrection earlier). Oil is holkding gains while USD strength is sapping Silver, Copper, and Gold’s performance. Treasuries have snapped back to low yields of the day (down around 4-5bps). VIX has snapped back above 16% (up around 1 vol).
S&P futures tumbling – wiping out last week’s gains…
as EURUSD falls back below 1.2900…
So, what’s going on?
Why is the only stock that pretty much everyone agreed was a sure thing suddenly going weak in the knees?
A bunch of likely reasons (If I’ve missed any, please add yours in the comments):
- The last huge catalyst of this year–the iPhone 5–is now ancient history, and investors no longer have any massive product announcements to look forward to. Early this year, investors were expecting three big product catalysts from Apple: the iPad 3, the iPhone 5, and the “iTV.” The first two have been launched. The “iTV,” meanwhile, has disappeared from everyone’s radar screen. (Yes, the “iPad Mini” is coming, but that’s viewed as derivative version of the iPad.) If news begins to leak that Apple’s going to roll out the iTV later this year or early next, investors might get excited again. Otherwise, it’s buy-the-rumor, sell-the-news, and everyone’s selling the news.
- The iPhone 5’s initial sales were disappointing. The first weekend’s sales number, 5 million, was significantly worse than the “worst case scenario” put forth by Wall Street’s top Apple analyst. Whether the problem was flaccid demand or, more likely, supply problems, the number was well below expectations. And the disappointing launch sales likely mean that Apple will post lousy overall iPhone sales for the September quarter.
- Supply problems (and, possibly, demand problems) are creating concerns about iPhone sales in the December quarter. The consensus “whisper” estimate has been that Apple will sell more than 50 million iPhones in the December quarter. A month ago, most people regarded this estimate as conservative. Now, given ongoing reports of manufacturing and supply issues, as well as the percentage of would-be iPhone 5 buyers who are under contract with carriers and therefore can’t upgrade yet, it would not be surprising if investors were beginning to worry that Apple won’t hit the 50 million number for the December quarter.
- Longer-term, increasing competition, maturing markets, and pressure on Apple’s extraordinary profit margin may become bigger concerns. Apple’s competitors have now arguably caught up with the iPhone, or at least gotten close enough that the differences between brands are only important to tech snoots. Some of the biggest smartphone markets, meanwhile, including the US, have passed the halfway point in terms of penetration, which is the point at which growth usually starts to slow down. These factors and others could begin to put pressure on Apple’s astounding profit margin. Companies can continue to grow profits when their margins are declining, and, ultimately, stock prices can follow this profit growth, but stocks don’t generally go up when margins are dropping.
Several chart developments are worthy of note.
The monthly chart shows the 103-fold price increase from the early 2000s lows to the 2012 high. Such an advance goes a very long way to discount completely the bullish future of Apple ($AAPL). The advance during 2012 can be accurately described as a blow-off top.
The weekly chart displays the dominant bull trendline connecting the 2009, 2010, and 2011 lows. This trendline will likely be…
Diesel SHOULD be cheaper. It is less refined than Gasoline.
You can take crude oil… heat it and Diesel will “come out” of the sludge all on it’s own. Watch the truckers who keep this nation in motion stop dead in their tracks.
I know supply and demand… but no deliveries will make fuel even more expensive.
No word yet… from any media… but $6.00/ Gallon for Diesel means truckers will have to pay extra money for the privilege of delivering fuel and good. As in they will actually pay out of pocket for each mile versus make money for each mile.
Also, understand that loads often have pre-negotiated pricing. Added fuel costs aren’t figured in that price.
California is experiencing:
2010: Every 1 cent increase in gasoline decreases U.S. consumer disposable income by about $600 million per year. The move in oil in the past week alone has almost entirely wiped out the most recent stimulus.
At this point, watch the price of oil if you want to know when the next recession is going to begin. As I’ve pointed out many times in the past, recessions (well, at least since World War II) have all been preceded by a sharp spike in the price of energy.
Any move of 100% or more in a year or less, has historically been the straw that breaks the camel’s back. Modern economies cannot survive that kind of shock. It invariably triggers the collapse of…
California Gas Crisis Is Be Spreading To Other States
HONOLULU (AP) — A 20-cent jump overnight in California gas prices has put the state ahead of Hawaii for the nation’s most expensive gas.
AAA’s Daily Fuel Gauge report says Cailfornia’s average price for regular gas across the state is $4.49 a gallon. In Hawaii, it’s $4.41….
EURO SHOCK: EUROPE Is Now In A Completely Unmanageable Situation, EURO IS DESTROYED DOLLAR TO FOLLOW CHINA GOLD BACKED YUAN
Discontent in Spain and Greece is rising.
Greece’s two largest labor unions went on strike today, disrupting flight and train services and forcing hospitals to depend on emergency staff.
This is the first general strike in Greece since the coalition government came to power.
Protestors gathering around the Greek Parliament in Athens, throwing Molotov cocktails at the riot police but have been pushed out of the main square now, according to BBC.
DOLLAR SHOCK: A Massive Wealth Destruction Is Coming As Paper U.S. Currency Is Rapidly Becoming Worthless And People May Lose Up To 50 Percent Of Their Total Wealth!!
Take immediate steps to protect your wealth . . . NOW!
That’s exactly what many well-respected economists, billionaires, and noted authors are telling you to do — experts such as Marc Faber, Peter Schiff, Donald Trump, and Robert Wiedemer. According to them, we are on the verge of another recession, and this one will be far worse than what we experienced during the last financial crisis.
Marc Faber, the noted Swiss economist and investor, has voiced his concerns for the U.S. economy numerous times during recent media appearances, stating, “I think somewhere down the line we will have a massive wealth destruction. I would say that well-to-do people may lose up to 50 percent of their total wealth.”
When he was asked what sort of odds he put on a global recession happening, the economist famous for his ominous predictions quickly answered . . . “100 percent.”
Faber points out that this bleak outlook stems directly from Federal Reserve Chairman Ben Bernanke’s policy decisions, and the continuous printing of new money, referred to as “quantitative easing” in the media.
Jim Willie’s latest Hat Trick Letter, ‘Firestorms & Currency Twisters‘ is a MUST READ!!
Willie states that Morgan Stanley faces IMMINENT FAILURE & RUIN, that The older employees are selling all of their stock, and that Many workers are making contingency plans for their next positions in another firm.
He states that JP Morgan will devour the carcass, and that The Morgue may be preparing to execute the 1st ever private stock account vaporization/ rehypothecation.
AN ABSOLUTE MUST READ!!!
The insider conversation, often called chatter when it become deafening in tone, is that Morgan Stanley faces imminent failure and ruin. Almost two weeks ago, the Jackass provided a tip to Bill Murphy of GATA to post on his popular LeMetropole Cafe that Morgan Stanley fund managers and high ranking employees were preparing for the firm’s implosion. A subscriber to the Hat Trick Letter has a good friend whose father works as a fund manager and provided the story. It was not detailed, and bore no follow-up after my request. The older employees are selling all of their stock, some legacy stock from one or two decades ago. Many workers are making contingency plans for their next positions in another firm. When Lehman Brothers was killed, thousands of employees had to find new jobs, some without success. In the last week, the shock waves are being heard from internal Wall Street sources in an unequivocal manner. The implosion is in progress, like the collapse of several platforms and structural cables. The inside is caving in, and the ranking members recognize it, even talk about it openly. Much discussion swirls about a transition to antiquated software that is greatly disturbing the trading desks, causing tremendous problems at precisely the wrong time. A redux of the Knight disaster could be in progress….
Revenue streams are drying up as China’s growth slows & Europe reels from crisis to crisis. It’s looking so bad
This earnings season threatens to be one of the roughest since U.S. companies started to pull themselves out of the Great Recession — even if, as usual, results don’t live up to the worst of the gloom-and-doom forecasts.
Revenue streams are drying up as China’s growth slows and Europe reels from crisis to crisis. Companies are finding fewer places to cut costs. It’s looking so bad, in fact, that results won’t have to be that great to inject a burst of optimism into the market. Quarterly earnings season kicks off next week with reports from Alcoa Inc. (US:AA) and J.P. Morgan Chase & Co. (US:JPM)
On the whole, profits for the S&P 500 (US:SPX) in the three months ended in September are forecast to drop 2.6% from the year-ago quarter, according to a FactSet analyst survey. If results match expectations, the quarter will break a streak of 11 straight quarterly gains that reaches back to late 2009, as Corporate America was clawing its way out of a financial crisis and severe recession that ended in June of that year.
Wall Street is likely responding to downbeat cues from companies, who have collectively given one of the most negative earnings outlooks in several years.
BREAKING: Alcoa Q3 loss 13c a share vs 15c a share profit, revenue $5.83 bln vs $6.42 bln, ALCOA CUTS 2012 GLOBAL ALUMINUM DEMAND FORECAST TO 6% VS 7%, Alcoa cuts guidance demand guidance “as a slowdown in China slightly impacts the second half”
TAX SHOCK: The fiscal cliff is already happening right now: A new survey shows most Americans agree… we’re in a recession
More and more Americans feel the U.S. economy is mired in a recession, a new Rasmussen Reports survey finds.
The poll found that 62 percent of consumers believe the U.S. economy is currently in a recession, while 22 percent disagree.
Among investors, 61 percent say the economy is in a recession, while 24 percent say it’s not.
The Rasmussen Consumer Index, which measures consumer confidence on a daily basis, rose 2 points on Sunday to 85.9. The consumer index is down 3 points from a week ago, up 2 points from a month ago and down 4 points from three months ago.
Goldman’s Jan Hatzius takes the pulse of the economy, and mostly thinks things are getting a little better.
GDP is now back to tracking at 3.0%, which is hardly robust, but a bit better than where it’s been.
The jobs report was confusing and mixed…Hatzius sees reasons for optimism and pessimism in it.
But one thing he’s certain about is that the economy is almost guaranteed to suffer a fiscal hit in the near future, and that leaders in both parties don’t seem intent on avoiding it.
This is from his newest note.
Although the present situation looks a bit better, we think the risks to growth over the next few quarters are skewed to the downside. The biggest concern is fiscal policy, where we see three scenarios: the not-so-good, the bad, and the ugly. Even if most or all of the Bush tax cuts are extended and most of the automatic spending cuts are postponed, fiscal drag is likely to shave 1½-2 percentage points from GDP growth in early 2013, up from ¾ percentage point in 2012. Despite the healing in the private sector and the Fed’s push for easier financial conditions, that probably means a renewed growth slowdown to 1½% in early 2013.
We are surprised that neither party has seriously challenged the case for near-term fiscal retrenchment. In particular, the expiration of the $126bn payroll tax cut (1% of disposable income) is almost universally accepted…
Both lack vision and courage, Pimco CEO says
“Like an earthquake rocking a house, the 2008 global financial crisis exposed a shaky new foundation underpinning Western economies,” warns Pimco’s CEO Mohamed El-Erian, in the latest Foreign Policy journal.
Unemployment and inequality has “heaped social unrest atop financial turmoil,” spreading uncertainty, volatility and lower market returns that Pimco labeled the New Normal a few years ago.
Flash forward: “Something has changed” as this economic crisis has gone on far too long without a political solution: Instability has morphed into “vicious feedback loops that turned bad economics into bad politics” that’s now recycling, converting “bad politics into even worse economics, further threatening an already tenuous economic future … welcome to the New New Normal.”
The core problem? Washington’s “inability to deal with the aftermath of a huge wave of excessive debt creation and credit entitlement gone crazy … But where politicians … act ponderously, markets don’t. They move at much faster speeds … so as the New Normal morphs into the New New Normal, the economic and financial system risks breakages that the political system will be increasingly incapable of mending rapidly enough.”
The World Bank cut its economic growth forecasts for the east Asia and Pacific region on Monday and said there was a risk the slowdown inChina could worsen and last longer than many analysts have forecast.
“Unlike the rest of the region, China is experiencing a double whammy – the growth slowdown is driven by weaker exports as well as domestic demand, in particular investment growth,” World Bank chief economist for the region, Bert Hofman, said at a briefing in Singapore.
Economic momentum has also faltered in formerly strong economies, including the BRICS (Brazil, Russia, India and China.)
“In the absence of a broader range of decisive policy measures — including fiscal, financial system and structural reforms needed in many countries — the world economy may soon be down for the count.”
Yalta – Cyber security in the world is as important as physical and economic security, Eugene Kaspersky, the CEO of one of the world’s largest computer security companies, Kaspersky Lab, has said.
“Global cyber attacks and cyber terrorism could be the next global shock. Computer systems are now everywhere, from mines to space stations,” he said at the 9th Yalta Annual Meeting on Friday.
Kaspersky said that the world was already experiencing the problems of cyber terrorism, and the issue concerns not only pornography, cyber crime and viruses. As an example, he cited an attempted attack on nuclear systems in Iran and Saudi Arabia.
A credible threat to the U.S. banking system has been identified by cyber security firm RSA and suggests that plans for a highly organized, large scale online bank heist targeting retail customers in the United States is currently underway.
In an advisory, RSA said it has information suggesting the gang plans to unleash a little-known Trojan program to infiltrate computers belonging to US banking customers and to use the hijacked machines to initiate fraudulent wire transfers from their accounts.
If successful, the effort could turn out to be one of the largest organized banking-Trojan operations to date, Mor Ahuvia, cybercrime communications specialist with RSA’s FraudAction team, said today. The gang is now recruiting about 100 botmasters, each of whom would be responsible for carrying out Trojan attacks against US banking customers in return for a share of the loot, she said.
Each botmaster will be backed by an “investor” who will provide money to buy the hardware and software needed for the attacks, Ahuvia said.
“This is the first time we are seeing a financially motivated cyber crime operation being orchestrated at this scale,” Ahivia said. “We have seen DDoS attacks and hacking before. But we have never seen it being organized at this scale.”
RSA’s warning comes at a time when US banks are already on high alert. Over the past two weeks, the online operations of several major banks, including JP Morgan Chase, Bank of America, Citigroup and Wells Fargo were disrupted by what appeared to be coordinated denial-of-service attacks.
A little-known group called “Cyber fighters of Izz ad-din Al qassam” claimed credit for the attacks, but some security experts think a nation may have been behind the campaign because of the scale and organized nature of the attacks.
The latest discussion suggests that they now have individual consumer accounts in their crosshairs, Ahuvia said, warning that the gang plans to attempt to infiltrate computers in the US with a little known Trojan malware program called Gozi Prinimalka.
The malware is an updated version of a much older banking Trojan, Gozi, which was used by cyber criminals to steal millions of dollars from US banks.
The group’s plan apparently is to plant the Trojan program on numerous websites and to infect computers when users visit those sites.
The Trojan is triggered when the user of an infected computer types out certain words — such as the name of a specific bank — into a URL string.
Source: Computer World
The gist of the attack is that most US banks do not require “two factor” authentication before initiating a wire transfer. This is especially important because once a wire transfer is confirmed it is really gone, and in general cannot be recalled. It appears that they intend to deploy (or may have already deployed!) trojan horse programs that capture keystrokes, obtain login information and then en-masse initiate wire transfers out of the United States from the victims’ accounts before the banks can react, effectively draining huge sums of money and distributing the proceeds among the crooks.
Via Market Ticker
According to a group of researchers, their mathematical model using food prices can predict social unrest and riots. Given the drought and rampant speculation, this may bode ill for several regions in the world. Food prices have been rising for quite some time, and aren’t showing any sign of slowing.
People raise their voices and go to arms for reasons too complicated to address here altogether, but it would be folly to leave hunger out of the equation. The spark may be an anti-Islam film or an incident of police brutality, but Yaneer Bar-Yam of the New England Complex Systems Institute in Cambridge, Massachusetts says that it’s high food prices that create “the range of conditions in which the tiniest spark can lead to riots.”
High Frequency Trading (HFT) deeply concerns Eric Hunsader, founder of Nanex. He worries that today’s investors, our regulators, — heck, even the HFT algorithms themselves — don’t fully understand the risks market prices face in the brave new era of bot-dominated trading.
For instance, Hunsader estimates that HFT algorithms are responsible for 70% of all completed transactions on our exchanges, and for 99.9% of all exchange quotes.
The pictures of trading floors you see on TV, where the people in bright jackets appear frantically busy in making their trades, have no bearing — claims Hunsader — on the actual trading action. The real action happens across fiber-optic cables, on racks of servers in cooled rooms; where an arms race defined by cable length and switching speeds is being waged.
The reality is that the machines have taken over. When you buy or sell a security, the odds are extremely high the other side of the trade is being placed by an algorithm — one that cares nothing for the fundamentals of the underlying instrument. It simply is looking to make a quick profit, oftentimes measured in fractions of pennies. And this has vast repercussions for the stability and the fairness of our financial markets.
Because of speed advantages, HFT algos can see and react to prices faster than you can. Ridiculously faster. A second on the clock, to an HFT algo, is an eternity.
The deep pockets of the firms emplying HFT algos combine with this speed to move asset prices around, sometimes wildly so, faster than most of us can comprehend. In the time it takes for your “real-time” quote system to refresh, an individual stock could have traded many percentages up and/or down — and you would have no idea.
This unfair advantage, along with the short-term profit outlook of the algos, creates the potential for deadly market price downdrafts. Algorithms prefer predictability. If something spooks them (e.g., unexpected breaking news, a delay in the market’s opening), they simply stop trading. And — poof! — 70% of the market has just disappeared.
With no support and no bids, prices can drop dizzyingly fast. Making matters worse, the…
Economy ‘Vulnerable’ To ANY Shock!
The global economy remains “quite vulnerable” to financial shocks, as recent data from the U.S. and China are consistent with a slowdown and it looks like Europe is in a recession, Boston Fed President Eric Rosengren said at a banking forum in Bangkok, Thailand, according to a transcript of his remarks. Rosengren, who isn’t a voting member this year on the Federal Open Market Committee, said the vulnerability highlights “why it is particularly important at this time to reduce the probability, and mitigate the severity, of any potential financial shock.” A serious financial shock would make it “quite likely” that there would be a large impact on financial and broader stocks that could impact households and businesses on both sides of the Atlantic and cause a significant retrenchment by…
Federal Reserve Chairman Ben S. Bernanke said the economy has shown signs of improvement while remaining vulnerable to shocks, and he called on lawmakers to reduce the long-term U.S. budget deficit.
“Fortunately, over the past few months, indicators of spending, production, and job-market activity have shown some signs of improvement,” Bernanke said today in testimony to the House Budget Committee in Washington. “The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary.”
Will the bull market come to an end on Oct. 9?
Don’t laugh. It turns out that two of the most prominent market turning points of the last decade occurred on this very date.
The first was the beginning of the 2002-2007 bull market, which occurred on Oct. 9, 2002.
The Dow Jones Industrial Average (DJI:DJIA) on that date hit an intra-day low of 7,282.39, and the S&P 500 index (SNC:SPX) sank to 775.80 — more or less half the levels these indexes would rise to in five years’ time.
The second of those major turning points came as that 2002-2007 bull market was coming to an end. Believe it or not, its exact end was on — you guessed it — Oct. 9, 2007.
In the ensuing bear market, the Dow and the S&P 500 would each lose more than half their values.
You might think that there are almost impossibly low odds that two trend changes this momentous would occur on the very same day of the year….
Warning, Crash Dead Ahead! We are Entering The ENDING PHASE OF BULL MARKET (October 9th, 2012)
Why We Are On The Verge Of Another Subprime Crisis (September 4th, 2012)
Economic Collapse Final Warning: Global systemic crisis – September-October 2012!!! (September 2nd, 2012)
America Is On The Verge Of A Horrible Municipal Debt Crisis (August 29th, 2012)
WARNING: We Are Heading For A Market Shock In September or October (August 27th, 2012)
“We cannot track 2.3 TRILLION in transactions.”
But without a doubt another major financial collapse similar to what happened back in 2008 (or even worse) is on the way. Let’s take a look at some of the financial experts that are predicting really bad things for our financial markets in the months ahead….
According to Doug Short, the vice president of research at Advisor Perspectives, the stock market is somewhere between 33% and 51% overvalued at this point. In a recent article he offered the following evidence to support his position….
? The Crestmont Research P/E Ratio (more)
? The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
? The Q Ratio, which is the total price of the market divided by its replacement cost (more)
? The relationship of the S&P Composite price to a regression trendline (more)
Peter Schiff, the CEO of Euro Pacific Capital, has been one of the leading voices in the financial community warning people about the crisis that is coming.
During a recent interview with Fox Business, Schiff stated that the massive financial collapse that we witnessed back in 2008 “wasn’t the real crash” and he boldly declared that the “real crash is coming”.
So is Schiff right?
We shall see.
Economist Robert Wiedemer warned people what was coming before the crash of 2008, and now he is warning that what is coming next is going to be even worse….
“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”
Financial author Harry Dent believes that the stock market could fall by as much as 60 percent in the coming months. He is convinced that stocks are hugely overvalued right now….
“We have the greatest debt bubble in history. We will see a worldwide downturn. And when you are in this type of recessionary environment stocks should be trading at five to seven times earnings.”
So are these guys right?
We shall see.
But I do find it interesting that some of the biggest names in the financial world are currently making moves as if they also believe that a massive financial crisis is coming.
For example, as I have written about previously, George Soros has dumped all of his holdings in banking giants JP Morgan, Citigroup and Goldman Sachs.
Infamous billionaire hedge fund manager John Paulson, the man who made somewhere around 20 billion dollarsbetting against the U.S. housing market during the last financial crisis, is making massive bets against the euro right now.
So where are these financial titans putting their money?
According to the Telegraph, both of these men are pouring enormous amounts of money into gold….
There was also news last week in an SEC filing that both George Soros and John Paulson had increased their investment in SPDR Gold Trust, the world’s largest publicly traded physical gold exchange traded fund (ETF).
Mr Soros upped his stake in the ETF to 884,400 shares from 319,550 and Mr Paulson bought 4.53m shares, bringing his stake to 21.3m.
At the current price of about $156 a share, these are new investments of about $88m of Mr Soros’ cash and more than $700m from Mr Paulson’s funds. These are significant positions.
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.
Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Generally speaking, crashes usually occur under the following conditions: a prolonged period of rising stock prices and excessive economic optimism, a market where P/E ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants.
There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. While crashes are often associated with bear markets, they do not necessarily go hand in hand. The crash of 1987, for example, did not lead to a bear market. Likewise, the Japanese Nikkei bear market of the 1990s occurred over several years without any notable crashes.
MARKETS ARE TUMBLING AND GETTING WORSE!
Source: Google Finance