A Much Worse Stock Market Crash Is Coming And Monetary Policy Is “USELESS” Under Current Bleak Conditions
Peter Schiff: “The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”
Investors need to prepare for an upcoming stock market crash that will be “worse than 2008.”
That’s according to a well-respected author and investor, making a recent appearance on Fox Business.
Peter Schiff, the CEO of Euro Pacific Capital, says the stock market collapse we experienced in 2008 “wasn’t the real crash. The real crash is coming.”
A noted economist agrees with Schiff that a much worse stock market crash is coming. And unlike Schiff, he has given very specific details about just how bad it will get.
“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”
That catastrophic outlook comes from Robert Wiedemer, economist and author of The New York Times best-seller Aftershock. Before you dismiss Wiedemer’s claims, consider this: In 2006 he accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States.
Anyone puzzled by the most recent U.S. economic data has reason for feeling so: The numbers sketch a sometimes contradictory picture of the economy.
We’ve learned that:
Consumers are more confident but aren’t spending much. Fewer people are losing jobs, but not many are being hired. Home and stock prices are up, but workers’ pay is trailing inflation. Auto sales have jumped, but manufacturing is faltering.
This is what an economy stuck in a slow-growth rut can look like. The U.S. economy grew at a scant 1.3 percent annual rate in the April-June quarter — too weak to reduce high unemployment. And most economists foresee little if any improvement the rest of the year.
Many Americans are reducing debt loads instead of spending freely. Builders are borrowing less and constructing homes at a modest pace. Businesses are being cautious about hiring and expanding.
“Since President Obama took office in January 2009, the U.S. government has implemented more fiscal stimulus and monetary intervention than ever before, yet real [gross domestic product] has slowed from 2.4 percent in 2010 to 2 percent in 2011, and to only 1.6 percent in the first half of 2012,” he says.
Here is a summary of the four market valuation indicators I updated at the beginning of the month.
? The Crestmont Research P/E Ratio (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)
To facilitate comparisons, I’ve adjusted the two P/E ratios and Q Ratio to their arithmetic means and the inflation-adjusted S&P Composite to its exponential regression. Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I’m using as a surrogate for fair value. Based on the latest S&P 500 monthly data, the market is overvalued somewhere in the range of 33% to 51%, depending on the indicator. This is an increase over the previous month’s 31% to 48% range.
British economist Andrew Smithers contends, monetary policy is “useless” under current conditions, the outlook is bleak
Ultimately, optimists say, determined central banks will prevail. Flooding their economies with cheap money will revive risk-taking and investment, generating demand and jobs.
But if, as British economist Andrew Smithers contends, monetary policy is “useless” under current conditions, the outlook is bleak.
For then only fiscal policy can engineer a recovery, yet the United States, Japan and Britain are no longer able to add to their deficits, while Germany and China do not want to, he said.
“The world may muddle through, but the chances of a serious and prolonged recession are exceptionally high,” Smithers, head of an eponymous London consultancy, concluded in a report.
The wrong medicine is being applied to America’s economy.
Having misdiagnosed the ailment, policymakers have prescribed untested experimental medicine with potentially grave side effects.
The patient is the American consumer—the world’s biggest by far, but now in the throes of the worst funk since the Great Depression. Recent data on consumer spending in the United States have been terrible. Growth in inflation-adjusted US personal consumption expenditures has just been revised down to 1.5% in the second quarter of 2012, and appears to be on track for a similarly anemic increase in the third quarter.
Worse, these numbers are just the latest in what has now been a four-and-a-half-year-old trend. From the first quarter of 2008 through the second quarter of 2012, annualized growth in real consumption spending has averaged a mere 0.7%—all the more extraordinary when compared with the pre-crisis trend of 3.6% in the decade ending in 2007.
The disease is a protracted balance-sheet recession that has turned a generation of America’s consumers into zombies—the economic walking dead. Think Japan, and its corporate zombies of the 1990s. Just as they wrote the script for the first of Japan’s lost decades, their counterparts are now doing the same for the US economy.
Global growth has been slowing but financial markets have remained optimistic that politicians will come riding to the rescue. Now, though, hopes of political leadership are fading fast. Dow Jones’s Martin Essex reports.
Paul B. Farrell: Romney, Obama both stock-market killers. Both lack vision and courage, Pimco CEO says
The economy is going to be a disappointment whether President Barack Obama or challenger Mitt Romney is elected in November.
Solution? Can we stop the hemorrhaging before another Great Depression? El-Erian says that the solution depends on what happens after the elections.
But that seems unlikely because, “sadly, neither Obama nor Romney has yet offered a meaningful, forward-looking economic reform program to address problems such as a malfunctioning labor market, unsustainable public finances, a broken credit system, inadequate infrastructure, and a lagging education system.”
Why? Because both Obama and Romney “lack vision and political courage.” And no matter who’s elected their failure of leadership will result in “even greater economic disappointment and financial instability.”
Worse, the longer America’s “economic and political challenges persist, the greater the number of companies and long-term investors that begin to worry, and … act on those fears … hire fewer people … invest less in factories and equipment … sit on the sidelines” leaving America’s fate more and more “in the hands of tactical position players and short-term traders, further ramping up volatility and reducing future growth and job opportunities. And when day traders and company flippers start running a country’s economy, watch out.”
Here’s the list of crash warnings from 2000 to 2008.
2000. Fed Governor Ed Gramlich warns Greenspan
Gramlich later wrote the book, “Subprime Mortgages: America’s Latest Boom & Bust.”
2002. St. Louis Fed President William Poole warns Greenspan
Poole warned low rates would backfire. And Fannie Mae-Freddie Mac lacked capital.
2004. Billionaire Pete Peterson, Nixon’s Secretary of Commerce
Warned that Bush’s reckless finances worst in history, creating a “bankrupt nation.”
2004. Hedge fund portfolio managers start going short
Robert Rodriguez predicts meltdown, began shorting. Soros, others follow.
June 2005. The Economist cover story: “Biggest bubble in history”
Property prices inflate 75% in 5 years after the stock bubble pops in 2000.
June 2005. Economist Nouriel Roubini warns of recession
Economist called housing a speculative sport, will trigger a new recession.
August 2005. IMF Chief Economist to Greenspan and Summers
At Fed’s annual meeting IMF economist Raghuram Rajan warns of disaster.
January 2006. Fortune: Billionaire Richard Rainwater
“First scenario I’ve seen where I question the survivability of mankind.”
February 2006. Marc Faber’s Doom Boom Gloom newsletter
Correction Time: overbought, high optimism, low cash, foreign buying, correction.
March 2006. Forbes Columnist: economist Gary Shilling
“Housing weakness, full-scale rout, painful recession, stocks in tailspin, worldwide.”
March 2006. New book: “Sell Now: The End of the Housing Bubble”
Former Goldman banker predicts an average 47.2% decline in 40 metro areas.
March 2006. Bill Gross in Pimco investment outlook
Bush “failed to tell the truth” about borrowing “from the future for today’s party.”
March 2006. Fortune: Buffett Warns America of deficit dangers
America’s a rich farmer consuming 4% more than they produce, selling, mortgaging.
May 2006. Harper’s: “Guide to coming real estate collapse”
“20 factors will drive down wages, increase debt, push economy into stagflation.”
August 2006. Bloomberg: New Treasury Secretary warns President Bush
Yes Two years before crash Paulson tells Bush derivatives could blow up economy.
August 2006. Wall Street Journal: Countrywide CEO Angelo Mozilo
“Never seen a soft-landing in 53 years, preparing for the worst.”
November 2006. Harvard historian Niall Ferguson in Vanity Fair
“Rome in 331 and America/Europe in 2006 have many problems in common.”
November 2006. Fortune: “Can the economy survive the housing bust?”
NAHB index is leading indicator, plummeted 54%, stocks inevitably fall in year.
January 2007. Los Angeles Times on Schwab’s trading
Averaged 242,300 trades daily in 2006, back at 2000 peak in last collapse.
April 2007. Jeremy Grantham in GMO’s quarterly newsletter
First truly global bubble. Bursting impact all countries, all assets in world
June 2007. Economist Gary Shilling’s Insight newsletter
As bubble is bursting, speculation end, derivatives trigger a meltdown.
2007. Raghuram Rajan, chief economist IMF
Again warns world’s bankers, “headed for doom,” markets not learn lessons.
June 2007 New book: “Pop! Why bubbles are great for the economy”
Bubbles work miracles for economy. Welcome them, let them pop, Pop, POP!
July 2007 Paulson in Fortune: “Strongest economy in my lifetime”
Yes, as the meltdown spread, Paulson failed to warn the public of hard facts he knew.
August 2007. Wall Street Journal: Former SEC Chairman Arthur Levitt
Subprime mortgage crisis rivals crises like 1980s S&L, Enron, mutual fund frauds.
August 2007. Former Fed Chairman Alan Greenspan on “60 Minutes”
Hustling “The Age of Turbulence,” he admits, “I really didn’t get it until very late.”
Politicians ignore economics, will destroy the economy to win elections. For over a decade America’s been morphing into a series of rapid “vicious feedback loops” that are turning “bad economics into bad politics” then recycling “bad politics into even worse economics, further threatening an already tenuous economic future.”
They want a recession. And most likely the third major Wall Street stock market crash of the century. Welcome to the New New New Abnormal, a repeat of the Old Normal.
The appearance by legendary real estate investor Sam Zell on Squawk Box this morning is going to be legendary.
In the first half he talked econ, and he was pessimistic.
In the video below, right at the 2 minute mark, he says that there’s a major lack of confidence, and that it’s hard not to conclude that a recession is imminent.
Sam Zell On “Class Warfare Crap”, QE3 Unreality, And Why Everything Is Mispriced Due To The Fed