Stories
Fear and Hatred on the Stock Exchange
Next Post

Press {{ keys }} + D to make this page bookmarked.

Close
Photo: flickr.com

Fear and Hatred on the Stock Exchange

206

NEW YORK – October 9, 2018

Ron Paul is warning that a 50% stock market decline is coming – and that there is no way to stop it.

Bizarre things are happening right now in U.S. markets. It’s been 10 years since the recession and things are a little too quiet, at least on the surface. But in the shadows many world-famous experts agree that the end of Pax Americana has become inevitable.

According to Ron Paul, the former Republican Congressman from Texas, the recent jump in Treasury bond yields suggest the U.S. is barreling towards a potential recession and market meltdown at a faster and faster pace.

And, he sees no way to prevent it.

You can see many such predictions flying around these days.

In fact, at this point even the IMF is warning of a “second Great Depression.”

So when it actually takes place it won’t be much of a surprise.  However, I do believe that many will be surprised by the ferocity of the coming crash.  According to Ron Paul, stock prices could end up falling by up to 50 percent.

Paul is a vocal Libertarian known for having an ardent grassroots fanbase that propelled him to multiple presidential runs, as well as for his grim warnings about the economy. Yet he has been warning investors for years that an epic drop of 50 percent or more will eventually hit the stock market. He predicted the February correction, but not in size and scope.

Actually, stock prices need to fall by at least 50 percent in order for stock valuations to get close to their long-term averages.

In the end, if stocks only fall by 50 percent we will be extremely fortunate.  Stock valuations always, always, always return to their long-term averages eventually, and usually they fall below those averages during a period of adjustment.

And the mood on Wall Street has definitely changed.  The euphoria that we once witnessed is now gone, and instead it has been replaced by a gnawing sense that a really big downturn is coming.  In his most recent piece, John Hussman compared it to the fading out of a pop song:

In recent days, the combination of extreme valuations and unfavorable market internals has been joined by an acute dispersion in daily trading data that often occurs within a few days of pre-collapse peaks in the market. My opinion is that the music has already quietly faded out like the end of a pop song, in a wholly uneventful way, and that even a surprise push to further highs would be marginal.

He concluded his most recent piece with this very chilling statement:

For now, and until market conditions shift, there’s an open trap door under the equity market, and it’s a very long way down.

The end of last week was very bad for the markets, and so Monday and Tuesday will be key.

If stock prices continue to fall, this could be the beginning of a race for the exits.

But if stock prices rebound a bit, it means that we could have some more time.

And keep an eye on junk bonds.  They crashed really hard just before the financial crisis of 2008, and they are starting to slip here in October 2018.

A full-blown junk bond panic would definitely be a very clear sign that a major market crash is imminent.

At this moment we are in the terminal phase of the biggest debt bubble in human history. Over the past 10 years, the US economy has grown by 38% - quite a good result for advanced economies, but this growth was spurred by increasing debt. Over the same 10 years, the US national debt grew by 122%. We would like to remind you that the global financial crisis began as the collapse of the mortgage "bubble", which led to a debt crisis. In other words, over the past ten years, US public debt has increased by more than $3 for every dollar of GDP increase.  In fact, total indebtedness in the United States has increased by more than 2 trillion dollars over the past 12 months:

In total, indebtedness of consumers, corporations, and all governments has grown by $2.04 trillion over the past four quarters. And they’re going to be paying higher interest rates on this ballooning debt. In other words, debt service costs are going to rise substantially.

All of this debt has fueled a short-term bubble of relative “prosperity,” but meanwhile all of our long-term problems just continue to get worse.

There is no possible way that our debt bubble can continue to grow much faster than the overall economy indefinitely.  In fact, we have already been defying the laws of economics for way too long.

Eventually all debt bubbles burst, and when this one bursts we are going to experience economic pain on a scale that America has never seen before.

But Ron Paul is not the first to draw attention to the challenges ahead for the global economy. In recent months, several very influential figures on Wall Street spoke on the same topic and presented to the public no less gloomy forecasts.

Kenneth Cordele Griffin, billionaire and Manager of the giant hedge Fund Citadel Investment Group, recently warned that too much debt will be the "seeds" of future economic decline.

Jeffrey Gundlach billionaire, financier and mathematician who owns the investment fund DoubleLine Capital believes that the starting point of the next crisis will also be too much debt.

Billionaire investor Stan Druckenmiller joins a growing list of Wall Street financiers and money managers who have predicted that debt will trigger a crisis, saying the next financial crisis will be worse than the last due to soaring levels of debt.

“We have this massive debt problem,” Druckenmiller said an interview with Kiril Sokoloff, chairman of 13D Global Strategy & Research. But the most important thing in the interview was the sudden recognition of Druckenmiller in that the seeds of a new global economic crisis has not only sown, but will soon be rising. “We tripled down on what caused the crisis. And we tripled down on it globally.”

DoubleLine Capital’s Jeffrey Gundlach said in June that the soaring U.S. budget deficit at a time of rising rates may be setting the stage for fiscal trouble.

In our view, the present situation is similar to that of the Titanic: the orchestra is playing on the deck and the passengers are still having fun, although hitting the iceberg is already inevitable. At this time, the most prudent have already lowered the life raft and are now fighting for space aboard it.

Author: USA Really