The discussion of why "this time is not like the last time" is largely irrelevant. Whatever gains that investors have garnered during the recent bull market advance will be wiped away in a swift and brutal downdraft. However, this is the sad history of individual investors in the financial markets as they are always "told to buy" but never "when to sell."
Is September 2015 going to be one of the most important months in modern American history?
With corporate profits falling, margin debt at all-time highs, the Fed preparing to raise rates, China’s fake economic system imploding, currency wars breaking out across the globe, emerging markets in turmoil, oil dependent countries in the Middle East seeing budgets go deeply in the red, Greece and the other insolvent southern European countries nearing collapse and tensions rising between Russia, Europe and the U.S., there is plenty to fear in this central banker created debt bubble world. History teaches us this isn’t over. It’s only just begun. The bubblevision assertions that the worst is behind us is false. They will insist all is well until you’ve lost half your net worth. When fear overtakes greed, neither monetary easing, propaganda, nor acts of desperation by politicians, government bureaucrats, or central bankers will turn the tide.
By starving investors of safe return, activist Fed policy has promoted repeated valuation bubbles, and inevitable collapses, in risky assets. On the basis of valuation measures having the strongest correlation with actual subsequent market returns, we fully expect the S&P 500 to decline by 40-55% over the completion of the current market cycle. The only uncertainty has been the triggers.
When paying a premium for equities, or any asset for that matter, one runs the serious risk of capital impairment. Worse, most professional investment managers falling prey to the bullish sentiment currently surrounding this period of extreme valuations will likely not live up to their overriding fiduciary duty – the preservation of wealth. Following the herd may have its benefits at times, but following the herd over a cliff never ends well. As Seth Klarman warned. “Risk is not inherent in an investment; it is always relative to the price paid”
"The combined levels of bullish optimism, lack of concern about a possible market correction (don't worry the Fed has the markets back), and rising levels of leverage in markets provide the 'ingredients' for a more severe market correction. However, it is important to understand that these ingredients by themselves are inert. It is because they are inert that they are quickly dismissed under the guise that 'this time is different.' Like a thermite reaction, when these relatively inert ingredients are ignited by a catalyst, they will burn extremely hot. Unfortunately, there is no way to know exactly what that catalyst will be or when it will occur. The problem for individuals is that they are trapped by the combustion an unable to extract themselves in time."
"The larger problem with repurchases is that debt-financed buybacks effectively put investors on margin. As corporations have borrowed in order to aggressively buy back their stock near the highest market valuations in history, existing stockholders have quietly become heavily leveraged, without even realizing it."
“The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.” – James Grant
Wondering why stocks are surging this morning - aside from Fischer's comments, OPEC rumors, Greek bank recaps, and JPY ignition? Perhaps it is the veritable swarm of professional technical analysts out with notes warning of significant problems ahead. From John Hussman's refined Hindenberg Omen and Carter Worth's "sell stocks, breadth is a problem," to Oppenheimer's warning of "seasonals and weak internals," and Louise Yamada's "stocks are vulnerable, keep cash on sidelines" warning - it appears today's early bounce is as much about contrarian oversold bounce as it is about any macro news. But with 73% of the largest 1000 stocks at least 5% off their highs, stocks remain fragile as they push back towards highs.
"In any event, waiting to normalize monetary policy may defer, but cannot avoid, a market collapse that is already baked in the cake."
"Any rally that occurs over the next few days from the current oversold condition should be used as a "sellable rally" to rebalance portfolios and related risk."
Will there be a financial collapse in the United States before the end of 2015? An increasing number of respected financial experts are now warning that we are right on the verge of another great economic crisis.
From our perspective, the fundamental reason for economic stagnation and growing income disparity is straightforward: Our current set of economic policies supports and encourages a low level equilibrium by encouraging debt-financed consumption and discouraging saving and productive investment. We permit an insular group of professors and bankers to fling trillions of dollars about like Frisbees in the simplistic, misguided, and repeatedly destructive attempt to buy prosperity by maximally distorting the financial markets.
"It wan't raining when Noah built the ark."
The US economy is widely seen as the world’s best performing major economy at the moment. However, so far this year most economic data have actually been somewhere between very soft and lackluster. The steep fall in truck tonnage is definitely an alarm signal. It indicates that inventories are already too high relative to demand, something that seems to be confirmed by recent industrial production and retail sales data. Given that tonnage has continued to decline since the end of Q1, one can no longer blame the port strikes either. To be sure, the US economy is not yet signaling an imminent recession. At best though it is muddling through at a very subdued pace. It probably won’t take much to push it over the edge.