Bernank's Bluff and the Coming Crash

Phoenix Capital Research's picture


Yesterday’s move confirms what everyone suspected, that Ben Bernanke is more of a CNBC stock market cheerleader than a Fed Chairman or businessman. Is there really any other interpretation for his clear and obvious verbal intervention in the stock market? Can we really look at his actions and say that this is a man who legitimately knows what he is doing?


After all, Bernanke did not actually introduce any new policies. His Fed is torn about how to proceed with half of the Fed Board wanting to end QE by the end of 2013. And yet Bernanke felt the need to speak after the market closed about how he will keep the money printers going ad infinitum.


Who cares if the entire recovery is based on accounting gimmicks? Who cares if there is literally no evidence in history that QE generates economic growth? Who cares that Bernanke is literally betting the financial system  that his flawed theories are in fact correct? Stocks must go higher!


We did eek out a new high in the S&P 500 yesterday.



The move is very reminiscent of the 2007 top where we had a top, a brief collapse and then a final burst higher to a new high. Within a few months however, the markets had begun to descend into what would ultimately be the worst Crisis in 100 years.



Indeed, it is almost impossible to make the case that stocks are starting another major move up here. We have, in no certain order:


1)   A collapse in corporate earnings

2)   The collapse in US GDP

3)   The European banking crisis back

4)   The European sovereign crisis back (Portugal’s 10 year spiked above 8%)

5)   China’s hard landing (electrical consumption is up just 2.3%)

6)   A Fed that is literally beginning to mutiny with calls to end QE growing louder by the week


Against this backdrop, stocks are undoubtedly in a bubble.  Today, the S&P 500 is sitting a full 30% above its200-weekly moving average. We have NEVER been this overextended above this line at any point in the last 20 years.


Indeed, if you compare where the S&P 500 is relative to this line, we're even MORE overbought that we were going into the 2007 peak at the top of the housing bubble.



We all know how bubbles end: BADLY.


This time will be no different. The last time a major bubble of these proportions burst, we fell to break through this line in a matter of weeks.


We then plunged into one of the worst market Crashes of all time.


By today's metrics, this would mean the S&P 500 falling to 1,300 then eventually plummeting to new lows.


This is not doom and gloom. This is a fact. The Fed has created an even bigger bubble than the 2007 one.


To prepare for a market collapse we offer a free report on how to prepare for your portfolio for it, swing by


Best Regards

Graham Summers


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Slipstack's picture

If there is a crash - a really big one, for example in bonds - what are the chances that the US$ and the euro will survive? And if they don't survive isn't it better to be long equity?

starman's picture

Actually I've heard that the Fed is learning how to pull full time jobs out of their asses! since they can't print them, so worry not will be all fine.

uncle_vito's picture

In 2008 you had toxic mortgage backed securities in all the banks without givernment back up.   You do not have that now.   Lehman Brothers failed.   They will not let that happen now.   There are NO events to instill BLIND FEAR.   Not as long as the FED can  print and come to the rescue.

CDNX fan's picture

Graham is wrong because the underlying currency is being trashed (think Zimbabwe) so as long as the common share asset class is a repudiation of fiat, every time you short a stock, you are going "long cash" and the actions of the Fed and it's G20 brethren is anti-sound money. Ergo, the strategy is unsound until they adopt sound money principles.

tempo's picture

Social unrest is good for the stock market as it guarantees more liquidity from central banks. Millions of jobs are eliminated every year due to automation and robots doing the work of full time employees. Yes, about 1/3 of the college grads are smiling since their skills are needed in automation/systems/wireless surge. But most are hopelessly in debt stuck with meaningless part time jobs and living at home. It will only get worse, so the market will not crash or have a meaningful correction unless liquidity drops which is impossible w/o a collapse in the entire financial social order. Accept the equation.... robots = unemployment/under employment = central bank liquidity = higher stock market.

tempo's picture

Liquidity is the only indicator to watch. All other economic data points, history, charts, opinions are meaningless.

Chief Falling Knife's picture

The article states, "Today, the S&P 500 is sitting a full 30% above its 200-weekly moving average. We have NEVER been this overextended above this line at any point in the last 20 years."

Someone can correct me if I'm wrong, but by my count the S&P spent essentially the entire period of 1996-2000 over 30% above its 200 week moving average(except for the last quarter of 1998 where there was a major correction before the market spiked back up.)

Do I think we are in a bubble?  Absolutely.  However, who knows if we are in Year 1-2, or Year 3-4, and who knows how long it can actually last before the pop.  Especially with the Fed buying the entire market.

Using this particular metric means we could very well be in the 1997 or 1998 part of the bubble, and the S&P could be at 1,900 or 2,000 by this time next year.

I'm starting to think these Phoenix Capital guys are shills of TBTF to keep at least a modicum of new shorts coming into the market in order to keep it from getting ridiculously overbought(beyond our current 'full retard' overbought.. into perhaps something like 'extra full Lohan retard' overbought). 

flacon's picture

I read all the comments below. Looks to me like the shorts have thrown in the towel. Time for a stock market "harvest" of the longs soon. 

Two Theives and a Liar's picture

My mediocre and purely amateurish exposure to "paper" markets really has taught me there are no magic bullets (unless of course you make them). Basic portfolio balancing...mixing in a short fund (really saved my ass in 2008!) for insurance..of course keep stacking...better to be amoeba-like and just "absorb" good gains over time. With the right mix "something" will always be working!



Brixton Guns's picture

"Hold onto your lugnuts, its time for an overhaul!"

DizzySailor's picture

This time it is the real thing Right?  Following your advise last year was an expensive mistake.  Even a broken clock is correct twice a day.

DEVILDOG's picture

benny is just an arrogant, ignorant, cowardly, parasitic, lying, thieving, mass murdering asshole. He will be killed by the PEOPLE soon enough. Then he will reside in hell where he belongs.

Vendetta's picture

hell is what ben is raining down on working Americans and the rest of the world, he will ride off into the sunset laughing and with buckets loads of money (in one form or another) like the rest of the criminals in politics and on wall street

Batty's picture

this is the thing that saved my ass in 2007. the quant funds screamed 1/10000 year event. Which to me screamed a lot of money had their models wrong and had to exit or that some unseen dark force was lurking beneath the waves. Around the same time in the preceding months many fringe sites were warning about cds swap related disaster pending. This was the black swan and it was easy to see though most didnt listen. The only one I think might currently be of concern is the Prism exposure and whether it undermines trust in everything US. eg is it mostly just a vehicle for industrial espionage.

max2205's picture


O. O
O. O.

BullyBearish's picture

As a reformed shorter I now say with enthusiasm:

B T F D   works until it doesn't..."I've got my mind right"


fijisailor's picture

The difference this time is that everyone is waiting for what the FED does.  It certainly changes the scenario but not necessarily the final outcone.

lordbyroniv's picture

I like Graham and Phoenix


He is the Rodney Dangerfield of ZH



Chupacabra-322's picture

Off topic, my appologies for spaming.  Lets light these District of Criminals phone lines up and stop contributing to your own debt bondage and enslavement to the Criminal TBTFBanksters.  WithDraw you money OUT of them!

Credit unions promote the economic well-being of their members, especially those of modest means, through a system that is member-owned, volunteer-directed and not-for-profit.  As a credit union member, I know firsthand that my credit union offers financial products that provide better returns on savings, reduced rates on loans and lower or no fees on services.

Unfortunately, the big banks and some in Congress want to raise taxes and impose new fees on millions of credit union members, who together represent 40% of all Americans. And, they want to do this despite the fact that credit unions are not-for-profit.

Please don’t raise taxes on 96 million credit union members. Don’t tax my credit union!

Arthur's picture

Tell me when you are actively shorting the market and with what percentage of your investment $$.

Until then I agree only that one of these days you will be correct and the market will dive.

Bear's picture

My problem also ... I have lost so much shorting the market. I will be right some day but I will only be able to get even because of the phoney perpetually ramping market

PTDBDucks's picture

The man who often called Crash

Soon ran out of cash.


No offense, but I don't even read your articles anymore. Those that can turn a market at 666 and GE at 6.66 are sending you a plain message. No, it's not Satanic. They are poking fun. They taught us that the stock market is an entity of big money which decides the direction and the timing. It has no relation to earnings, fundementals, Bernanke beard wagging or the real economy. It's a Monopoly game and they own the Banks.


starman's picture

and the Banks they own are leveraged 30-1, yah I see it now, this looks all safe and sound /sarc added x30

orangegeek's picture

Totally agree.  The trend is your friend.  Without exception the entire investment community knows what is coming, but too many are jumping too soon.


Should be interesting to see what Q2 earnings turns out like.


2007 was a process, not an event - lots of time to short.  For now, Bernanke is still fucking around with the printer, the trend is still up and macros don't matter.

badger10's picture

Well Graham its the first bull market I have seen based on high unemployment and slow growth. Our high deficit will keep us at slow growth for years. I agree with your opinion it just the timing that has to be in place! 

Obchelli's picture

You say same thing every day and yet - nothing happens.

I know you are right but if you follow this call with money you should be in poor house by now...

This market is relentless and level of manipulation is one never seen before ever it will only get worth and more blatant

philipat's picture

Graham, is that the same thing you predicted for 3 years now for the collapse of the Eurozone? So far, I did not yet see that?

Why would you expect anyone to believe anything you predict. IMHO, ZH should drop your stuff as a very obvious "Weak Link". Being polite.

In the meantime, I regard you as ZH's very own Stolper and do the exact opposite of you say. It has served me very well so far.