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Guest Post: Diminishing QE Returns And The Coming 40% Correction

Tyler Durden's picture


Submitted by Chris Martenson of Peak Prosperity blog,

Warning: Stocks Likely To Crater From Here

I don't relish the job of constantly pointing out the risks to the equity markets. But since few on Wall Street seem willing (or able) to do this, I'm "making the call" for a market correction, as enough variables have aligned to indicate a high likelihood of stocks heading downwards from here.

I've only given one other such warning about equities before, and that was in March of 2008, when I warned of the possibility of a 40% to 60% decline in stock prices by Fall. I am making a similar call today, with the understanding that I am usually a bit early to the game with my views.

Before I get into the details, the broad outline is that I see a case where speculative fevers, propelled by the Fed's $85 billion thin-air money printing program, have more or less run their course, with the Dow and S&P indexes stalled near their all-time highs. That is, $85 billion a month is what it takes to merely keep the Dow near 14,000 and the S&P 500 near 1,500.

On a fundamental basis, I see numerous signs of consumer weakness, political in-fighting and paralysis in DC, high insider selling, and the return of the retail investor (a.k.a. "greater fool") to the stock market. 

On a technical basis, there are numerous tell-tale signs of a market top, including too much bullish sentiment, waning momentum on multiple timeframes, and too many NYSE stocks being above their 200-day moving average (at least until recently; that's begun to correct).


Triple Top?

The S&P 500 and Dow Jones are both once again near all-time highs…for the third time.  The old saying third time’s a charm can work both ways when it comes to the stock market.  Sometimes an index will bust through to new highs, and other times it will fail spectacularly crashing to new lows.

We should all be watching the behavior of the major indexes here, because the possibility of a major triple-top failure is quite high, for reasons outlined below.

If the S&P 500 fails at the triple top and breaks down, from a charting perspective the next thing for it to do is revisit the bottom and then make up its mind as to what it wants to do next.  The implication here is that a major failure of the S&P 500 will open the possibility of it revisiting the 600-800 level, or some 45% to 60% lower from the 1,500 level where it currently churns.

It will take some time to get to that level, typically 3-6 months, unless there’s some sort of financial accident to hasten things along, in which case it could all be over in a month or two.

Assuming a failure at the triple top, we’ll just have to watch and see what the market wishes to do once it plumbs the bottom once again.  For now, the daily and weekly charts of the S&P 500 show waning momentum, and the weekly chart remains in overbought territory (green lines and circles):

These overbought and slumping momentum indicators are headwinds to the Fed’s efforts to keep the stock market elevated. 

From a historical standpoint, stocks are cheap when they sport a collective p/e in the high single digits.  Currently they are anything but cheap on that basis. 


With a current p/e of 22, the S&P 500 is on the expensive rather than cheap side of things, and is roughly 35% above its long-term average and more than 100% above what we could legitimately call 'cheap.'

The summary here is that if stocks do indeed retreat from here, a triple-top failure will deliver quite a punishing blow to the current efforts to repair the public’s trust in the stock market as a place to send their hard-earned savings to grow.  It would be quite difficult to engineer a run at a fourth top, given the importance of retail participation in providing fuel for the rise of stocks especially given that the boomers are retiring at the rate of 10,000 per day and drawing upon their investments instead of adding to them.

The younger generation(s) have been the main victims of the high unemployment and general wage stagnation that have been the hallmarks of the Great Recession.  It is not likely that they will be able to save and invest at a rate equal to the boomer's withdrawals, creating one more equity headwind for the Fed to overcome.

Sell in May and Go Away

Of course, another old adage that applies to the stock market is sell in May and go away, which has proven to be a remarkably effective strategy over the years.  The average return between May and September is -0.5%, while it is over 12% for the rest of the year.


Why this yearly vacillation of returns occurs is open to speculation, but a betting person would have to think long and hard about buying stocks here with May approaching and the Dow and S&P at all-time highs rather than staying on the sidelines and then buying back in September or October if one was so inclined.

However, given the macro forces at play at this time, this May-to-September period could easily offer much more dramatic losses than 0.5%.  I am personally thinking as much as two full orders of magnitude greater, as -50% is right in the middle of my target window for losses.

As always, the best time to begin repositioning one’s portfolio is before any big moves get underway, so I personally would not wait until May to make adjustments, assuming one was of a mind to do so.

Whether or not you forego selling stocks, lighten up your positions, or take on some form of portfolio protection in the form of puts or inverse ETFs, these seem like good things to do before April is over.

Danger Ahead

Technically stocks are overbought. Fundamentally, the picture is even worse: they are facing a litany of economic drags (including weakening GDP growth, higher taxes, the impact of Obamacare, sequester cuts, high gasoline prices, chronic unemployment, etc.) and robust insider selling.  We explore these fundamental risks and their likely impact in great depth in Part II.

For all of these reasons, equity markets face a very high chance of falling over 40% between now and fall of 2013.  (Yes, I'm aware of how extreme a price prediction this is.)

While there’s always a chance that the Fed can keep things magically elevated and they’ve done a very good job so far –  it is my view that they cannot do this for much longer without a serious correction to justify an even larger program of overt and covert intervention. 

In Part II: How the Market Failure Will Happen, I detail how the pattern I expect to see will play out and why I expect the fall in equity prices to happen within the May-September window.  This downdraft will be characterized by lots of volatility, formed by market routs and Fed-inspired rescues, alternating until some form of bottom is reached.  Along the way there will likely be a flight for "safety" into the dollar and Treasury paper, but only during the first stage of the next crisis.

Once a bottom is reached again, this might be anywhere from 40% to 60% lower than the current ~1500 level on the S&P 500 the process will begin to be dominated by rising government borrowing, which will cause interest rates to begin to rise. 

When that happens, expect capital to flee the paper market for hard assets.  In particular, that's when the upwards price revolution in the gold and silver markets will kick into high gear.


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Thu, 02/28/2013 - 16:07 | 3287205 francis_sawyer
francis_sawyer's picture

So does this mean that Prechter is going 400% short or is he up to 800% now?


Calling a "DREADED TRIPLE TOP" is like paying for a football tout service & getting the valuble advice that the KICKOFFS will be at 1PM for east coast games & 4PM for west coast games...

Thu, 02/28/2013 - 16:15 | 3287270 Dr Paul Krugman
Dr Paul Krugman's picture

Doomers have been saying stocks would fall since they bottomed.  Bernanke is finally setting the stage for a recovery and doomers and gold bugs (not sure if there is a real difference) are still yapping about the end of the world.

Thu, 02/28/2013 - 16:18 | 3287286 TruthInSunshine
TruthInSunshine's picture


Robotrader, say what one will about him, but he invited me out on his Yacht, "iNail Tops & Bottoms," which was very gracious of him.

Thu, 02/28/2013 - 16:32 | 3287383 Dr Paul Krugman
Dr Paul Krugman's picture

The fact that I take time and write with you shows that I care; I want what is best for this country, and the world, and I think that my ideas have proven to be accepted across this great land.

Thu, 02/28/2013 - 16:48 | 3287468 geminiRX
geminiRX's picture

You forgot the, "Now where is my burger and fries bitch"

Thu, 02/28/2013 - 17:07 | 3287574 dark_matter
dark_matter's picture

Paul, just knowing that you care brightens my hum drum existence. It's like a big virtual hug that sends a giant tingle up my leg. Can't thank you enough.

Thu, 02/28/2013 - 17:36 | 3287675 thruid
thruid's picture

Mr Krugman,

Despite evidence of systemic fraud there has not been a real investigation much less a prosecution for fraud involving any of the TBTF banks.  Instead there have been a few fines which are a fraction of the profits made by the banks involved which have no personal consequences whatsoever for the individual which committed fraud.  Instead,  the loses from fines are felt by the shareholders.   With the financial industry funneling hundreds of billions into campaign coffers over the last decade I don't expect there to be any prosecutions.  In sharp contrast, retirees that have worked hard, lived a frugal lifestyle, and saved their entire lives are now crushed by ZIRP. There has been a recovery, but I would argue that it has been a recovery for the wrong group of people.

Accepted and correct are different things.   Time will tell.................. and history can be a very harsh judge.  

Thu, 02/28/2013 - 17:38 | 3287683 jmcadg
jmcadg's picture

Seriously Krugman, is there anyone more deluded in this world than yourself, and arrogant 'I think that my ideas have proven to be accepted across this great land'.

Someone take him to a home for the retarded, please.

Thu, 02/28/2013 - 18:45 | 3287968 Squid-puppets a...
Squid-puppets a-go-go's picture

The fact that your ideas have been accepted across this great land is precisely why everyone is going over the cliff together

Fri, 03/01/2013 - 01:38 | 3289198 Col_Sanders
Col_Sanders's picture

Your ideas have proven many things.

Primarily how stupid and gullible most people are. 

Enjoy it while it lasts.

If there's any justice at all in this world, then there will be a special place in hell for people like you.

Thu, 02/28/2013 - 16:32 | 3287368 akak
akak's picture

Gideon Gono gave the Zimbabwean stock market quite a 'recovery' as well.

I think it's fair to say that the average Zimbabwean, however, saw more 'doom' than 'recovery' in the associated 12,000,000,000% inflation.

Oh, and by the way, it is only the diehard pro-status-quo, pro-Establishment Quislings such as yourself, "Doctor", who prattle on about "the end of the world".  That is a strawman which exists only in your own terminally ignorant, and terminally dishonest, minds.  Although, to be fair, the end of the current corrupt and unsustainable financial and monetary paradigm might just be the end of YOUR world of sociopathic priviledge and abuse, though.

Thu, 02/28/2013 - 16:35 | 3287389 Dr Paul Krugman
Dr Paul Krugman's picture

Inflation is low and has been for years.

Thu, 02/28/2013 - 17:15 | 3287429 LibertarianX
LibertarianX's picture

Define inflation...... 


Bitch !!






Thu, 02/28/2013 - 20:01 | 3288256 Beam Me Up Scotty
Beam Me Up Scotty's picture

Come on Krugman.  LibertarianX is schooling you in the school of economics.  Define inflation.  Thats the key isn't it.  You just change the equation, to suit your needs.  How can you say there is no inflation?  In 2000 gas prices were hovering near $1 a gallon.  Today, 13 years later, they are near $4 a gallon.  No inflation?  Food costs more, or the container size has shrunk.  Things aren't built to last, they are built to fail.  Cars today are junk compared to the late 90's.  Even if the cost stays the same but something lasts half as long, thats 100% inflation right there.

For being a Doctor, you sure are stupid.  But I had a roommate in college who was a 4.0 student, and yet he couldnt figure out how to put a drill bit into a drill.

Thu, 02/28/2013 - 16:52 | 3287475 akak
akak's picture

If by "low" you mean at least 5% on a REAL and annual basis, then we can agree.

Funny how "inflation" (but let's call it what it really is: government abuse and depreciation of the fiat currency) was never a problem under the gold standard.  Nobody then had to worry that their savings would be worth less each year than the one before.

Thu, 02/28/2013 - 16:54 | 3287483 SunRise
SunRise's picture

Low inflation over many years is a disaster.  I want DEFLATION, because having a lesser job or no job at least means I'll pay less with the little there is left. 

The key issue is not inflation, but whether any other human has a right to use your labor for their purposes, i.e. slavery.  Dollars are a claim on my labor.  When they are inflated, my purchasing power evaporates and my labor has been stolen.

When the government "spends" my life for their purposes, I am a slave - No Thanks!  I'll keep my change if possible!

Thu, 02/28/2013 - 23:01 | 3288831 winagain
winagain's picture


Don't mention the dreaded" D " word

The " D " word is more awful then the F_ _ _ word

Seems logical  lower priced goods and services would sell in higher quanities

The debt cartel short circuits when the dreaded "D" word applies

Thu, 02/28/2013 - 16:55 | 3287508 Winston Churchill
Winston Churchill's picture

They have little "blue pills" for that.

Thu, 02/28/2013 - 17:11 | 3287593 No Euros please...
No Euros please we're British's picture

I take it, you're not a fan of "shadowstats"? You really think that the inflation figures are not being manipulated? They sure are in the UK. I'd say true day to day living inflation is running at around 8% pa. Who would have thought the government would manipulate the RPI/CPI data. Although you might wonder why there would be 2 different  measures to describe the same thing.

Thu, 02/28/2013 - 17:33 | 3287643 eXMachina
eXMachina's picture

Dr. Krugman with all due respect, the CPI has been low ie. the published figures. Any consumer on a regular income paying for anything from utilities, gas at the pump, groceries and just about anything else will tell you that prices have soared and packaging has got smaller. Real inflation is in double digits. To ignore this reality you have to be either one-eyed or have an alternate agenda. You're clearly and extremely intelligent human being and for this one has to assume it's the latter.


Thu, 02/28/2013 - 17:40 | 3287691 jmcadg
jmcadg's picture

Don't flatter him ;)

Thu, 02/28/2013 - 17:32 | 3287657 Whizbang
Whizbang's picture

well, my grocery budget has doubled this year for the same items, and housing in d.c. has increased 50% in the last year so I can't agree with you on this. If you mean to say that the heaviliy manipulated CPI data shows low inflation, than that is another thing altogether, but This figure is cherry picked to keep social security payments at an 'ahem' sustainable level.

Thu, 02/28/2013 - 17:53 | 3287767 HowardBeale
HowardBeale's picture

Bernanke just--over the last two days--proudly announced to congress he's managed to inflate real estate prices, for example. Though perhaps that is another of those irrelevant expenses like food and fuel...

Thu, 02/28/2013 - 17:57 | 3287791 winagain
winagain's picture

Mr. Krugman

Please adjust CPI  for packaging variance

Same package less:

ice cream




Similiar to the USD (dollar) same size note but no buying power!


Thu, 02/28/2013 - 18:44 | 3287949 WhiteNight123129
WhiteNight123129's picture

Which year? 1971? Or 1946? or 1937?

You and I know what this regime is, it is not different from what Henry Thornton warned about. An indefinite rise in credit due to repressed cost of borrowing. If we extend credit faster than income this time we will have weimar. Democracy does not tolerate to adjust credit through bankruptcy so it adjusts it through monetary dilution.

And not everyone is a scrooge McDuck. Some people have fixed annuities and worked for those.

Monetary base is expanding to fight deflation, but are you telling us that after we get out of this deflationary forces, the fed will unwind the monetary backwards for the first time since 1933?

Are you telling us that the US will do a McCulloch contraction?

If not and if you maintain that monetary base has no impact on price levels once the credit deflationary forces are gone, please ask to have your compensation indefinitely frozen at 1.5 % increase for the rest of your days, put your money where your mouth is.


Thu, 02/28/2013 - 19:05 | 3288027 Thalamus
Thalamus's picture

Gasoline is double since Barry took office, health insurance and college tuition have double digit increases every year, food prices have to be close to double digits, but luckily cat food is being shorted by Bernanke to keep the senior citizens fed.  

Thu, 02/28/2013 - 19:33 | 3288162 johngaltfla
johngaltfla's picture

Unless you eat, use gasoline, health care insurance, go to college, use electricity, shit in a toilet and not an outhouse, take showers, wear clothes, get a haircut, and most importantly, pay taxes, you are 100% correct.


Did I mention that anyone with the last name of Krugman is a lying asshole lately?


If not, there's your reminder.

Thu, 02/28/2013 - 20:02 | 3288265 chump666
chump666's picture

Is this the real Krugman?  Seriously.  Are you him?

Thu, 02/28/2013 - 17:33 | 3287647 Whizbang
Whizbang's picture

Normally I don't get caught up in these, but if you honestly are comparing the worlds #1 superpower with a third world, pre industrialized nation, it means you have a fundemental misunderstanding of finance. The u.s. can't have inflation that high without obliterating the financial markets of the world. Oil, gas, and other commodities are in dollars and the currencies of many nations are kept pegged to the dollar, so any strongly inflationary move will lead to a cool down and mild deflation, a la 2010.

Thu, 02/28/2013 - 17:51 | 3287753 akak
akak's picture

"It can't happen here!"

Where have we heard this before?


PS: Your faith in existing authority and the status-quo financial and monetary paradigm, no matter how corrupt and unsustainable, is touching, if frightening.  But just keep telling yourself "It can't happen here, it can't happen here".

Thu, 02/28/2013 - 18:47 | 3287970 WhiteNight123129
WhiteNight123129's picture

It is like saying reserve currency never changed in the history of the world. The medium of circulation is just that, if the medium fail people find another one promptly and go by their affairs. They do not really care what the medium is, but do care about the exchange part. So dump the medium, use something else and move on. No bid deal. (I live outside OECD, if the commodities already paid in Yuan are more paid in Yuan so what?). Who care is some emerging nations use more Yuan and less dollar? I don´t.



Thu, 02/28/2013 - 17:11 | 3287583 thruid
thruid's picture

So, I gather what you are saying to the author of the peice is that....................   ' you don't buy his premise and it is a pretty unlikely possibility ' ??

Thu, 02/28/2013 - 17:45 | 3287720 winagain
winagain's picture

Mr. Krugman

I read your articles quite often.

I agree the 2008 train wreck is over IF our currency (and other world currencies) really is just monopoly money (like the game).

If the crisis was really over every central bank, economists, fed member past and present would not spend time talking about the current situation

I would buy your spending message if during good times budgets were balanced ect. Debt fueled most growth around the world.

This world is on life support:

Resumed mark to market accounting- not

Debt and deriviatives have been cleared- not

Europe and the US have restructured their fake economies (government spending)-not

Fed has stopped buying US debt / ponzi- not

Fed has stopped providing liquidity to the primary dealers / Europe through primary dealers-not

Banks now carry the mortgage market instead of the Fed -not

How many points should I make

The current goal is propping up the debt cartel ( Money center banks) and the derivative web holding the world economy hostage!!!!

This crisis will not end until the derivatives are unwound and debt restructured


Thu, 02/28/2013 - 18:34 | 3287926 WhiteNight123129
WhiteNight123129's picture

I am not a doomer, like you I cherish inflation.

Thu, 02/28/2013 - 16:45 | 3287449 Gordon Freeman
Gordon Freeman's picture

Amen, Francis!

"Big light in sky scheduled to appear in East"  Fuck Chris Martenson's drivel!

Thu, 02/28/2013 - 17:26 | 3287637 subqtaneous
subqtaneous's picture

when it comes to CM, yep: recall the 'everyone grab your shit and run for the hills!! . . . this is the BIG catalyst' nonsense after the Japanese tsunami?

Thu, 02/28/2013 - 17:12 | 3287600 Groundhog Day
Groundhog Day's picture

Blah blah blah....Bernanke has got ours backs.  Just BTFD and put your head back in the sand, you'll feel better.

Thu, 02/28/2013 - 16:03 | 3287207 HD
HD's picture

I have not read this yet. I'm just going to take a moment and assume the title is true.  I need a big ol' unicorn hug today.

Thu, 02/28/2013 - 16:10 | 3287239 maskone909
maskone909's picture

i read it. i need a mouth hug.

Thu, 02/28/2013 - 17:01 | 3287543 McMolotov
McMolotov's picture

I got a warm and fuzzy feeling, but that's probably because I pissed myself and fell on the dog.

Thu, 02/28/2013 - 16:07 | 3287219 Zap Powerz
Zap Powerz's picture

You have to have balls of steel or be a masocist to come to ZH regularly.  This place will tear your reality apart if youre not used to it. 

I wonder how many people find this wonderful site, start reading and after a few weeks 1) commit suicide, 2) their head explodes, 3) they start drinking heavily(er) or 4) they go to Washington DC or Wall St heavily armed and go on a righteous rampage.

My reaction to this site was number 3.  I dont have the balls for 4.  I hope someone does.

Thu, 02/28/2013 - 16:19 | 3287295 fonzannoon
fonzannoon's picture

I was on number 3 before i got here so Zh fits like a glove. the hard part about zh is understanding it is 100% correct but it sets your brain up to constantly look for an asterioid to hit while you barely notice you are standing in quicksand.

Thu, 02/28/2013 - 16:24 | 3287325 Zap Powerz
Zap Powerz's picture

<raises glass of Scotch>

Thu, 02/28/2013 - 20:05 | 3288270 Beam Me Up Scotty
Beam Me Up Scotty's picture

I find myself drinking more red wine these days.  Damn there are some good vintages out there.  I like a fine cut of New York strip to go along with it hot off the charcoal.  I figure I am not going to make it to my later years, so I am going to start enjoying the hell out of the time I have left. 

I'll drink to that, Zap, and Fonz.


Thu, 02/28/2013 - 21:07 | 3288485 francis_sawyer
francis_sawyer's picture

secret to those things is:


- let set to room temp [& give nice pinch of salt & pepper]

- cook on scalding hot iron griddle [preferably ribbed]

- add touch of butter upon completion

- let REST 10 min before eating



Thu, 02/28/2013 - 16:25 | 3287332 maskone909
maskone909's picture

"it was on the tip of everybodies toungue, Tyler just gave it a name." so when is the first ZH meet? vegas?

Thu, 02/28/2013 - 16:24 | 3287319 CrimsonAvenger
CrimsonAvenger's picture

Yeah, #3 is is a favorite. We counsel against the others as they hurt ZH on repeat traffic.

Thu, 02/28/2013 - 16:33 | 3287384 McMolotov
McMolotov's picture

#3 for me, and too much of it to competently pull off #4.

Thu, 02/28/2013 - 16:35 | 3287395 lickspitler
lickspitler's picture

a bullish view is just for the sheeple , non stackers who just can,t see it ,or just don,t understand how it really works. they have made a real killing however, the fucktards

Thu, 02/28/2013 - 16:39 | 3287414 slyhill
slyhill's picture


Thu, 02/28/2013 - 17:02 | 3287554 dark_matter
dark_matter's picture

Here's a plan: Go to DC, drink heavily, visit the Capitol and while sitting in the gallery jump to the floor so that your head explodes. 1), 2), 3) and if your head is big enough 4).

Thu, 02/28/2013 - 18:25 | 3287888 Mrmojorisin515
Mrmojorisin515's picture

i dunno man, i've been here longer then my thing says and sometimes the comments make me feel like i'm at yahoo finance

Thu, 02/28/2013 - 19:08 | 3288043 Rantabulous
Rantabulous's picture

I stopped drinking on this day 8 years ago.

I have found myself increasingly thinking, "fuck it, may as well start again and enjoy some good scotch while I still can" because abstinence may not be a choice in a few years, due to the fact that you can no longer get good wine or scotch - rather, at best, it will be some kind of shitty moonshine that somebody cooked up in their backyard.

Thu, 02/28/2013 - 23:48 | 3288996 RockyRacoon
RockyRacoon's picture

Not so fast.   A clear head will come in handy.  I haven't had a drop in nearly 22 years and will continue to abstain.   We're gonna need a steady hand when the time comes.  Stay healthy as well.

Fri, 03/01/2013 - 00:53 | 3289132 AustriAnnie
AustriAnnie's picture

5) realize that as long as people exist on the face of this earth, they will act in illogical and immoral ways, and that among them there will be a minority of people who see through it all, and know that the best we can do is protect ourselves and our loved ones from the mobs of sheeple on the one hand and the totalitarian elite on the other.  same as it ever was.  this time is not different.  the world turns as it always has.  there are good and strong people out there who pick up the pieces and rebuild.

option 1: not worth it, EVER.  there is always something worthwhile about life, and no human being or collective of beings should be able to take away the most powerful human element in existence: the will to survive.  suicide is a tragedy, and I hope that ZH has provided an opportunity for some people out there on the edge to grab a hold on the fact that they are not alone and that there is a possiblity to live a free life even within the confines of this system.  our minds are free as long as we wish them to be, the ultimate property right, so to speak.

There was a ZHer awhile back who declared here in the forum that he was at the end, could not handle it all, and was going to kill himself that night.  I have not seen him post again.  His words have haunted me, and I sincerely hope that anyone out there who feels that they cannot cope will at least start a dialogue here on ZH and realize that Option 1 is not the right option.  Hang in there, all.

Fri, 03/01/2013 - 06:07 | 3289386 Ctrl_P
Ctrl_P's picture

Stay flexible. Bunkers and bullets will make you paranoid.


Sometimes the best hiding place is in the enemy camp.

Thu, 02/28/2013 - 16:06 | 3287221 MoneyThangs
MoneyThangs's picture

All these doomsday bearish predictions coming  from everyone means were going way higher now - Good going schmucks

Thu, 02/28/2013 - 18:24 | 3287885 Temporalist
Temporalist's picture

Yes the few hundred people that post on ZH are the majority.  The, as TD put it, tin-foil-hat wearing digital dickweeds are "everyone" and are the media's sweethearts who pump their doomer message 24/7.

Thu, 02/28/2013 - 16:07 | 3287223 RichardENixon
RichardENixon's picture

His prediction is based on looking back on periods when people will just run-of-the-mill berserk. They are currently all out, balls to the wall berserk. So I'm not sure he's right this time.

Thu, 02/28/2013 - 16:08 | 3287230 lolmao500
lolmao500's picture

I hope he's right. Enough with the bullshit pretending economy, time for reality to set in for fuck sake.

Thu, 02/28/2013 - 19:57 | 3288244 jimod
jimod's picture

Average historic market P/E has to be graphed against T bill yields?

Pushing bond yields down pushed market P/E up?  


Thu, 02/28/2013 - 20:53 | 3288439 socalbeach
socalbeach's picture

Stocks and Treasuries have vastly different "durations", so they're not directly comparable.

A False Sense of Security

"Among the problems with these typical approaches is that stocks are not 3-month or 10-year instruments, but have a duration that is essentially the inverse of the dividend yield (so at present, the duration of stocks is roughly 50 years, compared with a 10-year Treasury, which has a duration closer to 7 years). So the appropriate "risk free" return in these estimates should really be either a Treasury yield of equivalent maturity - none which are available, or at least an estimate of the average expected short-term risk free rate expected over the same horizon. Needless to say, estimates of the equity risk premium get a false benefit if you use today's unusually suppressed, short-duration risk-free rates."

Thu, 02/28/2013 - 16:08 | 3287231 bidaskspread
bidaskspread's picture

There will be more QE,  we are already seeing the signs of deflation; just look at horse meat.

Thu, 02/28/2013 - 16:09 | 3287234 Vashta Nerada
Vashta Nerada's picture

I am a stock market optimist compared to most people here, and even I know the bubble is about to pop. 

Thu, 02/28/2013 - 16:10 | 3287237 SRSrocco
SRSrocco's picture



You can't get anymore simple than that

Thu, 02/28/2013 - 17:22 | 3287627 kito
kito's picture

martenson has been very adept at demonstrating the insanity of the world over the past 5 years or so that he has gone public, he has been a positive force in making people aware of the need to be more resilient....but he really needs to stop making predicitions that rely on timing, becasue he is friggin awful................last year, he called for the great blowup to happen in a year....(wrong answer buzzer noise)..........6 months ago he called for gold to take off in a major way......(buzzer-again).....seems every call on the markets he has made has been miserably off.................somebody on here commented that there is a difference between being right and start to lose credibility, even if your ideas are credible.....when you make predictions with a window of time......................

Thu, 02/28/2013 - 17:38 | 3287671 francis_sawyer
francis_sawyer's picture

I'll make a bold prediction that by next year, JOS A BANK will be up to "BUY ONE GET 14 FREE" with their promotional loss leaders & that Banana Republic will begin littering its storefronts with banana peels, in the hopeful calculation that you may 'SLIP IN' by accident as you pass by...


But ~ I could be wrong [which is why I stick to stacking & 'safe boating' seminars]...

Thu, 02/28/2013 - 17:55 | 3287739 kito
kito's picture

thats a BOLD call on jos a bank....right now, they are only up to 25%..............not even giving two for one................


i foresee too many liability issues with the whole banana peel trickery...................................................


edit: im i get the reference.....................shame on me..............

Thu, 02/28/2013 - 21:09 | 3288489 francis_sawyer
francis_sawyer's picture

jus playin' around kito ~ ur alright by me...

Thu, 02/28/2013 - 16:10 | 3287240 Jason T
Jason T's picture

guys' an hour late here and a dollar short on this piece..

Thu, 02/28/2013 - 16:10 | 3287242 John Law Lives
John Law Lives's picture

Speaking of QE and monetizing the debt, this may be the most delusional article yet on the subject...

Is the National Debt Really Too Big?
Yahoo! Finance | The Exchange – February 28, 2013

By Joel Kurtzman, Senior Fellow, Milken Institute


Thu, 02/28/2013 - 16:11 | 3287244 JustObserving
JustObserving's picture

Applying reason and analysis to a manipulated market is a waste of time and effort.

Just yell "Bernanke" and buy - that has worked like a charm since 2008.

The Fed will print more than you can short or imagine.



Thu, 02/28/2013 - 16:19 | 3287293 Vooter
Vooter's picture

"The Fed will print more than you can short or imagine."

Well, then, I guess all our problems are solved, right? Why didn't someone think of this before? LOL...

Thu, 02/28/2013 - 16:23 | 3287317 JustObserving
JustObserving's picture

The Fed has already printed $3.6 trillion since 2008 and is now printing $1.02 trillion a year.  If the stock market falls 5%, Bernanke will print more.  It is a totally fraudulent market.

Never short a fraudulent market.

Thu, 02/28/2013 - 16:29 | 3287357 lasvegaspersona
lasvegaspersona's picture

I'm shorting fraudulent 'gold' (while holding real gold.)

Thu, 02/28/2013 - 16:41 | 3287428 eclectic syncretist
eclectic syncretist's picture

They couldn't stop it from crashing in 07-08, and they won't be able to do it again.

If and when investors realize that fed printing has no effect on company earnings, which are declining in the face of over a trillion a year in fed support, they are going to get very nervous when they contemplate what will happen when monetezation ends.

And earnings are going to be an even worse debacle this quarter than they were last when the Fed announced QE4EVA.  How will they respond?  Negative interest rates?  It won't help.  More printing?  It's not translating into economic support.  When the reality of that sinks in, watch out below.  Why do you think Bernanke looked so haggard during testimony the last two days?  He knows it isn't working and he knows that the congress and company executives know it isn't working.

Anyway, I'm glad to see that PMs and stocks are trading at odds here, as it suggests any crash in equities will be accompanied by a surge in the price of PMs.


Thu, 02/28/2013 - 16:55 | 3287509 dark_matter
dark_matter's picture

"They couldn't stop it from crashing in 07-08, and they won't be able to do it again."

But in 07-08 no one could have predicted the crash. This time they know better and won't let it happen again. /sarc

Thu, 02/28/2013 - 16:20 | 3287247 Edward Fiatski
Edward Fiatski's picture

FX not buying Hopium yet again - the EUR pushing downward, currently @ 1.3054, passed below the critical support of 1.3072 (.382 fib), if we close here or lower, then look out below to .500 fib at 1.2875 in the coming weeks.

Mini death cross signs the deal: 20DMA is on a steady trajectory due South, as it passes under 50DMA today.

Tomorrow in the news is German Retail sales YoY for Jan, French & German manuf. PMIs for Feb, E-Z Unemployment rate, E-Z PPI Manuf., Italian Unemployment rate, Italian GDP for 2012.

Thu, 02/28/2013 - 16:13 | 3287258 Frank N. Beans
Frank N. Beans's picture

...what we've known all along


just the timing that's new

Thu, 02/28/2013 - 16:53 | 3287492 dark_matter
dark_matter's picture

I know what's around the corner, I just don't know where the corner is.

Thu, 02/28/2013 - 16:14 | 3287267 SheepDog-One
SheepDog-One's picture

Shhhhhhh! Don't tell the muppets!

Thu, 02/28/2013 - 16:15 | 3287269 maskone909
maskone909's picture


Thu, 02/28/2013 - 16:25 | 3287330 HD
HD's picture

I'm just geeky enough to have enjoyed that.

Thu, 02/28/2013 - 16:16 | 3287274 Born2Bwired
Born2Bwired's picture

Looks like we are putting in the final bullish gasps here, at some point the downside does breakaway. This has been a long time coming.


(Nothing to say, I just figured out how to login after having account two years.. :))


Thu, 02/28/2013 - 16:40 | 3287421 SilverCrest
SilverCrest's picture

Hey me too!

Thu, 02/28/2013 - 16:24 | 3287321 Mark123
Mark123's picture

Ask yourself if you believe that there is no consequence to printing money to monetize massive government borrowing. 


If you think there is none, then invest in the market as it just makes new highs (nominal) on very low volume.

Thu, 02/28/2013 - 16:53 | 3287323 lasvegaspersona
lasvegaspersona's picture

TA and 'normal market behavior' do not seem to matter anymore. Yes Chris is taking the QExx into consideration but this is such a priority to the Fed that I'm counting on QExx+1 and Zimbabwe highs ending in ....who knows. My crystal ball is not better than Chris' but there is no real fix to the problems we face so, since most agree we are headed for hyperinflation, I say it really gets going NOW.

Thu, 02/28/2013 - 16:25 | 3287334 q99x2
q99x2's picture

They still have to legalize fraud for the general public. Not that I'm waiting or anything but the banksters aren't going to give this one up until they are ready. At no other time that I remember did you have the banksters jacked in and openly admitting to their counterfeiting to increase stocks.

So if it does correct instead of going higher expect a false flag, armed drones in the sky, military assisted gun confiscation and FEMA camp occupation.


Thu, 02/28/2013 - 16:25 | 3287335 The Axe
The Axe's picture

When the fed  implodes or the fed tightens  then and only then......drink the fucking kool-aid until that time...

Thu, 02/28/2013 - 16:26 | 3287345 natronic
natronic's picture

Doesn't take a genuis to go GDP 0%  Unemployment 16%  QE3/4 $85 Billion per Month  Stock Market ALMOST ALL TIME HIGHS     yea that won't last.  One thing i'm wondering if these companies are all reporting great profits because inflation is already starting to wind it's way through the system?

Thu, 02/28/2013 - 16:32 | 3287376 WaEver
WaEver's picture

Short and it hurts!
Beginning to feel like don quichote fighting windmills but in this case a bearded nutcase with a gigantic printer

Thu, 02/28/2013 - 16:35 | 3287390 lasvegaspersona
lasvegaspersona's picture

It is funny but one day we all agree the situation is hopeless and there are no solutions. On another day we argue that things will get better or worse (in the short term).

I have decided to take a chance that the Fed will support the market to hyperinflationary highs and have put a bit into the market. Mostly though I wait, with a golden lumpy pillow, for the long term to come.

Thu, 02/28/2013 - 16:36 | 3287391 Shizzmoney
Shizzmoney's picture

The crash comes in 2015.......on top of the Fed (eventually) having to have a serious discussion on QE as well as potentially raising interest rates, the coming up elections in 2016 (which impacts tax rates) and a GreExit will also add uncertainty to the markets which will trigger the next crash.

You also have the my "End of Presidental Term" crash theory that has been proven true for every President since Nixon:

Nixon (1974 Crash due to effect from 1973 Oil crisis, collapse of the Bretton Woods system, 'Nixon Shock', and United States dollar devaluation under the Smithsonian Agreement)

Carter (1980 - 'Silver Thursday'

Reagan (1987 'Flash Crash')

Bush (1991 Recession, spurred on by shoddy fundamentals, rising taxes, and S&L crisis).

Clinton (1999 - Bubble)

Bush II (2007 - Housing Bubble)

Obama (2015, Bonds, IMO)

Thu, 02/28/2013 - 16:39 | 3287415 francis_sawyer
francis_sawyer's picture

You left out Ford...

Fri, 03/01/2013 - 11:13 | 3290031 Shizzmoney
Shizzmoney's picture

Totally forgot about him!  I usually lump in him with the entire Nixon/Volker era.

Also, Ford's crash downturn didn't impact our stock market as much as Kuwait's (which eventually hit our shores during the early 1980s).  It wasn't as big as the others in terms of market share, but obviously geopolitically, it was HUGE because the Oil crisis spurred on the Islamic revolutions in countries like Iran, Iraq.

Souk Al-Manakh stock market crash

Thu, 02/28/2013 - 17:52 | 3287764 kito
kito's picture

shizz, did you read THe Harbinger??? also calls for 2015......................

Thu, 02/28/2013 - 16:41 | 3287432 toros
toros's picture

<<(at least until recently; that's begun to correct).>>

correction over -

Thu, 02/28/2013 - 16:52 | 3287485 nantucket
nantucket's picture

if we were at a triple top and the core underlying fundmentals were improving and europe was healthy, i'd be optimistic.  but we are overspending by $1T, we're in the midst of a massive tax hike, Europe is in a recession and getting worse, Greece, Italy, Spain, Portugal are beggars, and on and on.  Given all that noise, it's tough to see the trip top exploding to the upside.  but i've been wrong before.

Thu, 02/28/2013 - 17:02 | 3287550 rsnoble
rsnoble's picture

Well here we are on the plateau once again with everyone thinking we can't possibly go higher.

Will they be right this time or does the bullshit continue?

Tune in tomorrow to find out.  Or the next day.  Or the day after that.  Maybe even next year.  In the meantime you need this spectacular water purifier and heirloom seed collection.

Thu, 02/28/2013 - 17:10 | 3287585 Uncle Zuzu
Uncle Zuzu's picture

I am glad the large red arrows were added to that chart of the "dreaded triple top".  I would have never noticed it was a triple top otherwise.  Maybe next time, add "look here" at each top also, in flashing letters. 

Thu, 02/28/2013 - 17:10 | 3287586 IridiumRebel
IridiumRebel's picture

only 40%? That seems low......

Thu, 02/28/2013 - 17:18 | 3287621 orangegeek
orangegeek's picture

These markets have been climbing for four years.  Remarkable.


Primary wave 3 or cycle wave c down is pending.  It will be devastating.

Thu, 02/28/2013 - 17:21 | 3287626 jomama
jomama's picture

comparing fundamentals in a manipualted market again, are we?

Thu, 02/28/2013 - 17:55 | 3287659 raki_d
raki_d's picture

DO NOT fight the FED !
FUKK what the fundamentals say & where the technicals are pointing to

Thu, 02/28/2013 - 23:41 | 3288974 Curt W
Curt W's picture

There is a bug inside my screen  LOL

Thu, 02/28/2013 - 17:37 | 3287678 edifice
edifice's picture

Can't wait... This means they'll continue to squash precious metals, which allows for more stacking. :)

Thu, 02/28/2013 - 17:47 | 3287735 HowardBeale
HowardBeale's picture

The Wall Street Mafia has stolen virtually everything that exists and trillions (via FED magic) that didn't exist; thus, as I have said before on CM's site, years ago, the "long con" is to take everything profitable private, and plunging the market to new lows and scaring out every retail investor would allow the final realization of the long con. It is already happening: "take" Dell, for example, and others. This is the ultimate reason why we are about to see the market plunge by 1/2 or more; I am surprised Chris didn't mention it as a factor. 

Thu, 02/28/2013 - 18:37 | 3287944 mind_imminst
mind_imminst's picture

I just can't see a 40% correction in today's world. Maybe 5% or 10%. Why not 40%? The central bankers are more coordinated now. They have license (from politicians) to print as much as needed. Diminishing returns do not matter (for the short term anyway). If the CBs are getting 50% less "return" on their printing, they will just print 2X or 3X what they have been printing. Sure, inflation will get out of control, but they don't care about that. The "market" (investors) is irrelevant. Bond vigilantes are irrelevant. You truly can't fight the FED nowadays. Who can't fight/bet against trillions of dollars? No one. The market won't fall 40% (in nominal terms).

Thu, 02/28/2013 - 19:20 | 3288102 Thalamus
Thalamus's picture

With Chicago running the show I doubt there will be much of a correction, maybe a token drop of 10% to keep appearances up.  But when there ready to put the FEMA camps into play, the market will drop like a rock to precipitate installing Marshal Law and the New World Order.  I think they have enough .40 ammo, they just need to finish training the ex military Homeland Security troops to replace local law enforcement.     

Thu, 02/28/2013 - 19:23 | 3288121 Mad Muppet
Mad Muppet's picture

So WTF, is MDB moonlighting as Krugman? There  can't be two people here that ignorant.

Thu, 02/28/2013 - 19:53 | 3288233 jimod
jimod's picture

Did have the ring of mockery more than the scent of sincerity, didn't it.  Paul Krugman in effigy.

Thu, 02/28/2013 - 19:34 | 3288168 johngaltfla
johngaltfla's picture

The Stock Market Crash of 1999 repeats in 2013


If we go 40%, the Bernank shows up on TEEVEE with a big wet spot on his crotch. He intervenes at 30-35% in a big way, at least $1 to $1.5 trillion+.

Thu, 02/28/2013 - 19:58 | 3288246 Michelle
Michelle's picture

Bernanke is not a god and can't control these markets, there are many risks and he knows it. Every testimony he has given before the Senate Banking Cmte is a scared man with a quivering voice and nervousness written all over his face. The Fed is out of new tools and the only tools he has left are the very tools to whom he's giving his testimony.

The gravest misnomer is that he can rescue the markets, always.



Thu, 02/28/2013 - 20:16 | 3288308 Dieselclam
Dieselclam's picture

On Jan 16, I fell on some ice and got a head concussion. Had to take percocet and go to bed. Had an interesting dream: I saw a car license plate that read, "SHORT MAY 5-OCT 2." Sadly, that makes as much sense to me as all of the crazy charts and prognostications I've read.

Thu, 02/28/2013 - 20:18 | 3288316 Just Ice
Just Ice's picture

Sep 2000 to March 2003  ...Oct 2007 to Mar 2009 ... both appx 18 months so not sure how that would indicate such a decline taking "some time, typically 3-6 months".  18 months would be quick for another similar decline, 2-3 years would not be too extraordinary for a "typical" choppy bear wave.

Thu, 02/28/2013 - 21:24 | 3288527 swanpoint
swanpoint's picture

thanks for the hope, it's needed as my pm and miners are down 35%

Thu, 02/28/2013 - 22:38 | 3288738 r00t61
r00t61's picture

I happen to have bookmarked another article by Chris Martenson, dated 5/16/2012.

The title is "We Are About To Have Another 2008-Style Crisis."

In it, he makes several big predictions:

1. Greece will leave the Euro and go back to the drachma (as early as 12/2012, or as late as 5/2013).

2. Central banks around the world will attempt to flood the markets with more printing to stave off a continuing slowdown in economic growth.  This attempt will be unsuccessful, and a repeat of the 2008 global financial crisis (which took down the likes of Wall Street giants Lehman Brothers and Bear Stearns) will occur.


Now, obviously, Greece did not leave the Euro by 12/2012.  To be fair, Martenson still has two months to see if Greece does indeed leave the Euro by 5/2013.

Central banks around the world DID get together for another round of printing.  The US and Japan are engaged in outright monetization, while the ECB, constrained somewhat by the politics of the European Union, has to print in more subtle, backhanded, acronym-obfuscated ways.

Martenson backed up his original 5/2012 article with a bunch of facts and figures, data that I could not dispute.  However, ultimately, the world did not have a repeat of the 2008 GFC, like he postulated.  We do have biflation, where things that we need, like food and fuel, cost more, while things that we own, like houses and retirement accounts, are worth less.  But we didn't have the Dow dropping 3k points in a month, or another Hank "I've got this bazooka" Paulson-like figure demanding that politicians hand over barrels of cash to bail out financial institutions that were caught with their pants down while their hands were in the cookie jar.  So as far as that part of his prediction goes, Martenson was essentially dead wrong.

Likewise, Martenson backs up this current article with more charts and figures and data, of which again I cannot dispute.  Will it be right? I've bookmarked it to view it again in September or so.

Meredith Whitney made a prediction several years ago that municipal bonds would be the next bubble to burst. Like Martenson's article, I couldn't dispute her logic either, but so far, her prediction hasn't come to pass.  There have been a few sporadic municipalities and towns having to declare bankruptcy, but her "Domino Theory" of muni bond implosion hasn't happened.  Does that also make Whitney dead wrong, or just too early?

Cognitive Dissonance wrote a thought-provoking series a few weeks back, called "Perhaps a crumble rather than a collapse?"  In it he suggested that the most likely outcome of all this is a slow decline, rather than another rapid bubble bursting that crystallizes the unsustainable reality of the situation.  Perhaps that will be the case; unfortunately, it might occur on a timeline so long that I'll be dead before I can confirm its veracity.

"Punctuated equilibrium" is a theory in evolutionary biology that says that evolutionary changes occur in brief, rapid spurts.  It is contrasted to the older, more established theory of "phyletic gradualism," which says that evolutionary changes accumulate slowly but surely over much longer periods of time.

I keep waiting for the cataclysm of punctuated equilibrium of econogeopolitics to occur, but it hasn't happened.  No one has left the Euro.  No one has instituted a PM-backed currency to challenge the US fiat dollar and its reserve status.  Japan continues to trundle along, seemingly unfazed (despite Kyle Bass's very persuasive argument to the contrary).  No one has dumped US Treasuries en masse.  No one has exited the petrodollar system.

Well, a few have tried, and those regimes were introduced to a new era of democracy, made possible by precision laser-guided munitions, for such attempts.

Instead, I just keep seeing phyletic gradualism.  Gasoline, chocolate, wheat bread, ammunition, anything of real value costs a little more every year.  Paychecks continue to remain flat, or decline.  The unemployment number looks good, even though it's little more than a Potemkin's village of accounting shenanigans and hucksterism.  Local businesses in my area continue to close, and nothing replaces them.  The buildings remain vacant, with the for sale signs still out front.  The Dow is back to 14,000, which is the same level it was at in Oct of 2007 (does anyone at the MSM understand the difference between real and nominal, by the way?).

Here are a few other articles I bookmarked in 2012 that made bold predictions.  

Jeff Clark predicts that gold will hit $2,300/oz by 1/2014. (Jury is still out on this one)

Swedish Minister of Finance Anders Borg expects Greece to leave the Euro by 4/2013  (Jury is still out on this one, too, but not much time left for deliberations)

Nanex predicts a stock market "flash crash" event by 12/2012 (Didn't happen, was about as wrong as a prediction could be)

Whenever anyone makes a prediction, he either ought to be careful making them in the first place, or at least have the decency to revisit them and explain why the future did not work out like he predicted.  Otherwise it's just a bunch of hot air and mental self-gratification.  And I don't want to make it sound like I'm picking on Martenson. 

Peter Schiff correctly predicted the housing crisis.  With that credibility, he has now been calling for hyperinflation for years.  It hasn't happened.  If his prediction was "Hyperinflation in ten years," and hyperinflation does indeed occur in ten years, FOR THE REASONS THAT HE CITES, well then, congratulations Mr. Schiff.

But if his prediction was "Hyperinflation in one year," and hyperinflation just happens to occur in seven years, FOR NONE OF THE REASONS THAT HE CITES, then that's not a prediction at all.  That's just dumb luck.

And if the predicted hyperinflation never occurs at all, then anyone who read or listened to Schiff on this topic, and made preparations in anticipation of such a predicted event, was essentially wasting his time.

So how much value should we place in any of these "scenario prediction" articles we see on ZH?  

Anyway, those are my ramblings.

Fri, 03/01/2013 - 01:36 | 3289194 Haloween1
Haloween1's picture

CM is only trying to get his paid subscriber base up.  Nothing like a little fear mongering to do the trick.  There are plenty of idiots out there who have committed their lives for the doom and gloom scenario and now can't go back to mainstream life.  Too bad for them, they will be left in the outhouse.


Fri, 03/01/2013 - 02:29 | 3289242 pfairley
pfairley's picture

For a major stock drop, the more likely risks I see is an Israeli attack on IRAN and ....CHINA shooting at Japan, Philippine or Vietnam ships in China Sea....and the West imposing trade sanctions on China for outrageous bullying they have been getting away with for over 1 year so far.

Fri, 03/01/2013 - 02:37 | 3289255 pfairley
pfairley's picture

For a major stock drop, the more likely risks I see is an Israeli attack on IRAN and ....CHINA shooting at Japan, Philippine or Vietnam ships in China Sea....and the West imposing trade sanctions on China for outrageous bullying they have been getting away with for over 1 year so far.

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