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The Probability Of A Stock Market Crash Is Soaring
While some individual stocks (cough TWTR cough) may have reached irrational bubble territory, the US equity market is undergoing a seemingly 'rational' bubble. However, as John Hussman illustrates in the following chart, the probability of a stock market crash is growing extremely rapidly.
Based on the this paper, Hussman simplifies the rational bubble as:
You only hold one long one more period if expected return is positive - requiring EXTRAGAIN x (1-p) + CRASHLOSS x (p) to be greater than 0.
Regardless of last week’s slight tapering of the Federal Reserve’s policy of quantitative easing, speculators appear intent on completing the same bubble pattern that has attended a score of previous financial bubbles in equity markets, commodities, and other assets throughout history and across the globe.
The chart below provides some indication of our broader concerns here. The blue lines indicate the points of similarly overvalued, overbought, overbullish, rising-yield conditions across history (specific definitions and variants of this syndrome can be found in numerous prior weekly comments). Sentiment figures prior to the 1960’s are imputed based on the relationship between sentiment and the extent and volatility of prior market fluctuations, which largely drive that data. Most of the prior instances of this syndrome were not as extreme as at present (for example, valuations are now about 35% above the overvaluation threshold for other instances, overbought conditions are more extended here, and with 58% bulls and only 14% bears, current sentiment is also far more extreme than necessary). So we can certainly tighten up the criteria to exclude some of these instances, but it’s fair to say that present conditions are among the most extreme on record.
This chart also provides some indication of our more recent frustration, as even this variant of “overvalued, overbought, overbullish, rising-yield” conditions emerged as early as February of this year and has appeared several times in the past year without event. My view remains that this does not likely reflect a permanent change in market dynamics – only a temporary deferral of what we can expect to be quite negative consequences for the market over the completion of this cycle.
Narrowing our focus to the present advance, what concerns us isn’t simply the parabolic advance featuring increasingly immediate impulses to buy every dip – which is how we characterize the psychology behind log-periodic bubbles (described by Didier Sornette in Why Markets Crash). It’s that this parabola is attended by so many additional and historically regular hallmarks of late-phase speculative advances. Aside from strenuously overvalued, overbought, overbullish, rising-yield conditions, speculators are using record amounts of borrowed money to speculate in equities, with NYSE margin debt now close to 2.5% of GDP. This is a level seen only twice in history, briefly at the 2000 and 2007 market peaks. Margin debt is now at an amount equal to 26% of all commercial and industrial loans in the U.S. banking system. Meanwhile, we are again hearing chatter that the Federal Reserve has placed a “put option” or a “floor” under the stock market. As I observed at the 2007 peak, before the market plunged 55%, “Speculators hoping for a ‘Bernanke put’ to save their assets are likely to discover – too late – that the strike price is way out of the money.”
The following chart is not a forecast, and certainly not something to be relied upon. It does, however, provide an indication of how Sornette-type bubbles have ended in numerous speculative episodes in history, in equities, commodities, and other assets, both in the U.S. and abroad. We are already well within the window of a “finite-time singularity” – the endpoint of such a bubble, but it is a feature of parabolas that small changes in the endpoint can significantly change the final value. The full litany of present conditions could almost be drawn from a textbook of pre-crash speculative advances. We observe the lowest bearish sentiment in over a quarter century, speculation in equities using record levels of margin debt, depressed mutual fund cash levels, heavy initial public offerings of stock, record issuance of low-grade “covenant lite” debt, strikingly rich valuations on a wide range of measures that closely correlate with subsequent market returns, faith that the Fed has put a “floor” under the market (oddly the same faith that investors relied on in 2007), and the proliferation of “this time is different” adjustments to historically reliable investment measures.
Even at 1818 on the S&P 500, we have to allow for the possibility that speculators have not entirely had their fill. In my view, the proper response is to maintain a historically-informed discipline, but with limited concessions (very small call option positions have a useful contingent profile) to at least reduce the temptation to capitulate out of undisciplined, price-driven frustration. Regardless of whether the market maintains its fidelity to a “log-periodic bubble,” we’ll continue to align our position with the expected return/risk profile as it shifts over time. That said, the “increasingly immediate impulses to buy every dip” that characterize market bubbles have now become so urgent that we have to allow for these waves to compress to a near-vertical finale.
The present log-periodic bubble suggests that this speculative frenzy may very well have less than 5% to run between current levels and the third market collapse in just over a decade.
As I advised in 2008 just before the market collapsed, be very alert to increasing volatility at 10-minute intervals.
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Nothing to do with Zimbabwe, taxes, Democrats...they're ALL in for ANIMAL SPIRITS: they feel they have the initial movement going and they will NOT take the foot off the gas until something brakes/breaks...no real recovery (less than a decade or more) from this if the current "plan" doesn't work
The forces inside the US have shown their hands, accept the fact that they will not let this crash if they can help it, they will destroy the monetary system in the process if so be it.
However, what the FED can't control are the outside forces (as in external, outside the US), that may or may not deliver the final blow, sooner or later, when the the confidence in the USD and US debt will reach alarming levels.
the fed is not an american bank. it is international. if the ecb didn't bail out european banks, who do you think did ? the uk and japan are the only other buyers of US debt. the fed gives them the money to do it. the hallmark of these bastards, is (no boundaries) none.
BRICS are moving away from the USD as a reserve currency, which is the pillar that still holds this house of cards afloat. There is nothing the FED or their satellites can do about the undermining of the USD as a reserve currency/energy currency - except war.
Then war we will have.
you can only fuck someone over so long...
The central bankers are pulling all the levers trying to keep this bitch on track and all the BRICS have to do is tip it over. Everyone knows it and it's just a matter of time before they kill the USD through death by a thousand cuts. The US will never willfully default as too many people have their wagons hooked to the gravy train.
"except war". How true.
Saddam tried to ditch the petro-dollar and now Iraq is destroyed.
Qadafi tried launching gold-backed dinar for Africa and now Libya is destroyed.
Assad tried to keep Syria out of the PNAC designs for total global dominance ... and Syria is being destroyed right now.
Yugoslavia tried to stay out of it all, but that state no longer exists, because the Washington Empire and it's European satraps destroyed it for MIC/PNAC and Zionist interests.
Around 1992 Wesley Clarke revealed that seven states were targetted for destruction ... all of the above + Sudan and Iran of course.
If you don't know these documented facts, then you have no idea (not you personally. dcohen) about what is going on and why WW3 is a distinct possibility.
http://www.showrealhist.com/RealDowQE3.gif
Modified first chart from
http://www.showrealhist.com
Stop with the "it's gonna crash" bullshit. It's not. I'm with Dr.Faber; not a crash, but a crack up boom. So what they have temporarily tapered a mere $10 billion. The only thing that differently would cause a crash would be a rise in rates, and the Fed has already said that is not in the cards. The easy, cheap money will continue to flow {to Wall Street}. All is well. DOW TO 25K AND BEYOND! {just not in real terms}.
When the last time I saw you, you wouldn't even kiss me
That rich guy you've been seein'
Must have put you down
So welcome back baby
To the poor side of town
To him you were nothin' but a little plaything
Not much more than an overnight fling
To me you were the greatest thing this boy had ever found
And girl it's hard to find nice things
On the poor side of town
If I was still in the stock market using money I needed, such as my retirement funds, I would be very nervous.
When TNX bumped its head on 3 today, I felt it prudent to get out for the time being. No regrets, even if the market continues up. There is a very erie feeling about this market and potential for ANYTHING to happen that could cause some pretty serious damage to one's portfolio.
I need the sleep. Yeah, I know, whatever I have in a fiat account is losing value, and yeah, I know, whatever I have in a fiat account could be frozen or partially if not totally confiscated. But I cannot control that. I can only control what is within my power to control.
New Living Translation
A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences. Prov 22:3
One thing I'm looking to do, is in addition to buying some silver with every paycheck, putting some savings into different currencies. Unfortunately most US bank accounts don't allow you the rich services that international accounts do: e.g. holding your cash in multiple currencies--you can tap into the pool at the highest level when you need funds. But a wad of this currency and a wad of that currency is part of my back-up plan.
" We are already well within the window of a “finite-time singularity” – the endpoint of such a bubble, but it is a feature of parabolas that small changes in the endpoint can significantly change the final value."
Yep, when the chart goes vertical things happen very quickly.
Can the market crash when the Federal Reserve is dedicated to keeping it high? They can print any amount of dollars and add that liquidity to the stock market via their agent banks at any time. They can also buy, and evidence is that they do, all the S & P futures they feel like. This is not a market where price discovery takes place, it is a system now designed to transfer wealth to the equity holders. Bernanke called it wealth effect. What he meant was liquidity going to the wealthy as asset price inflation. All the number evidence this wealth effect in the form of 95% of all income gains going to a % of the top 1%. Simply look at the numbers.
"This is not a market where price discovery takes place, it is a system now designed to transfer wealth to the equity holders."
And that's precisely why the market can and will crash, eventually, either in stages or all at once, immediately or in a drawn out decline.
The US is about to enter the 7th and final stage of Empire. The music the central bankers are playing will soon fall on deaf ears.
>>The US is about to enter the 7th and final stage of Empire.
It will be more along the lines of The Last Night of the Krell.
we few, we happy few, we band of silver holders . . .
Twitter (TWTR) is the canery in the hedge fund managers birdcage. ie...ie
I don't have a 401k but if I did I would be selling it all, taking the penalty hit, and putting it into PMs. I wouldn't even go short the market, although I would be sorely tempted.
I AM shorting this market - but with a PLAN. Going in at certain levels, not spending too much each time, but strategically. At the same time, I am long the market, but, with stops on each holding, set carefully, to balance out the unrealized "loss" of the short squeeze that is occurring.
I met with one client today that is in this strategy.This client is not the sharpest knife in the drawer.
I showed her two charts - both of the S&P, and where we are in those shorts.
One was a weekly chart. The other was monthly.Both showing where we are.
Once I showed the monthly chart - she got it - immediately.
2016. If by then we are still down on the shorts, she can fire me.
I acquired this client in the late fall of 2008. What was I doing then? BUYING; stocks, corporate bonds - big, medium, small stocks.The last of her 5% plus corporate bonds - bought at a sizable DISCOUNT in 2008 matured and paid off at par this month. (One of them, the motherfuckers at Goldman; LOVED buying those bastards at a discount back then)
I began shorting - SLOWLY - in 2011. SLOOOWLY, and of course, buying PM's since 2006. IMMEDIATELY for her in 2008 as well. Just bought more PM's for her and other clients. Not stocks or ETFS - the real thing.
Once the HFT masters and big douchebags that control this "market" have squeezed every last fucking drop of "profit" out of this "market" and flip the switch to "crash/correction/re-set/shake out/sans lube ass fucking, and go "reverse skate" to incur more "profits, my passel of clients - I believe - will benefit greatly from the hysteria and panic. I have no reason to believe the market will not behave like it's always behaved historically.
http://flic.kr/p/ikyjpz , http://flic.kr/p/enJ7Cs
I would go long Vaseline if I were you...
Daily apocalypse prediction at ZH. Useless.
Everyone here knows there is no market, so I'm all in on retard assets. Until "the big one" resets things, the more absurdly detached any asset class is from fundamentals the better, since that means there's literally nothing to hold those asset classes back and everything will hockey stick upward. Therefore, I am sitting here drinking beer, eagerly anticipating the approaching day when my DOGECOIN holdings go completely through the roof. So value...
"No one saw this coming."
damn u been sayin that 4+ fuckin years
If they keep saying it, continuously, long enough they might be right one day. Who knows?
If anyone knew with any precision when a crash would occur, they would soon have Warren Buffett taking out their trash.
The stock, bond, commodity and currency exchanges have been reduced to gambling dens whereby the more powerful traders with deep pockets move the markets to maximize their own profits at the expense of the remaining not so powerful players. The big boys have enormous money power to move the markets in the direction which results in maximum profits for themselves. They effectively use the media to lure the other players in the market to a position where they would incur maximum loss.
The markets continue to rise till all short positions in the market are covered and the majority of traders move to the long side. Once this is done the market falls till all long positions are closed and short positions undertaken. Then rinse and repeat. The price mechanism has little to do with the actual demand, supply, fundamentals or state of the economy.
www.marketoracle.co.uk/Article40231.html
I always say that the FED controls the market indexes with software that is directly connected but there comes a time when the lack of collateral, the basis for the ability of the system to continue, causes a collapse regardless of where the indexes are at. In other words the banks (the FED) can hold all the shares and the indexes can be at record levels and the system will still break because just one to many people will want to sell their junk collateral. Then the counterfeited fiat won't be worth a plug nickel.
You should buy some bitcoin. The price is fluctuating around $800 at this time.
considering btc will easily drop another $300 on the next week or two, a pattern easily seen in the time-series for volume for btc, it would be bag-holders-extraordinaire only who step up at 800+ ... and then there's the future with grids down & btc useless. NO thanks, got gold & silver, real money.
Whazzup, troll. Where's my $140 BTC, beeeoootch
+1 for excellent cross checking work, TheHound
it's coming. The next 12 days should see 2 major selling sprees as indicated by the repeated time-series of bitcoin and the drop from 1200 to 455 should have humbled you a-plenty but you are indeed stupid.
140 will come and go and 50 will soon follow. btc = garbage
http://flic.kr/p/iFQMoV
anyone here listen to bloomberg radio?
herd mo A today - he had a "gold trader" on - explaining why gold went down in 2013. his thesis: gold longs are wrong because "there is no inflation". his only gold trade is in yen denominated holdings via GLD of course. he never mentioned the stock /bond or housing mkt when giving examples of inflation.
Did he mention anything about printing a trillion dollars a year to prop up the stock market?
"increasing volatility at 10-minute intervals"
The tweak is on Bitchez. Time for some red eye. When the alarm goes off don't hit the snooze.
“We are all born ignorant, but one must work hard to remain stupid.”
- Ben Franklin
I say hock yourself to the limits on margin, long DJIA & SPY futures, enjoy the current & future (12month)gains. Have your Bankruptcy filings ready to deploy quickly. During the 12 mos of fun, convert all asset equities into cash via loans, convert $$ to metals. Buy lots of groceries and bullets. Dodge bullet at the last second, file papers at the courthouse.
Move to paradise... Hire some guards, fuck the banks and the "System"
print moar WELFS!!
All shtocks go up!
And there is a probability that the criminals are protecting themselves from criminal prosecution.:
http://www.truth-out.org/buzzflash/commentary/item/18387-new-revelation-...
If the market starts 'plunging' will the Plunge Protection Team leap into action again...
This is going to last forever. The genius in the White House and his hand picked minions are visionaries and have finally set us on the right course. It's clear sailing from here on, nothing can stop us now. Balls to the wall and don't look back.
Alternatively, the stock market will continue to rise, rise, rise... perhaps even 10,000,000,000%... while the dollar collapses.
The Zimbabwe stock market did fantastic in nominal terms... until there was no longer a Zimbabwe dollar to price in.
No matter how scary the risk model looks, don't make any sudden moves, just make sure you dollar-cost-average some gold and silver by using https://silversaver.com/share/KZ7XE/
"When money start to spread in the society "above acceptable limits", we create financial crises to take them back. We dictate governments to take measures and apply austerity policies directing money back to us. We keep money valuable to everyone and secure our profits."
http://failedevolution.blogspot.gr/2013/12/an-imaginary-dialogue-between...
THe risk is in the money "USD" more than in stocks. When a fiat money goes very wrong, stocks go up not down. Granted the stocks might go down in real terms while going up in nominal terms, that is totally in the cards.
the difference between Zero and EPsilon is INFINITE.
IN the logic of current Oligarchy world on this mad run to riches; where the 0.001% feel they have limited time to become de facto kings of the world come what may; the difference between 5% and Epsilon; aka when the cookie crumbles; appears HUGE in their mindsets : WE STILL HAVE TIME TO BUILD OUR MAHARAJAH TREASURE TROVE BEFORE THE WORLD IMPLODES.
Hahaha; and then we will take our retirement in the lovely places of the world while the Serfs vent their ire in dystopian reset by playing at Danton and Robespierre amongst themselves; while we sit outside their reach in Caymanista havens.
We'll be elsewhere where the ROyals live and let these mice play at trying to ape our way of life; our non negotiable way of life bitchezzz!
Let the world blow itself up in Peak everything. We don't care! We'll SURVIVE.
So goes the current Pax Americana mindset now shared by Davos Oligarchy ...
Play on to MISSION ACCOMPLISHED.
Many already have. Look to the proof. Increasing payments of prohihitive tax to surrender Citizenship. (Very Expensive and as far as I know we are the only ones to buy our freedom from our government). Massive monies from individuals and funds in off-shore sophisticated international entities called Re-Insurance Funds and Subsidiaries. ( Geithner, Paulson, Loeb, Steve Cohen and many others are concentrating on this now). Places like Singapore, Bermuda, Qatar and others.
Many Ameican Industries have and are now not repatriating offshore gains into America without going through one of the above.(reduces taxes repatriated over time from 35%to 5%) Google and others too many to name have $Trillions there. Single individuals with gains in the markets in Billions have funds protected there. Re- Insurance and movement of money out of or at least hedging the dollar seems to be the stated hot thing to do.
I suspect that if anything we will see a great deal of volatility as this will be the next manner in which those in the know will sucker in the fools and fleece them.
Anybody care to hazard a gues about when in the future the daily ZH crash prediction will be accurate?
I think it is quite possible that "this time it is different" and that as long as the Fed prints, the S&P will inexorably rise. Has nothing to do with fundamentals. It rides the wave of QE up like a mad surfer.
In the prior equity bubbles we had repressed interest rates courtesy of the Fed, which we have now, but we did not have the afterburner effect of relentless QE to add thrust. The taper merely lightened the foot on the gas just a tad for optics and to add a new coat of veneer to the Fed's legitimacy and credibility, while peeling off the 6.5% employment rate "marker" as the signal to resume normalcy. QE may indeed go forever.
Wax a board and join the party to some limited extent and watch for signs to exit. And keep piling the yellow stuff.
John Hussman is now my Go-To Guy for all things economic! There are several others also, but his writings as must-read material for me each week!
Admittedly I respect John Hussman's views and read his weekly commentaries but he and his investors have missed out on massive gains since 2009 and this post is a mirror image of previous weekly commentaries. Kinda like ZH.
In the past 30 years there has only been booms and busts, no mild downturns, only panic-driven frenzies that makes one pause. Of course the market will crash again, that's all it knows how to do, straight up or straight down. That's all you need to know. Now if we all had the perfect timing....
In the past 30 years there has only been booms and busts, no mild downturns
In what part of that 30 years did we go into massive debt?
No worries sweetpea....this is totally sustainable.
What are we going to call a crash? 20%? That would be DOW 13k which is still overpriced garbage. Unless it signals the start of a long bear market the hft's can regain 20% in 2.3hours.
rule of the see saw
interest rates up
stock market down .....
now factor in ACA/obumblercare.how much discretionary funds will it take from the consumer due to premium increases and hidden taxes. the middle east and far east are powder kegs just waiting for a spark... but dont worry valerie (who the fuck elected her) jarrett has it all under control..and obumbler will be playing more golf and giving mroe speeches than ever next year...
I officialy left the casino a while ago, started my own scrap metal collection, Its too dengerous these days to be involved in their game
I suppose something good will evolve from all the bad that appears to be coming, I do know its pointless to vote for anyone, to save paper money, own anything other than tangibles as insurance against potential societal mayhem which is sure to come.
I grew up believing those who run the world knew what they were doing but with time and years I see this belief to be sadly misguided, they are thieves and worse they are thieves with absolute power and no morality.
The future appears to only hold pain and decay, as the new year approaches I feel the time is close, articles like this reinforce that thought