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"The Ingredients Of A Market Crash": John Hussman Explains "Why Take The Concerns Of A Permabear Seriously"

Tyler Durden's picture




 

Extracted from John Hussman's "The Ingredients of a Market Crash"

Why take the concerns of a “permabear” seriously?

The inclination to ignore these concerns is understandable based on the fact that I’ve proved fallible in the half-cycle advance since 2009. That’s fine – my objective isn’t to convert anyone to our own investment discipline or encourage them to abandon their own. Somebody will have to hold equities through the completion of this cycle, and it’s best to include those who have thoughtfully chosen to accept the historical risks of a passive investment strategy, and those who have at least evaluated our concerns and dismissed them. The reality is that my reputation as a “permabear” is entirely an artifact of two specific elements since the 2009 low, but that miscasting may not become completely clear until we observe a material retreat in valuations coupled with an early improvement in market internals.

For those who understand and appreciate our work, I discuss these two elements frequently because a) I think it’s important to be open about those challenges and to detail how we’ve addressed them, and b) it’s becoming urgent to clarify why we view present conditions as extraordinarily hostile, and to distinguish these conditions from others that – despite an increasingly overvalued market – our current methods would have embraced or at least tolerated more than we demonstrated in real-time.

For us, the half-cycle since 2009 has involved the resolution of two challenges.

The first: despite anticipating the 2007-2009 collapse, the timing of my decision to stress-test our methods against Depression-era data – and to make our methods robust to those outcomes – could hardly have been worse. In the interim of that “two data sets” uncertainty, we missed what in hindsight was the best opportunity in this cycle to respond to a material retreat in valuations coupled with early improvement in market internals (a constructive opportunity that we eagerly embraced in prior market cycles, and attempted to embrace in late-2008 after a 40% market plunge).

The second: I underestimated the extent to which yield-seeking speculation in response to quantitative easing would so persistently defer a key historical regularity: that extreme overvalued, overbought, overbullish market conditions typically end with tragic market losses. Those extremes have now been stretched, uncorrected, for the longest span in history, including the late-1990’s bubble advance. My impression is that the completion of the present market cycle will only be worse as a result.

The ensemble approach we introduced in 2010 resolved our “two-data sets” challenge, and was more effective in classifying market return/risk profiles than the methods that gave us a nice reputation by 2009, but our value-conscious focus gave us a tendency to exit overvalued bubble periods too early. During the late-1990’s, observing that stock prices were persistently advancing despite historically overvalued conditions, we introduced a set of “overlays” that restricted our defensive response to overvalued conditions, provided that certain observable supports were present. These generally related to an aspect of market action that I called trend uniformity. In the speculative advance of recent years, we ultimately re-introduced variants of those overlays to our present ensemble approach.

As I observed in June, the adaptations we’ve made in recent years have addressed both of these challenges. See the section “Lessons from the Recent Half-Cycle” in Formula for Market Extremes to understand the nature of these adaptations. When we examine the cumulative progress of the stock market in periods we classify as having flat or negative return/risk profiles (and that also survive the overlays), the chart looks like the bumpy downward slope of a mountain. Present conditions are worse, because they feature both a negative estimated return/risk profile and negative trend uniformity on our measures. The cumulative progress of the stock market under these conditions – representing less than 5% of history – looks like the stairway to hell, and captures periods of negative market returns even during the bull market period since 2009. The chart below shows cumulative S&P 500 total returns (log scale) restricted to this subset of history. The flat sideways sections are periods where other return/risk classifications were in effect than what we observe today.

Though we’ve validated our present methods of classifying market return/risk profiles in both post-war and Depression-era data, in “holdout” validation data, and even in data since 2009, there’s no assurance they’ll be effective in the current or future instances. As value-conscious, historically-informed investors, we remain convinced that the lessons of history are still relevant. Our efforts have centered on embodying those lessons in our discipline.

While all of these considerations are incorporated into our approach, we’ve had little opportunity to demonstrate the impact we expect over the course of the market cycle. Applied to a century of historical market evidence, including data from the present market cycle, we’re convinced that the adaptations we’ve made have addressed what we needed to address.

Our concerns at present mirror those that we expressed at the 2000 and 2007 peaks, as we again observe an overvalued, overbought, overbullish extreme that is now coupled with a clear deterioration in market internals, a widening of credit spreads, and a breakdown in our measures of trend uniformity. These negative conditions survive every restriction that we’ve implemented in recent years that might have reduced our defensiveness at various points in this cycle.

My sense is that a great many speculators are simultaneously imagining some clear exit signal, or the ability to act on some “tight stop” now that the primary psychological driver of speculation – Federal Reserve expansion of quantitative easing – is coming to a close. Recall 1929, 1937, 1973, 1987, 2001, and 2008. History teaches that the market doesn’t offer executable opportunities for an entire speculative crowd to exit with paper profits intact. Hence what we call the Exit Rule for Bubbles: you only get out if you panic before everyone else does.

Meanwhile, with European Central Bank assets no greater than they were in 2008, and more fiscally stable European countries quite unwilling to finance the deficits of unstable ones, the ECB has far more barriers to sustained large-scale action than Draghi’s words reveal. Moreover, to the extent that the ECB intends to buy asset-backed securities (ABS), which have a relatively small market in Europe, the primary effect (much like the mortgage bubble in the U.S.) will be to encourage the creation of very complex, financially engineered, and ultimately really junky ABS securities that can be foisted on the public balance sheet. Watch. In any event, even if such monetary interventions continue indefinitely, I have no doubt that we’ll have the opportunity to respond more constructively at points where we don’t observe upward pressure on risk-premiums and extensive deterioration in market internals.

I should be clear that market peaks often go through several months of top formation, so the near-term remains uncertain. Still, it has become urgent for investors to carefully examine all risk exposures. When extreme valuations on historically reliable measures, lopsided bullishness, and compressed risk premiums are joined by deteriorating market internals, widening credit spreads, and a breakdown in trend uniformity, it’s advisable to make certain that the long position you have is the long position you want over the remainder of the market cycle. As conditions stand, we currently observe the ingredients of a market crash.

 

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Sun, 09/28/2014 - 20:46 | 5265804 JenkinsLane
JenkinsLane's picture

Even a stopped clock tells the right time twice a day. 

Sun, 09/28/2014 - 21:01 | 5265833 Zirpedge
Zirpedge's picture

Ok, I finally get it. The sky is falling and I should buy gold or silver. Good lookin out. I honestly don't know what I was thinking going with what was working.

Sun, 09/28/2014 - 21:06 | 5265846 X.inf.capt
X.inf.capt's picture

you forgot the sarc tag again..

-1

p.s. have a nice day!

:)

Sun, 09/28/2014 - 21:06 | 5265851 Zirpedge
Zirpedge's picture

Yep, DAMN ADMIN LOCKED ME OUT OF EDIT FEATURE, WAS GOING TO PUT /SARC..PLEASE MAKE A NOT EOF THIS.

Sun, 09/28/2014 - 21:09 | 5265855 X.inf.capt
X.inf.capt's picture

and you tried to blame this on Tyler again...

another -1

big smiles!

:)

Sun, 09/28/2014 - 21:31 | 5265889 Professorlocknload
Professorlocknload's picture

Dang, Six,,,you firing for effect, or what?

Sun, 09/28/2014 - 21:41 | 5265909 max2205
max2205's picture

Live learn and lose

Sun, 09/28/2014 - 23:19 | 5266046 The Doofus
The Doofus's picture

I see deflation.  The market has peaked.  I don't see the DOW climbing to 18,000.  Plus the banks are sitting on piles of bad paper.  Despite the FED's best efforts, there's an actual decrease in the money supply.  What happens if you print a trillion dollars and throw it in a black hole?  Not a fucking thing.

Mon, 09/29/2014 - 01:59 | 5266172 ebworthen
ebworthen's picture

And all those folks with balances sitting in a 401K/IRA.

Sitting, like sheep or cattle waiting for slaughter.

Mon, 09/29/2014 - 02:11 | 5266182 Wait What
Wait What's picture

markets won't be allowed to crash again. you'll see. Fed has all the power they need to buy futures overnight, bonds in the open market, provide liquidity to whoever needs it. they've made the 'laissez faire' mistake once, they won't do it again... even if it is absolutely necessary to get the real economy back on track.

expect QE4 to begin shortly; they can't sit by while DXY and all those currency pairs syphon the export growth out of the US with extreme prejudice.

ZeroHedge is right that it should happen, but wrong in thinking it will be allowed to.

Mon, 09/29/2014 - 04:03 | 5266249 ebworthen
ebworthen's picture

If that were true 2008 and 2001 would not have happened.

They like to rake some chips off the table every now and then.

Mon, 09/29/2014 - 09:11 | 5266517 undercover brother
undercover brother's picture

Not necessarily.  the Fed is much more intimately involved in keeping up this charade now than they have ever been.   Not only from a balance sheet point of view, but from a point of view of survival.    In fact, I'd argue the existence of the FED as in independent institution fully depends on it.  

Mon, 09/29/2014 - 10:59 | 5266853 RaceToTheBottom
RaceToTheBottom's picture

As long as the only door exiting the room is wide enough for Billions of people to fit, we will be just fine....

My, isn't that music nice.....

Look a squirrel.

 

Mon, 09/29/2014 - 08:36 | 5266435 LooseLee
LooseLee's picture

Faithfully said by a card-carrying member of the Pinko Commie Fascist Club of Fools....

Mon, 09/29/2014 - 09:19 | 5266548 Wait What
Wait What's picture

of course I am, you fucking idiot /s

Sun, 09/28/2014 - 21:21 | 5265870 Bossman1967
Bossman1967's picture

Why does that have to be sarcasm this story of collapse is allways followed by a buy gold. Im no bottom dweller but i get tired of reading the samme story of market crashes as well. And the market neber crashes. Ive bought into the story since obama was elected and here we are stocks up PM down as usuall. So I guess either way I am prepared for whatever happens but sarcasm over his statement come on an oposing view

Mon, 09/29/2014 - 00:20 | 5266098 zyby
zyby's picture

I just bought a bunch of stawks, so a crash is imminent! 

Sun, 09/28/2014 - 21:47 | 5265921 stant
stant's picture

And you should have bought ammo. Lots of ammo because guns will be plenty laying on the ground.

Sun, 09/28/2014 - 22:51 | 5266021 petkovplamen
petkovplamen's picture

if you don't like/agree and ALWAYS have problems with what's written here, then why do you come here at all?

Sun, 09/28/2014 - 21:03 | 5265839 X.inf.capt
X.inf.capt's picture

i didnt put any money into this market since 2001...

and had everything out by 2005...

would i put my money in this market???

I WOULDNT PUT YOUR MONEY IN THIS MARKET!!! 

Sun, 09/28/2014 - 21:51 | 5265927 stant
stant's picture

Got out last August. Made a bit. Ain't going back

Mon, 09/29/2014 - 01:35 | 5266154 OldPhart
OldPhart's picture

Only thing I have in this market is my 401-k, that I stopped contributing to in 2009.  It's locked in and I can't do a damned thing about it.  And, effective, Friday, 9/26/2014, it's frozen for a month while we go to a new admistrator.

Hard dollars put into it were about $36k, current value is about $58k. Let's see what October holds for us.

 

Mon, 09/29/2014 - 02:02 | 5266175 The9thDoctor
The9thDoctor's picture

I'm a "permabear" because how can a small-time retail investor compete in a "market" where HFT bots buy and sell to each other using microwave signals measured in nanoseconds? I would be just a f**king muppet.

On top of that, fundamentals are now completely irrelevant. If a company like CYNK can have 1 employee and Zero infrastructure whatsoever and soar to the stratosphere, and bots keep driving it up, WTF is the point? Seriously. A crash is the only thing that can stop this sheer insanity, and I refuse to participate in it.

Mon, 09/29/2014 - 09:41 | 5266601 Ghostdog
Ghostdog's picture

I agree with everything you say Doctor, except I dont think HFT has much to do with the retail investors success. Completely different time frames. Im a total bear too but that doesnt stop me from putting some money to work with a hedge at these levels in the event I dont time the end of this franekstein experiment.

Mon, 09/29/2014 - 09:32 | 5266574 Ghostdog
Ghostdog's picture

5% / 10% physicals

30% / 50% stocks with some sort of hedge. Always a hedge at these levels with measured risk that you can lift when you feel the time is right or necessary. The hedge should allow you to risk no more than 10% / 15% of your money.

20% / 30% real estate / preferably rental properties because the days of home ownership will be getting thinner until it crashes again.

30% 50% cash

If the market blows apart, you will you have tons of cash to buy everything because of the hedge or about the equivalent of 60% to 70% cash. If the market rallies you have enough to at least be part of the ponzi. If a total collapse of everything, the 5% to 10% of physicals puts you in the top 10% of wealth in the world. This should protect you if its inflation or deflation though I think it will be the latter that will ultimately win this game.

Sun, 09/28/2014 - 22:15 | 5265973 bardot63
bardot63's picture

Not if its hands have been chopped off.

Sun, 09/28/2014 - 23:55 | 5266069 PiratePiggy
PiratePiggy's picture

 "Even a stopped clock tells the right time twice a day. " 

 

You're still living in the 20th century and thinking of analog clocks. Take your battery out of your iproduct and will will tell no time all day long.

Sun, 09/28/2014 - 20:47 | 5265808 Barnaby
Barnaby's picture

I am buying whenever you are panic-selling.

Sun, 09/28/2014 - 23:54 | 5266068 tenpanhandle
tenpanhandle's picture

I'm panic selling my bridge in Brooklyn

Sun, 09/28/2014 - 20:55 | 5265820 Ewtman
Ewtman's picture

The market crash has started. Take this evidence seriously - or not.

 

http://www.globaldeflationnews.com/sp-500-indexelliott-wave-update-for-w...

 

 

Mon, 09/29/2014 - 00:13 | 5266086 vie
vie's picture

Yet another fake-out?  Only time will tell.  It's only once everyone stop believing the boy who cries wolf that the wolf will be clear to come ...

Mon, 09/29/2014 - 00:26 | 5266108 Think Like A Crook
Think Like A Crook's picture

I dont think that to be necessarily true anymore. Too much media, blogs etc... There's always an opposing view point now. For instance, zerohedge is NEVER going to go bullish.

Sun, 09/28/2014 - 20:56 | 5265822 devilsdictionary
devilsdictionary's picture

I understand that Hussman must be frustrated.

Sun, 09/28/2014 - 20:57 | 5265825 stocktivity
stocktivity's picture

Blah blah blah,,,It's all Bullshit!!!

Sun, 09/28/2014 - 20:57 | 5265826 Ironmaan
Ironmaan's picture

It is of course set up for a crash. I have no doubt about that. But... considering the world has never been in this situation before, all at the same time, no one knows or even has the slightest idea how long the system as it is can hang on. Look how long Japan has kept its zombie economy going. 20+ years. This could go on for a long, long, long time. Or not.

Sun, 09/28/2014 - 22:15 | 5265969 bardot63
bardot63's picture

Japan kept the zombie act going because the rest of the planet was humming along mostly OK. That's what's different now.  Printed fiat money has replaced productivity.  There is no productivity in many areas of the planet, incl the US.  Printed money can only work for just so long.

Mon, 09/29/2014 - 11:06 | 5266881 exonomic halfbreed
exonomic halfbreed's picture

japan kept going so long because they make real things and export them.  We make trouble, dubious financial products and genectically engineered food.

Sun, 09/28/2014 - 21:02 | 5265838 IridiumRebel
IridiumRebel's picture

it will crash when Goldman says it is supposed to crash. 

Sun, 09/28/2014 - 23:41 | 5266059 BraveSirRobin
BraveSirRobin's picture

Nope - It will crash when Goldman WANTS it to crash.

Mon, 09/29/2014 - 00:04 | 5266076 tenpanhandle
tenpanhandle's picture

It might crash cause Goldman can't keep it from crashing  -  I know the Squid has eight different hands but there comes a time when even the best juggler can't handle another plate or two thrown into the mix.

Mon, 09/29/2014 - 00:14 | 5266088 vie
vie's picture

Yes.  The benevolant Goldman, trying to keep it from crashing.  Nice try.

Mon, 09/29/2014 - 01:35 | 5266152 tenpanhandle
tenpanhandle's picture

Blame it on my communication skills but you totally missed my point.  I have made no mention of benevolance and yer damn right they are trying to keep their lying cheating robbing schemes from crashing.

Mon, 09/29/2014 - 09:18 | 5266543 StormShadow
StormShadow's picture

Blasphemy! Lloyd is doing God's work!

Mon, 09/29/2014 - 06:07 | 5266277 buzzsaw99
buzzsaw99's picture

it will crash when goldman says

the fed will untaper when goldman says

the congress will bail out when goldman says

the eu will do whatever they do whenever goldman says

etc. etc. etc. ad nauseam

Sun, 09/28/2014 - 21:09 | 5265854 I Write Code
I Write Code's picture

Most of us have been in a panic for a solid five years now.

So if it goes bang tomorrow, well, we had five years.

Sun, 09/28/2014 - 21:53 | 5265930 eyesofpelosi
eyesofpelosi's picture

Msm to sheeple...panic calmly.

Mon, 09/29/2014 - 00:22 | 5266102 vie
vie's picture

You mean, don't mind the illogical markets, we're all rich now as long as we all make believe... in other news PANIC, the ISIS is going to come and CUT OFF YOUR FUCKING HEAD, so make sure you pay your taxes and go buy some turtle necks or something.

Mon, 09/29/2014 - 03:22 | 5266227 dogfish
dogfish's picture

The only thing i have learned in the last five years is how totaly corupt the US and its banking system truly is,it changed the way i think about all things financial and what is realy wealth.

 

 

 

 

Sun, 09/28/2014 - 21:28 | 5265881 Cruel Aid
Cruel Aid's picture

gold isnt signaling a crash and it is probably a good time for a gld purchase, if you are not in the end of the world camp/need a hedge or physical if you are.

Sun, 09/28/2014 - 21:32 | 5265884 Milton Waddams
Milton Waddams's picture

It's pretty easy, you sneak out when the movie is still playing. If people don't catch on, you pop back in and screm FIRE. If that doesn't work, drop a match in the place... and run

Sun, 09/28/2014 - 21:30 | 5265886 Caviar Emptor
Caviar Emptor's picture

Relax. It'll only hurt a little. Cramer says stick with it.

Sun, 09/28/2014 - 21:31 | 5265887 yogibear
yogibear's picture

Expect a double dose of QE month;y once consumer demand grinds to a halt.  The Fed is even positioning the Plunge Protection  Team (PPT) in Chicago. Why would they do this?

The Federal Reserve and government will not tolerate a crashing market. They'll step in and buy everything. 

Sun, 09/28/2014 - 22:14 | 5265970 TheReplacement
TheReplacement's picture

And that is the point.  We cannot have absolute tyranny until the government ownes everything worth owning.

Sun, 09/28/2014 - 22:25 | 5265985 fauxhammer
fauxhammer's picture

They'll step in and assure everyone that Jamie will always be richer than them.

Sun, 09/28/2014 - 21:31 | 5265888 falconflight
falconflight's picture

What responsible person could have imagined a 5 year rally as the fundamentals deteriorated upon supposedly exiting one of the worst recessions of the past hundred years?  It has never happened that I am aware.

Sun, 09/28/2014 - 21:47 | 5265920 Professorlocknload
Professorlocknload's picture

++, and what person could have imagined the lengths the authoritarians would go to to control it all? Pretty obvious this is all not much more than stealth nationalization of the entire economy.

Sun, 09/28/2014 - 22:16 | 5265972 TheReplacement
TheReplacement's picture

Double plus one for you. 

Mon, 09/29/2014 - 00:16 | 5266090 vie
vie's picture

I second that ++ plus one.

Mon, 09/29/2014 - 08:42 | 5266446 LooseLee
LooseLee's picture

aka Pinko Commie Fascism brought to you by the cowardly shills known as US Corporations and Leaders of the 'Free' World. What a pathetic race of beings we have devolved into...

Mon, 09/29/2014 - 01:13 | 5266134 Global Observer
Global Observer's picture

Markets reflect aggregate decisions i.e, individual decisions weighted by the purchasing power/staying power; decisions made based on greed. Nothing more, nothing less. Attributing characteristics like responsibility, fundamentals etc is a completely meaningless diversion.

 

There are too many people with too much fiat who would hate to see the system collapse and would do everything in their power to prop it up for as long as they can. It will collapse not because of fundamentals or responsibility but because of some little thing they never anticipated or because there is a break in the ranks of the elite and some would betray the others and allow it to collapse.

Mon, 09/29/2014 - 08:47 | 5266459 LooseLee
LooseLee's picture

or....we have a 'perception of Truth' by just enough of us to pull the rug out on these cowards. They hide behind their fraud and deception but are nothing but cowards at heart...They don't have what it takes to resist the everlasting true nature of things...They are 'God's Rejects'...You will know them by their actions.

Sun, 09/28/2014 - 21:37 | 5265897 dragoneyes74
dragoneyes74's picture

All of the equity indices have very clear swing lows that if taken out would likely lead to a deeper correction of at least the magnitude of last winter/spring.  

For the NQ it's roughly 4000, which is a confluence of the 50-day EMA, an uptrend line from March, and the horizontal support of the recent July high at 3993.  The sellers have to take that level out.  If they do, we're likely heading to 3750.  The bulls have to recapture the 20-day EMA at 4053 and take out the downtrend line off the recent highs at 4070.  If they manage to do that, you have to be open to the idea that we could be consolidating at the highs to breakout yet again.  I'm not a big fan of trading breakouts in equities since they reverse so often at exactly those moments, so if it climbs up to the downtrend line and does one of those fake-out reversals, I'll take a shot at shorting strength instead of waiting for the breakdown of 4000 just due to great risk/reward.  Look back at the March/April downtrend line and notice the fake outs.  That's kinda what I'm looking for.  It will have a tight leash.  With NFP this week, the price action coming up will be very revealing.  It's just not clear yet, but I'm leaning bearish until proven otherwise. 

For the ES, it's the same story for the bulls: they have to take out the downtrend line off the highs and recapture the 20-day EMA at 1984.  The bears need to at least push us down to 1890/1900 and form the neckline of a possible head-and-shoulders top.  If they  can only push us down to the 1930-ish level or higher and form a higher low in comparison to the 1890 August low, it would at least provide hope for the bulls.  

Even though the Russell is sometimes in a world of its own, if the bears take out the 1105 and 1080 double bottoms I can't see how it wouldn't be a serious drag on the broader market.  It's clearly in the most trouble.  

Gold and silver have been correcting sideways through time instead of price. They often use news events to spike up and back test breakdown levels and then continue downward.  So I'm kinda expecting more sideways grind with an upward drift into NFP and then we rollover and continue downward, although with the dollar in need of a pullback I am open to the idea of a longer slightly higher correction in the metals than I want.  I'm hoping silver back tests the $18.65 area and that's it.  I think the short side will be very rewarding over the next six months.   Gold could pop all the way to $1300 and not change my bearish bias.  We'll probably not make it higher than $1245 but in this geopolitical environment it makes it hard to trade the short side with futures, so I'm sticking with puts to contain my risk so I don't have to worry about a stop run spike.  If WW3 happens, naturally, I'll have to reconsider, but in terms of the foreseeable future of monetary policy, the metals are likely heading much lower. 

I'd like to participate again in the Euro and Yen short, but I took profits and they won't let me back in.  Clearly no one on the short side thinks we're anywhere near the potential of this trade because no one is covering.  Nothing goes straight down forever, so we are due for a pullback in all the majors.  I'll be waiting somewhere around the 20-day.  If they continue onward I might have to tie my arms to my chair to prevent me from doing something stupid. 

 

 

Mon, 09/29/2014 - 00:18 | 5266096 vie
vie's picture

You make it sound as if there's some rhyme or reason behind the market other than Fed pumping the shit out of it.

Sun, 09/28/2014 - 21:40 | 5265901 falconflight
falconflight's picture

Anyone notice of the major US indexes, i.e. DOW/SP that on several up days, even new record setting days, there appears  multiples of new 52 wk lows over 52 wk highs?  The other day on the up... SP stocks reflected something like 125 new lows and 18 new highs.  That suggests to me that a handful of corporations are pulling the index ever higher. 

Mon, 09/29/2014 - 08:56 | 5266475 LooseLee
LooseLee's picture

I've noticed the same thing. This action has never proved fruitful for 'bulls'...I suspect it is TPTB who know they can maipulate the indexes by buying the heavyweights in the index. More fraud by those who have stolen power from the people. Their day of reckoning nears.

Mon, 09/29/2014 - 07:26 | 5266320 spinone
spinone's picture

If you havent learned by now not to short the market, there isn't much I can say.

Sun, 09/28/2014 - 21:42 | 5265912 FieldingMellish
FieldingMellish's picture

oh look... ES is green... surprise, surprise, surprise...

Sun, 09/28/2014 - 22:03 | 5265945 reader2010
reader2010's picture

This Time IS Different. 

Mon, 09/29/2014 - 00:18 | 5266097 vie
vie's picture

It always IS, isn't it.

Sun, 09/28/2014 - 22:05 | 5265953 joego1
joego1's picture

It goes up and then crashes just like clockwork, the big boys get out first.  I can't believe intelligent people let the squids of the world talk them into this game.

Sun, 09/28/2014 - 22:07 | 5265956 robnume
robnume's picture

Because=Crony capitalism!

Sun, 09/28/2014 - 22:12 | 5265964 holmes
holmes's picture

Won't make a move until the Great Gartman speaks.

Sun, 09/28/2014 - 22:15 | 5265971 starman
starman's picture

China will take us down! 

Sun, 09/28/2014 - 22:18 | 5265975 homebody
homebody's picture

Okay, the sky is falling.  I've had five years to get my shit together. Got land, garden, beans, band-aids, and lots of bullets, built good house and outbuildings, got animals, good well, equipment, canning supplies and just about everything else on the list.  Now I am going to ignore all this BS and just live a good life - if it comes quick, to bad, if it slowly puts the whole world into poverty to bad, if it goes Alas Babylon, to bad  - but I am going to live while I can.  All the people on here that think they belong in Mensa and have big free thinking opinions - walk the walk instead of postulating and whining.

Sun, 09/28/2014 - 23:52 | 5266066 BraveSirRobin
BraveSirRobin's picture

You sound like a rich target to me. My strategy is go hog wild into debt, spending it like a drunken sailor, planning never to pay it back. In the mean time, I buy lots of guns and bullets and build up a small network of thugs. When the end comes, I will just take the stuff of those, like you, who prepared "wisely." 

OK, this is not really my strategy, but it is everyone's else's "plan," or really response, since they really have no plan. The point is, you cannot go it alone, because "they," that is, all those without a plan, morals, or scruples, but a need to survive, will just come and take it from you. 

Mon, 09/29/2014 - 02:05 | 5266141 homebody
homebody's picture

Well you would be right if - I wasn't 300 mi from a major city - in a fortified structure - surrounded by like minded community - gun range with 1/2 mi for practice with friends - winter coming usually provides 4 to 6 feet of snow and usually stays 20 or lower for 5 months - good survielance equipment - etc

 

Bring on the golden hoard or the pickup truck gangs if they wish to tackle a hard target - many easier targets available

If this community goes down then you would not wish to live with the scum that was able to do us in - and the urban areas would be worse than mad max

 

come visit brave sir - bring winter survival gear and snow shoes

Mon, 09/29/2014 - 02:24 | 5266192 OldPhart
OldPhart's picture

My plan is to retreat to Dad's house twenty miles away.  He's out in the middle of the desert and the hill across from him leak water everyday.    I know of a flooded mine with at least an olympic pool of water.  He's installed a couple of outbuildings for when we come.  It won't be comfortable, but we, brother and sons, will have a field of fire that exceeds two miles.

My job is to make sure we have excess food, water and ammo.  Brothers Job is to make sure we can transport all. Sons, brothers. job is to fuck the shit out of his wife.   You have to have something important to protect.  I'm an accountant, but I grew up as a ranch kid with a mechanic dad and a machinist Uncle who lived with us with a lathe and mill.  And, at one point, I was a State Certified and Licensed Paramedic.  I'm rusty on some skills but I at least have them.

Mon, 09/29/2014 - 07:29 | 5266328 spinone
spinone's picture

I dont think its going to be mad max, its just going to be a loss of purchasing power. 

Mon, 09/29/2014 - 10:27 | 5266743 homebody
homebody's picture

Loss of purchasing power means hunger for 50% - if thats not mad max then I don't know shit.

Mon, 09/29/2014 - 20:33 | 5268904 Abbie Normal
Abbie Normal's picture

Blackhawk Down? Benghazi?  If navy seals can be taken out, what chance do you have?  Even if you manage to keep out the undesirables, what about the ones inside your fence?

Everybody has a plan until they're punched in the face.

Mon, 09/29/2014 - 08:58 | 5266481 LooseLee
LooseLee's picture

Wish them well with that plan. They gonna need it.

Sun, 09/28/2014 - 22:25 | 5265984 AdvancingTime
AdvancingTime's picture

A lot of us " underestimated the extent to which yield-seeking speculation in response to quantitative easing would so persistently defer a key historical regularity" this market has gone both longer and farther than most people expected.

While the future is hard to predict, as in politics the people who watch and study the economy are becoming more polarized as to the direction of the economy. Many of us are slipping into one of the two distinct camps, one that sees this as an economy slowly on the mend with the worse behind us and the other who clearly takes the position that things are not working.

Not only have things gotten worse but the distorted economy and manipulated markets only mask the fact that a day of reckoning is fast approaching and we are facing a bigger and meaner economic set back then any the world has witnessed in modern times. More on this and what people will say and feel after the big crash in the article below.

http://brucewilds.blogspot.com/2013/08/after-big-crash.html

 

Sun, 09/28/2014 - 22:36 | 5266001 q99x2
q99x2's picture

Somebody will have to hold equities through the completion of this cycle

That be the central banks aka Goldman Sachs. F'kers will own everything when this one is over.


Sun, 09/28/2014 - 23:10 | 5266036 the grateful un...
the grateful unemployed's picture

somebody will have to hold a fully hedged and long exposure to equities through the completion of this cycle. with all the hedges in place, the path of least resistance is down, at that point the powers to be outlaw shorts and derivatives, and then of course there is the famous and much awaited L SHAPED BOTTOM.........

Sun, 09/28/2014 - 23:12 | 5266023 eXMachina
eXMachina's picture

I bought out of the money volatility options expiring Jan 15 also am currently long the USD (by short all pairs in FX). Currencies are getting volatile again and it seems the rush for usd will continue for now. If we get a decent 15 - 20% drop in the s&p I'll be buying calls and wait for new highs as the fed will go fullerer retard. Still plenty of fiat to be made and plenty more boating accidents to be had in the short/mid term. BEACHEZZ!

Sun, 09/28/2014 - 23:08 | 5266032 Spungo
Spungo's picture

I think I'll go all in on ticker SPXL. The colored boy at the general store said it was going up.

Sun, 09/28/2014 - 23:09 | 5266034 besnook
besnook's picture

the problem with all of these analysis' since the crash is the retail participant is only in 401ks. the only players are institutional funds. are they going to sell? the only way they sell is if there is some systemic demand for immediate cash and their risk profiles make them adjust their holdings. wht would cause a systemic acute need for cash? nothing short of something catastrophic like a lehman event. the biggest threat to this market is if the fed forces the rise of interest rates with the misguided idea money will be chased into equities if bonds decline in value. i don't think they are stupid enough but they may be.

the fed needs another means to supply fresh fiat to the masses, the bottom half(99.9%) of the class or they will have a lehman moment. they must stave off the minsky moment and inflation is the last stopgap.

Sun, 09/28/2014 - 23:43 | 5266060 Wave-Tech
Wave-Tech's picture

And the majority of them are simply letting their 401k's ride -win, lose, or draw - just like they always do...

Sun, 09/28/2014 - 23:56 | 5266071 BraveSirRobin
BraveSirRobin's picture

The big institutions will sell when they have to, that is, when they are squeezed for liquidity. A bill will come due, or a loan is called, or a big line of credit is not renewed, and they will need to sell assets to raise cash. The easiest and quickest assets to seel are stocks and bonds and derivatives based on them. A loss avoidance "panic" will quickly snap back, but a liquidity squeeze will take the markets down for quite a while.

Mon, 09/29/2014 - 02:51 | 5266210 OldPhart
OldPhart's picture

The only way the Fed can find a new, direct, investment scheme is when they put $100k into my personal account, along with every one else.  That's that moment you see inflation jump.

Sun, 09/28/2014 - 23:14 | 5266040 lasvegaspersona
lasvegaspersona's picture

I think Hussman will find his use of cycle observations is near perfect. The problems coming though will not be due to a cycle problem it will be due to a paradigm shift. The Fed  has fought this war on deflation as it 'should' and he might have predicted that a bit better, some did. What he can't see is how it ends with currency destruction. THAT is what is missing in all the models. So horrid is it that it cannot even be considered (in public anyway).

Sun, 09/28/2014 - 23:39 | 5266057 Wave-Tech
Wave-Tech's picture

We extend a hat-tip and props for Mr. Hussman's financial acumen, rigor, and discipline.  John is brilliant - as is Robert Prechter and others like them - however - you can't fight the last war nor employ any prior cyclical analogs (data sets) occurring throughout history and expect to get it right in the current cycle. 

What to do? Despite the inevitable give-back from peak equity and the occasional whipsaw premium – trading/investing within specifically quantified boundaries of long-term trends will (on balance) always outperform the smartest guys in the room. It's that simple.

The only way these guys get vindicated is if we get a 1987-style single day crash with downside follow-through toward a 90% market decline void of typical bullish price spikes immediately thereafter. 

Though fundamentally plausible and rather deservedly so, good luck with those odds gents.

http://longtermtrendmonitor.elliottwavetechnology.com/

Sun, 09/28/2014 - 23:48 | 5266062 user2011
user2011's picture

There is no way for US market to crash. HFT dominates..

Market crash is like Santa Claus now... It is something people dream of but won't see in real life.

Mon, 09/29/2014 - 00:05 | 5266077 Think Like A Crook
Think Like A Crook's picture

It crashes when they say it crashes. Hft works both ways. Makes no difference up or down.

Mon, 09/29/2014 - 00:35 | 5266112 Quaderratic Probing
Quaderratic Probing's picture

No point crashing the market they need to sell and short but nobody is buying.

Expect them to bump interest rates to panic bond holders into selling and then move the money into stocks.

Double plus up up we go.

Mon, 09/29/2014 - 00:49 | 5266120 imapedestrian
imapedestrian's picture

John Hussman?!?!?!?

How is this guy even in business as a portfolio manager?  Run funds?

He has a 3% annual return since inception in 2000!

Low risk?  Manage risk?  Come on...just be a Treasuries...why even bother with stocks...so you can charge over 1%? 

Who listens to this guy?

Mon, 09/29/2014 - 00:51 | 5266123 imapedestrian
imapedestrian's picture

See for yourself

http://www.hussmanfunds.com/theFunds.html

No hat tip...not applause...just a "what have you been doing?" look...

Mon, 09/29/2014 - 01:05 | 5266128 devo
devo's picture

Bearish smarish. Thanks for the free dough, Yellen!

Mon, 09/29/2014 - 01:11 | 5266133 franzpick
franzpick's picture

Hang Seng down 2% tonight may be leading an equity decline. The dreaded technical "coil-breakout-reversal" pattern is right there in several index charts, trying to hide in plain sight:

http://www.investing.com/indices/us-30-futures-advanced-chart

Mon, 09/29/2014 - 01:35 | 5266148 joego1
joego1's picture

Silver Bear here.

Mon, 09/29/2014 - 01:43 | 5266163 devo
devo's picture

I used to be a silver bull, but Yellen put me in my place.

Mon, 09/29/2014 - 02:06 | 5266178 The9thDoctor
The9thDoctor's picture

I read some King World News and now I'm "backing up the truck" for like the 20th time on silver. #sarc

Mon, 09/29/2014 - 02:16 | 5266188 CitizenPete
CitizenPete's picture

http://youtu.be/D3bmhQW9z04
CNBC Biderman latest float shrink installment

Mon, 09/29/2014 - 02:42 | 5266205 disabledvet
disabledvet's picture

"Inflation can be monetized." A lot of the best arguments were made for stagflation...and if you look at prices and growth at the macro level this appears to be true. But when looked at from both headline inflation and the yield curve the impact has been unexpected.

I think the fundamental difference has been the amount of debt going into this "reflation." Growth has never materialized as it did in the 1970's...plus we have a massive trade balance meaning higher prices are both well nigh impossible to import and totally impossible to export.

In short outright default is the check on inflation in the USA. "Prices have hit a stop sign."

Creating "organic growth" is a complex process...but when you have the world's reserve currency combined with the most liquid markets such growrth and indeed has been realized.

For all intents and purposes Reagan has been proven right "Government isn't the solution it's the problem." We are about to et a lot more of it though as Generalplan Ost is acted upon.

Mon, 09/29/2014 - 04:32 | 5266255 SubjectivObject
SubjectivObject's picture

These advisors appear to talk to retail investors, when retail is some miniscule proportion or effect in the market. The market is by and for the large interests, and one can be as bearish as they want for as long as they want, and their predictions will not be realized until the large players decide they want the market lower.

I'm suspicious that, intended or not, any background supposition that there remains a/some past, real or imagined, function/paradigm of fundamental or technical basis for market behaviour, of which may have some credibility for the "retail" cohort, is disinformation

Mon, 09/29/2014 - 06:53 | 5266293 Keltner Channel Surf
Keltner Channel Surf's picture

A multii-stage phenomenon:

Stage 1:  they’re wrong
Stage 2:  they’re really, really wrong
Stage 3:  they expect a ‘crash’, because there’s no way they’re wrong (see stages 1-2), and only a ‘crash’ could completely erase lost opportunities and confirm biases
Stage 4:  they’re really, really, really wrong
Stage 5:  they assume a ‘crash’ is even closer, and point out folly of finance ministers who, though they admit are still firmly in control, will instantly lose such control and, hence, allow for a ‘crash’
Stage 6:  they’re really, really, really, really, totally balls-to-the-wall fucking wrong
Stage 7:  being continually wrong makes their doom charts, updated for 6 stages, look even more prescient and, hence, a ‘crash’ now all but certain
Stage 8:  early signs of a turn, their charts begin appearing in color
Stage 9:  Oooops, not so fast now . . .
Stage 10:  (after 2 more years of Stage 1-9 repeated):  Ok ... yeah!  All signs of a real turn now, we’ll make back everything, plus out-earn from new shorts what was gained by automatons for a decade
Stage 11:   Wait . . . damn  (see Stage 1)

 

Mon, 09/29/2014 - 07:34 | 5266340 northerngirl
northerngirl's picture

Does it really matter what happens as long as TPTB come out on top?  Pretty much what I learned from 2008.

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