This page has been archived and commenting is disabled.

A Road Map For How the Crash Will Play Out

Phoenix Capital Research's picture




 

Last year (2014) will likely go down in history as the “beginning of the end” for the current global Central Banking system.

 

What will follow will be a gradual unfolding of the next crisis and very likely the collapse of the Central Banking system as we know it.

 

However, this process will not be fast by any means.

 

Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).

 

There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.

 

The reasons for this are:

 

1.     Investor psychology and faith in the current Central banking system.

 

2.     As mentioned before, Central Banks and the political elites will do everything they can to prop up the system and remain in power.

 

Regarding #1, investors have been conditioned for over 30 years to believe that there is no problem that Central Banks cannot fix.

 

In the last 20 years alone, we’ve experienced the Asian financial Crisis (1997), the Russian Ruble Crisis (1998), the Argentinian Crisis (1999-2002), the Tech Crash (2000-2002), and Housing Bust (2006-2008) the 2008 Meltdown (2008-2009), and finally the Euro Crisis (2010-present).

 

By hook or by crook, Central Banks have managed to pull the financial system back from the brink for all of these. The end result has been that we are now sitting on the single largest asset bubble in history: the $100 trillion global bond bubble (well, really it’s $555 trillion if you include derivative exposure to bonds). 

 

From the perspective of investor psychology, an entire generation of professional fund managers and investors have become pillars of the establishment without seeing Central banks fail at propping up the system (a fund manager who started working at age 22 in 1997 is currently 39… and the pros who actually lived through 1987 are now well into their 50’s if not older). Heck, less than 33% of traders have even seen a rate hike before!

 

Because of this, when crises do actually happen, it takes considerable time for investor psychology to shift from the euphoria associated with financial bubbles to initial concern, then from initial concern to outright worried, and from outright worried to panic.

 

By way of example let us consider the details surrounding the Tech Bubble: the single largest stock market bubble of the last 100 years.

 

In this case, the Bubble pertained to just one asset class (stocks).  In fact, the bubble was relatively isolated to one specific sector, Tech Stocks.

 

And to top if off, it was absolutely obvious to anyone that it was a Bubble: note that the Cyclical Adjusted Price to Earnings or CAPE ratio for the Tech Bubble dwarfed all other bubbles dating back to 1890.

 

Stocks were so obviously overvalued that it was truly absurd.

 

 

 

And yet, despite the fact that this bubble was absolutely obvious and involved only one asset class, it still took investors well over six months after the initial 20% crash to realize that the top was in and the bubble had burst.

Moreover, during this six month period in which the single largest stock market bubble of all time burst, stocks did NOT go straight down. In fact, they were an absolute ROLLER COASTER with more than EIGHT price swings of 16% or greater.

 

 

Let that sink in for a moment. Stocks were clearly in a bubble. Indeed, it was literally THE stock bubble of the last 100 years. And yet, when it burst, there was no clear consensus as to where the market was heading.

 

In a six month period, investors moved stocks down 19%, up 8%, then down 27%, then up 21%, then down 22%, then up 34%, then down 17%, then up 16%, then down 28%, then up 16%, and finally down 17%. Only at that point did stocks break their trendline for the bubble (the blue line) and it became obvious that the bubble had burst.

 

My point with all of this is that even when the bubble was both very specific AND obvious, the collapse was neither quick nor clean. There were several large 20%+ crashes, but overall, it was a roller coaster with jarring rallies that gradually wore its way down.

 

Indeed, it took stocks another TWO YEARS to bottom even AFTER the bubble had burst:

 

 

And when you extend the collapse from peak to trough, the whole collapse took nearly three years. And this process was actually accelerated by the Fed actively cutting interest rates and flooding the financial system with liquidity.

 

To return to my initial point: the coming collapse in the financial markets will take its time. However, this process HAS started. And before it ends, we expect stocks to be 50% lower than they are now.

 

If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

 

We made 1,000 copies available for FREE the general public.

 

As we write this, there are less than 10 left.

 

To pick up yours…

 

Click Here Now!

 

Best Regards

 

Graham Summers

 

Chief Market Strategist

Phoenix Capital Research

 

 

 

 

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 09/02/2015 - 04:02 | 6498726 jack stephan
Wed, 09/02/2015 - 03:00 | 6498662 Magooo
Magooo's picture

Fuck off Graham.  You are a clown.  You should hang with Gartman.

Wed, 09/02/2015 - 02:32 | 6498632 theliberalliberal
theliberalliberal's picture

Check out the spread for gold mining company Newcrest metals (NCM) on ASX.

$12 bid - $10 offer   wow

Wed, 09/02/2015 - 00:10 | 6498499 worbsid
worbsid's picture

Sept 25, 2008:  "If money isn’t loosened up, this sucker could go down." and the can got it's first big kick of this cycle.

Tue, 09/01/2015 - 23:41 | 6498454 SUNKNIGHT2010
SUNKNIGHT2010's picture

Another true example of how epic disaster can quickly happen is in the month of September 18, 2008 . On that day , the USA came with in 3 hours of fTOTAL financial collapse , with the world following 24 hours later !
This would have resulted in the world immediately being plunged into a " Mad Max " scenario for real . With billions of people dying , but this crisis was narrowly avoided . Still though an apocalyptic nightmare was ONLY 3 hours away from becoming reality for everyone in 2008 !!!

Wed, 09/02/2015 - 00:24 | 6498513 elephant
elephant's picture

I am not sure that this scenario is not just something we were fed to justify blackmailing congress and robbing the country to benefit the clowns who put us into trouble in the first place.  Anyway, I think we will find out where we were headed.  Should really jail the financial con men who destroyed this country.

Tue, 09/01/2015 - 23:30 | 6498437 SUNKNIGHT2010
SUNKNIGHT2010's picture

Yes I agree the collapse of the system has begun. Yes also for awhile it will plod along slowly , as conditions continue to worsen. However at a certain point , disaster WILL proceed QUITE rapidly IMHO . For example the collapse of the Roman Empire or the sinking of the Titanic took some time. At a certain point though, DOOM proceeded rapidly with GREAT suffering for everyone involved . The Weimar Republic functioned for awhile , then next day , all hell broke loose & nothing functioned as again it takes time for events to develop , but disaster from them happens VERY rapidly In My Humble Opnion ( IMHO)

Tue, 09/01/2015 - 22:29 | 6498291 large_wooden_badger
large_wooden_badger's picture

Just BTFD, rinse, repeat

Tue, 09/01/2015 - 22:03 | 6498228 flyonmywall
flyonmywall's picture

As far as the market cheerleaders are concerned, a 50% correction would effectively be the end of the world. What will Cramer say when "the market" is at 8500 ? Will he actually shut up at that point? I highly doubt it. Maybe he can jump out of the nearest studio window while on the air. Now that would be a show !!!

If you are using 10X leverage (being conservative here), a 50% correction wipes you out 5 times over. Granted, it won't happen in one day of trading, but at 10X leverage, 10% wipes you out. Or at least, the margin calls will wipe out any decent positions (if any).

Boo hoo hoo. Too fucking bad. It's a casino, and the casino always wins.

 

Wed, 09/02/2015 - 03:52 | 6498721 leftcoastfool
leftcoastfool's picture

"Maybe he can jump out of the nearest studio window while on the air."

With our luck the studio would be on the ground floor...

Tue, 09/01/2015 - 20:45 | 6497959 Phoenix901210
Phoenix901210's picture

I don't agree, and what I wanted from this was what is actually concretely going to HAPPEN when the bubble burst.

This is why I do not agree:

  • This crisis has been underlined by strong geopolitical tensions which are not confined to America as the 'Tech' bubble, and the Asian Infrastructure bank is a new player on the scene, as is a renewed awareness of gold.
  • These tensions are strong enough for the US to bomb Tianjin 3 times. This is not something that has happened before.
  • There is a lot of anger, and awareness among the 'people' and even from those from within the establishment who don't like how things are running. If you think about the Child Sex Abuse, Chilcott, Libor, etc. an ability to take down criminals seems relevant here.
  • The EU is in trouble. If there is problems with Greece, Spain, Puerto Rico or the UK, to name only a few, the political ramifications are more like that of the end of the cold war.
  • This is the first crisis since apparently the dawn of time that America's hegemony has been under threat.
  • Many of the elites have already evacuated America.

And more on this wavelength, the huge volatility partly from the presence of High Frequency Traders put the DOW down the other day 1000 points if only briefly. Investors are well aware the shit storm is going to go down

Tue, 09/01/2015 - 19:52 | 6497774 TrulyStupid
TrulyStupid's picture

Some differences between the tech bubble and now:

Then:  one sector, primarily US markets       Now:  multiple sectors including commodities...global markets including FX

Then: available safe haven in other sectors and bonds.

Now: all time high margin debt across all sectors

Then: day trading craze   Now: HFT algos react and trade instantly

Now: Sector ETFs widely traded  Then: Small number of Large cap individually walloped

 

Markets can and will drop and rebound at a dizzying pace... witness the last month or so. 

 

 

Tue, 09/01/2015 - 19:47 | 6497762 dreadnaught
dreadnaught's picture

Quadrillions....boggles the mind

Tue, 09/01/2015 - 18:57 | 6497580 Secret Weapon
Secret Weapon's picture

Too many variables.  Too many players.  I doubt it will be orderly.

Tue, 09/01/2015 - 18:52 | 6497558 we built this city
we built this city's picture

Lol!!!

You are brainwashing us for the past 3-4  years about an epic collapse- and now you estimate a 50% correction?

only 50%!

 you are screaming"shorts" since 2012 when the market was 1200 and you are expecting us to go as low as 1000 ! Lol a 200 point drop or  a minor 16%! 

So much effort ...for so less...

This is a very bad  and sad joke!

Tue, 09/01/2015 - 20:27 | 6497910 elephant
elephant's picture

I don't see how the bottom could be higher than the 2009 low.  All the pumping started then to keep the markets from plunging to where they were going.  The debt is larger than it was then.  Has anything improved?  Anything been fixed?

I think the Fed really is out of bullets this time and they won't be able to stop the markets from going a lot lower this time.

Tue, 09/01/2015 - 18:29 | 6497486 JailBanksters
JailBanksters's picture

Ok, so the Bubble burble, just create another one.

But Facebook is still worth a BaZillion dollars right ?

Tue, 09/01/2015 - 18:26 | 6497469 EurGold
Tue, 09/01/2015 - 19:25 | 6497674 83_vf_1100_c
83_vf_1100_c's picture

Red for ya, spammer!

Tue, 09/01/2015 - 17:59 | 6497357 Bobportlandor
Bobportlandor's picture

Debt will have to be destroyed and along with it goes wealth.

I wouldn't bet the house on this drip, drip play. When Gargoyles start loosing vast sums of wealth they will be tighter then a frogs ass.

So if you slow down the economy any more then it is now, with the world full of a lot more people, mostly in cities, Millions of Illegal aliens with no allegiance to a country, this doesn't bode well for servility to shine.

 

 

 

 

 

Tue, 09/01/2015 - 23:43 | 6498460 Advoc8tr
Advoc8tr's picture

I beg to differ ... servility will thrive. It is civility that will be in short supply ;)

Tue, 09/01/2015 - 17:26 | 6497206 jcdenton
jcdenton's picture

well, really it’s $555 trillion if you include derivative exposure to bonds

 

Have you included MERS mortgage fraud? Some says it is closer to between 2.4 and 5 quad. That is why guys like Holter and Sinclair say, providing there is ~8k tonnes in Fort Knox, physical gold is min 50k/oz. Or as Sinclair states, "the gold rally you do not want to sell." And silver will be 5x gold. There is no choice here but reset. It is a mathematical certainty and moral imperative.

Tue, 09/01/2015 - 16:56 | 6497050 Turin Turambar
Turin Turambar's picture

Today is different.  Bot wars.

Wed, 09/02/2015 - 11:46 | 6499759 Tyrone Shoelaces
Tyrone Shoelaces's picture

Imagine the bots and algos somehow flip out and start a race to the bottom against each other.  Kinda wonder if that is what was happening last Monday.

Tue, 09/01/2015 - 16:18 | 6496855 RaceToTheBottom
RaceToTheBottom's picture

Has kick the can been outlawed?

Do NOT follow this link or you will be banned from the site!