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Is The Stock Market Gearing Up For A New October Crash?
We have been studying the behavior of the financial markets in the past few months and quarters was we are convinced that not only is the economy running out of steam, there might be another overdue correction.
What really frightened us is the fact there are several similarities and correlations with the previous market crashes in 1929 and 2008. Let’s start with 1929 and pull up a first chart. You can clearly notice there was a brief stock market slide which was converted in a temporary uptrend before the entire index was completely crashing.
Source: Wikipedia
This seems to show an awful lot of similarities with the situation we’re currently in:
Source: stockcharts.com
Just as in 1929, the market was performing fantastic and the continuous wealth increase seemed to be unstoppable. A short 10% correction was seen as ‘healthy’ and soon a new uptrend was starting (the green line). This is exactly the same scenario we saw in the past few weeks. Market commenters said the 10% drop in the Dow Jones was a ‘healthy correction’ and we’re on our way to the next uptrend and Christmas rally.
Are we?
Let’s have a look at why the stock market crashed in 1929. First of all, the harvests were higher than expected, pushing farming families into poverty. Additionally, the house sales, car sales and steel production were falling back down to earth in the USA. Is this once again the case in the US? Not really, but keep in mind this is a globalized world and you’ll have to look at the global picture. So let’s expand our horizon and focus on for instance China, which undoubtedly is one of the main (if not, the main) economic forces on this world.
Source: RBC
There’s no real crash in the steel production but that’s usually an ‘ex post facto’; the real drop in the steel production numbers usually occurs àfter the second leg down has started. In that view, the stagnating steel production in conjunction with a reduced demand for iron ore is already an important sign the steel mills aren’t too optimistic about the future and want to reduce their existing stockpiles before taking on too much balance sheet risk.
Source: RBC
Have a look at the previous image. The stockpiles of iron ore are crashing in China, the largest steel producer in the world. If the Chinese steel mills would indeed be convinced the demand would remain strong, why on earth wouldn’t they be stockpiling a lot of iron ore, considering the iron ore price has reached a multi-year low?
You can think about the Chinese whatever you want, but they are very business-savvy and have an excellent feeling for timing. If they don’t want to buy iron ore at low prices, you can be sure they aren’t very optimistic about the future steel production.
Another dangerous parallel with the 1929 crash is the amount of margin buying deployed in the market. This was an important trigger in 1929 as margin calls pushed the share prices deeper and deeper. In fact, the situation is even worse today. Have a look at the next chart which represents the Margin Debt on the New York Stock Exchange.
Source: advisorperspectives.com
Right now, the total amount of margin debt on the NYSE is higher than right before the 2008 crash and the bubble in 2000. It sure looks like nobody has learned anything from the past. The higher the amount of margin debt deployed in the stock market, the faster any collapse would accelerate.
And oh yes, before we forget, it’s October again.
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skimmed the article for an "October Surprise"..."surprised" it wasn't in there. and here i am blaming that delayed Shmetah blood moon Jade Helm GA Guidestone Ebola thingy stuff for these charts.
Looking more and more like a dead cat bounce today.
And VRX is about to implode.
Icahn himself says the market (if we can call it that) is overvalued by no less than 8000 points. So if/when the market (or facsimile thereof) dives down to 8000, are we going to call that -- a correction? That would be a clear sign of deflation of assets.
On the other hand, Bix says it's neither deflation or inflation. Things just stop. Like Holter quips, it's not a matter of mass layoffs. People will not be called into work. Or just sent home. There is no money. The banks will be closed ..
https://youtu.be/6eH4vQvpZVE
We're crashing...upwards!
No?
And what about the billions in cash that was supposedly swindled off of Baghdad?
Fed's core quantitative money supply model: F(x) = X^y where y is whatever number is necessary to save the banks balance sheets.
To inject a little sanity into ZH, let me ask one simple question: Where can all the money go? Can't leave it in cash. Can't buy bonds. Must be in the stock market. Markets will rotate, but they will not go down.
Sound like a bot reality markets rise and crash every 7 years in this country? You cant print yourself into prosperity the buyers of the paper will shurley find themselves burned and with nothing at the end os this. We are headed for something bad and for me cash is not king. When all have skn in this game I will play again untill them ill keep my phyz and Ill know exactl how much I have the value may go up and down if you value it in this shit paper you talk about but try t buy mine with it and I will get the last laugh
Treasuries, and the yield goes to zero. Think I'm crazy until you realise some bunds have been negative in a European Michigan.
The US might have many problems but it'll be the last man standing.
The time to buy is when there is blood in the streets.
C'mon Hemo the Magnificient.
The correlation that is attempted in the graph in this item is not valid. It compares the absolute dollar amount of margin debt with the PRICE index (the S&P 500). A more correct correlation would be between the absolute dollar amount of margin debt with the total absolute market dollar value of all stocks in the market.
I went to cash on 8/5. Will stay in cash till oblowMe exits. One weird thing is that consumer sentiment is rising. Hard to believe with almost 95 million out of the workforce. The other thing is Old Doctor Copper is in the toilet.
By cash you meant you pulled it out of the system? Or by cash you mean you left it in the system and it is being used in the markets by a financial institution somewhere along the chain?
The 95 million are okay as long as .gov checks keep depositing. Why wouldn't they be confident?
Enquiring minds want to know.
It seems that these market crashes follow a similar pattern.
First, raw materials, ores, company stocks always follow the same pattern.
This eventually leads to a crash because the equities become over-valued.
Add in the E-Z credit the Fed has offered and you are in for a Big Surprise at some point!
***
Edit: Hard Assets can withstand the papaer loss, for the most part, so go long hard assets and get out of the paper mill!
Crashes occur after a decline, they need time to develop, a few more 300 point declines will definitely tip the scales and everyone will head for the exits at the same time. I am out of the stock market and into U.S. treasuries and will not get back into equities until the prospects for higher corporate earnings becomes evident, not seeing that any time soon.
I tried to bet my buddy a case of beer... that October would be the month the main Street media, starts using the words Crash & Recession in the same sentence.. But he said i had to find another person to make that bet with.. Wonder if Yellen drinks the cheep stuff..
No.
Burn, you motherfucker...burn.
That's what the Bernanke wants. He said today the FED NEEDS to achieve 2% inflation. Why ?
What he means is they want to devalue the dollar more by monitizing the debt they collected.
Gearing up? More like "stripping gears".
^
Are these folks really avocating gold over a balanced portfolio of stocks? Outrageous! Corporate profits are high, unemployment is low, and consumers are enjoying the benefits of low fuel prices. Invest with confidence, and don't waste your money on gold (unless you want to get your wife some jewelery!) Talk to your qualified investment advisor and dollar cost average. Gold and silver are about as useful as tulip bulbs as investments. Listen to the experts and stick to stocks.
Dont worry you keep buying thier storry and buy thAt paper suckers dreams and thier paper dolls will f ind shit in thier stockings come Christmas. For me ill have my phyz
..and consumers are enjoying the benefits of low fuel prices
Careful, your CNBC talking points are showing
Stack bitchez ... & F*ck the Zionists usury fiat shite paper, swap it for phyz
Fuck Zion
I think all the paper stuff, crashes
"Source: Wikipedia"
lmfao
better than bloomberg and reuters for sure