New 'Crash' Warnings for U.S. Markets

With the fantasy-rally in U.S. equity markets now a full, six months old, most of the mainstream analysts who saw the current economic meltdown in the U.S. coming are now issuing blunt warnings that the market-pumpers have flogged this “dead-cat bounce” for all its worth.

One of those voices is Marc Faber. Faber correctly predicted the U.S. economic and market meltdowns, and also became a “short-term bull” on U.S. stocks in March of this year. At the beginning of September, however, he predicted a “major move” down in the next “10 days to two weeks”.

While Faber was clearly premature with his call, he was not as premature as I was, in calling for the rally to end at the end of May (“U.S. Bond-Bubble Bursts, Bye-Bye Equities Rally”).

On September 30^th, Jim Rogers (who also saw the first U.S. crash coming) simply said, “I am not buying shares anywhere in the world as we speak.” Interestingly, though, two days later Rogers also said (in a CNBC interview) that if he “had a million dollars” to spend today that he would be buying commodities, specifically coffee, cotton and silver – calling the prices for these commodities “very depressed”.

Presumably, if Rogers were to buy any stocks at the the present time it would be companies who produce those commodities. While it is very difficult for most retail investors to buy into coffee and cotton producers, likely Rogers would not be averse to buying silver producers (i.e. miners).

Indeed, this seems to be exactly what Rogers was implying, since he advised “shopping around” for countries where these commodities were undervalued. Since the commodities, themselves, are global – and sell for the same price everywhere, only the valuations of the commodity producers will vary from market to market.

Of course, investors shouldn't need warnings from prominent (and credible) voices to “see the writing on the wall”. As I have pointed out on several occasions (most recently in “Insider selling STILL accelerating”), U.S. “insider selling” has been accelerating throughout this entire rally. So while I did not expect this fantasy-rally to continue for nearly this long, neither did most of Corporate America – who have the added advantage of knowing exactly how healthy (or unhealthy) their companies really are.

Naturally, the U.S. propaganda-machine won't let facts and reason interfere with its own incessant market-pumping. The latest fluff comes from Reuters. On Saturday, it speculated that “improved revenues” could continue to fuel the equities rally, and that revenues “kicked into gear” in the 3^rd quarter.

How does Reuters quantify this bullish prognosis? It's predicting that instead of the 14% year-over-year declines which represented the S&P average for the 2^nd quarter, that the year-over-year decline for the 3^rd quarter will be 'only' 11%. What these sleazy propagandists somehow 'forgot' to include in their analysis is that the 3^rd quarter of 2008 was much worse for U.S. corporations than the 2^nd quarter.

Thus, the “improved revenues” which Reuters is predicting when the U.S. 3^rd quarter “reporting season” begins next week will actually be no real improvement at all from 2^nd quarter revenues (if we assume the forecasts are accurate). Similarly, Reuters was also expecting “improved earnings” - predicting that instead of the average plunge in revenues of 27.3% percent which occurred in Q2, that the year-over-year collapse in earnings in Q3 will be 'only' 24.8%.

Naturally, Reuters dug up a market shill to reinforce this prognosis. “As of right now, the growth rates [emphasis mine] are improving for earnings and revenue,” said John Butters, director of U.S. earnings for Thompson Reuters.

As I just pointed out, both earnings and revenues are still plummeting down in all year-over-year comparisons. The reason why the market focuses on year-over-year numbers more than quarter-over-quarter numbers is because seasonal changes in markets make quarter-over-quarter comparisons irrelevant for many sectors of the economy. Thus, when this shameless shill talks about “growth” in earnings and revenues, he is referring to numbers which are still plunging downward at one of the fastest rates in history. This has been symbolic of this entire propaganda-fueled rally.

In the upside-down world of the propagandists, “black” is “white” and “bad” is “good”. Reality has no relevance, only the perceived reality is important.

With the real numbers (beyond the control of the propagandists) showing that the U.S. economy is once again accelerating downward (see “Business, Consumer Loan-Delinquencies Still Soaring”), and with “insiders” now having taken most of their own money off the table, the market-pumpers appear poised to end their propaganda campaign, allow U.S. markets to crash – and thus provide a new buying opportunity for insiders.

Put another way, if U.S. corporate earnings and revenues continue “growing” in the manner described by Reuters, almost all these companies will be bankrupt in a few years.

Comments

[Gedankonomist:]

Or, what he means is if he had the money just handed over to him, he'd invest it as such.

It's like when you have two teenagers, one is given money only after he has done his chores, and the other is simply handed the money. Which of the two is going to "blow his wad of cash?"


"Interestingly, though, two days later Rogers also said (in a CNBC interview) that if he “had a million dollars” to spend today that he would be buying commodities, specifically coffee, cotton and silver – calling the prices for these commodities “very depressed”.

Presumably, if Rogers were to buy any stocks at the the present time it would be companies who produce those commodities. While it is very difficult for most retail investors to buy into coffee and cotton producers, likely Rogers would not be averse to buying silver producers (i.e. miners).

Indeed, this seems to be exactly what Rogers was implying, since he advised “shopping around” for countries where these commodities were undervalued. "

Oct 06 11:33 AM

[swaps:]

The scariest fact in Jeff's essay is the relentless insider selling. No question it bodes badly for the future. Hopefully they are just diversifying assets to protect themselves from having a single asset - their company - getting trashed by any future GS predatory short selling. (My contribution to name calling).

However, today, my modest IRA is surging as nervous nellies flee to gold and oil stocks. They are seeking tangible assets that can be re-priced and hopefully hold on to some value after the dollar collapses to its lowest level of equilibrium. We can thank the Fed and the GOP war party for dollar destruction. Borrow borrow borrow spend spend spend, interest interest interest.

So today at least the stocks market is not collapsing, but rising in response to a looming dollar collapse. That is the major threat. A stock market collapse would be in response to the confusion that would temporarily cloud what business enterprises and their underlying assets are worth in barter.

Oct 06 11:56 AM

[Doom Blogge...:]

Whatever. I'm not going to argue with you doom and gloomers.

I have minted money like never before the past year. Short side first so I'm not just blind. But Doom and gloomers like yourself are blind to the recovery at hand.

You are probably bitter you lost it all shorting. No problems. There's always a a bottle of cheap scotch waiting. Ce la vie


On Oct 06 09:00 AM alvar wrote:

> Said like a true uninformed fanatic. Sounds like you have more of
> a problem with NIELSON'S grammer than the content. Also if you
> had any evidence to the contrary you would cite it. Obviously you
> never had or no longer have any skin in the game ........ and you
> are full of hope for change.

Oct 06 12:08 PM

[The Geoffster:]

Nobody can time the market. At best, predictions are educated guesses. I wasn't educated well enough to predict the rally. I just thought valuations were too low last February. Unfortunately, I thought they were too high in August and went short with SH. I'm still in it by the way. As an avid SA reader, I've learned a lot in the last year. I've learned fundamentals and I've learned not to rely on other people's opinions. I've also learned about trends, but they're for traders. I didn't have to learn about debt. My parents preached Shakespeare: "Neither a borrower nor a lender be." Our leaders have betrayed us and we have betrayed ourselves with our unsustainable debt based consumption and promises. My opinion: Nielson is predicting the obvious but he can't predict the timing. For investors, this means exposure to multiple asset classes, including stocks, bonds, cash and precious metals. Watch valuations and don't be greedy.

Oct 06 12:28 PM

[The Geoffster:]

Our debt is unpayable. Most of it anyway.


On Oct 06 07:41 AM Papaswamp wrote:

> If the US debt continues to skyrocket the doom and gloomers will
> be correct. You cannot prop up a system based on massive debt. Aussies
> already moving and raised interest rates...if more of Asia follows,
> the dollar will continue to die and our debt become un-payable.

Oct 06 12:31 PM

[LR European:]

I take it you're not long the market then?

An more nuanced report of Marc Faber's recent comments would mention that he sees a crash coming BUT is uncertain as to the timing. It could be a few days or weeks or it could be in several years, but given the vast imbalances in the global economy when it comes is may well rock the foundations of capitalism!

Colourful, eh? I guess if you can afford to stay out of the market you probably could. Otherwise, keep working it, but stay frightened.

Oct 06 02:16 PM

[Donald Ingram:]

All most all economic indicators are negative. Trends for the most part are down. Global uncertainty abounds. Main stream media is over flowing with half full glass stories. Confidence in the US dollar has been lost. Gold and silver at all time highs. Yet the stock markets are running up! On what? Stimulus rocket fuel? Over confident high rollers? Optimistic new comers? Or big time manipulative players about to short and run away with the cash? Scratch the surface of this market at your own peril! Full of hot stimulus air and about to explode.

Oct 06 03:00 PM

[5142152-337:]

Excellent article

Anyone NOT buying PHYSICAL gold and silver NOW is just looking for bigggggg trouble down the road.

Oct 06 03:40 PM

[GMak:]

Some of us are too focus on the collapsing USD driving up commodity prices and equity indices globally. I think the diminishing demands on commodities could trigger a snap back of the USD and therefore the sell-off of the global indices. Besides, I don't believe the global (aggregate) incremental increase in demand (commodities) would offset the incremental decrease in demand in the US; or at least not to that extend. For instance, China may just want to buy the controlling rights in the Aussie to guarantee supply in the future.

Consumption is still the key to the secret chest. Baltic Index is still way off and China (along with other emerging countries) already stated they would pull the plug to slow the stimulus process. In fact, the Chinese officials already said they would slow lending to curb speculation. All along, as much as I do not agree with certain issues, Chinese government are more to the point at zeroing in and fixing the problem and bypassing the bureaucracy. And when those farmers in China are loading up on hundred of millions worth of commodities hoping for quick profit, that usually implies the peak has reached.

Do I believe the stage of our economy justifying the rally in the past seven months? No, but if the government is pumping enough liquidity into the system to create the kind of (fake) rally, and the financial institutions are responding to it by pumping every single penny from the TARP money into the system - then YES! I believe, ultimately, postponing this (current) bigger bubble would set us off to multi-decade recession.

Last but not least, we have been spending on "Our Grandchildren's Credit" whereas the rest of the world (primarily emerging markets) are spending down their "Savings".

Oct 06 05:24 PM

[Jeff Diercks:]

I read and agree with most of what is said in this article, but shake my head at the consternation it seems to cause so many investors.

Picking tops is a losers game. Be cautious, but follow the trend until the trend changes. It's that simple and let's you sleep well at night.

Oct 06 07:51 PM

[Money Shot:]

Don't try to out think yourself. Moving averages are a simple and pretty effective way to time markets. By utilizing a 10 or 12 month (simple or exponential) moving average you can move out of markets near the tops and bottoms. Who cares if the markets seem too optimistic or pessimistic; just ride the tide of the market on the views of the masses until the tide changes.

Oct 06 09:22 PM

[Falconflight:]

I'm not a economist,nor a seasoned trader, but reading about insider selling surely gets my attention. I certainly would appreciate a contrarian analysis from someone with the wit to proffer a writ.

Oct 06 10:35 PM

[Random Capital:]

FAS, SRS, FAZ - Don't trust your Government. They gave almost 1 trillion $ to "GS Guys" to pump up the market and get rid of bad assets. You are all buying "US" trash.

Oct 07 12:08 AM

[Carlos Lam:]

On Oct 06 08:28 PM NickelMan wrote:

> This is Author is a piece of Garbage! and everything he writes is
> Garbage!. Everyone and their grandma thinks we are at a top so he
> is just re-hashing negative headlines he gets from other news sites
> and passing them off as his. He has 3, exactly 3 types of articles.
> 1)Trash the USA 2) Kiss Chinas Butt 3) Push Gold and Silver down
> your throat every chance he gets.

Even assuming that what you say is correct--and I personally disagree with your assessment--Jeff's article's are a welcome change from the financial media's "3 types" of articles:

1. Recovery & "green shoots"
2. China is a polluter that takes American jobs
3. Gold & silver don't generate any income/dividends

Oct 07 05:30 AM

[Hot Richard:]

I wish Jeff weren't writing his articles. Remember, the markets CAN serve as an excellent wealth transfer engine. Heartbreaking for the losers, but the connected winners are used to the game. The inside money got caught exposed and this "recovery" has been a godsend to get to safe harbors at the expense of others.

I'm not sure Rogers would buy stocks of companies producing commodities, although he might like the actual commodity plays.

Oct 07 09:53 AM

[Johnny Oxygen:]

NickelMan,
Where does all this anger come from. Did mom not get the pudding pops you wanted?


On Oct 06 08:28 PM NickelMan wrote:

> You make yourself out to be a goon with you comments. Taking a dogmatic
> stance as you and others take is a fools game. As the sayings goes
> A market can stay irrational a lot longer than you can stay solvent!
> So stuff it!
>
> This is Author is a piece of Garbage! and everything he writes is
> Garbage!. Everyone and their grandma thinks we are at a top so he
> is just re-hashing negative headlines he gets from other news sites
> and passing them off as his. He has 3, exactly 3 types of articles.
> 1)Trash the USA 2) Kiss Chinas Butt 3) Push Gold and Silver down
> your throat every chance he gets. He has no education, no history
> No Nothing to give credence to what he says!
>
> Nick KrahS
>
> On Oct 06 05:51 PM Tony Daltorio wrote:

Oct 07 04:18 PM

[ed233:]

David Van K, I think you have made a compelling argument concerning the author's inability to seek alpha. If I was to predict the longevity of this present rally I could easily conclude that there are more legs left. How much? I don't know but neither does any one else. I heard a saying," The market can remain irrational longer than we investors can remain solvent." Think about this when we arrive a each specific juncture where the technical's signal a divergence and many bears have gone prematurely short. It seems that when this period is reached the money sitting on the side-lines starts to come in to cause the market to rise and that in turn causes the shorts to react thus pushing the market higher yet to continue this rally. So, I guess when the right circumstances occur the market will correct under less recognizable signs. Maybe it's better to enjoy the ride cautiously. LOL Looking after your money.

Oct 07 06:43 PM

[Doom Blogge...:]

You must be talking about yourself. A streetperson with a netbook in momma's house? Yeah. Punk, the only person in your office in 87 crying like a baby was you.

The fact that you called this out means you are jealous and have made nothing of yourself in your "30 years". LOL. please


On Oct 06 05:51 PM Tony Daltorio wrote:

> Do you know how many times in my nearly 30 years in the investment
> business, I've seen punks like this, who rarely leave their basement
> and who think they know it all - they are the only ones smart enough
> to figure out how to make money in the market.
>
> I remember people like him, crying like a baby in my office during
> the 1987 crash, having lost everything. I predict he will be a 'street
> person' within a year......

Oct 14 11:45 PM

[Doom Blogge...:]

Where is the crash? Another blog that will fall by the wayside and forgotten. There is no credibility or taking responsibility for sensationalistic and irresponsible blogs like that with a word like "crash" to grab readers. Please

Oct 14 11:47 PM

[chris coonan:]

Will Dubai, now be the trigger of the crash? This week?

Nov 29 03:33 AM