Seven Reasons We Will See a Repeat of the 2008 Crash

by: Thomas Pan

Here are seven reasons that I believe we will see a repeat of the 2008 crash unless the government steps in and saves our investors again.

  1. Markets have been performing poorly in the last week by gapping down key support levels. The S&P 500 gapped down from its 10-day and 200-day moving average in one day, dropped below its 50-day moving average the next day, and has stayed below the line for 3 days in a row. Nasdaq composite performed the worst with Dow still above its 50-day moving average.
  2. According to Wikipedia, there have been two unconfirmed Hindenburg Omens since the market lows of 2009: one last Thursday and another Monday. The Omen has repeated twice within a week. Zerohedge believes that all bets are off. A big crash will happen within 120 days, as in 2008.
  3. The U.S. economy is facing the second dip. Alan Albeson from Barron’s sharply pointed out that

    No sooner did the less-than inspiring trade data come out than estimates for second-quarter gross domestic product fell like dry leaves in autumn. The preliminary seasonally adjusted annual growth rate of 2.4% was shaved by pencil-wielding Street savants to as low as 1.3%. And the redoubtable John Williams, chief cook and bottle washer at Shadow government Statistics, reckons there’s fair chance the GDP in the current quarter could be negative.

  4. Economy slow-down is further re-affirmed by the Fed's last week’s decision to purchase Treasury bonds. On the other hand, the largest bond fund, Total Return fund of PIMC, has reduced its U.S. government-related holdings in July from 63% to a still-high 54% by taking in $1 billion a week from bond-craving investors. At the same time, China, the largest owners of U.S. government debt, has reduced its holdings for a second straight month in June by $24 billion.
  5. A good observation from Michael Santoli at Barron’s:

    …… the dividend yield of the Dow Jones Industrial Average components, at 2.65%, is essentially equal to the 10-year Treasury yield. The folks at Morgan Stanley note that over the past 50 years the Down’s yield has exceeded that of the 10-year Treasury yield.

  6. Unemployment rate will stay high for years to come as population growth requires the U.S. to add about 125,000 jobs a month to just stay even while the government seems to talk the talk, instead of walking the walk:

    The best year, 2006, averaged 232,000 jobs added per month — that was the top of the Housing Bubble. The best decade, 1991-2000, averaged 150,000 jobs added per month. And yet the official forecast from the White House & the Treasury asserts we will add an average of 200,000 jobs per month in 2011, and 250,000 jobs per month in 2012.

  7. Last but not least, U.S. mood cycles, based on the research from Dr. Cari Bourette from A New Story Foundation, lead the stock markets. Currently, collective mood now places markets 33% below current levels. For details of her research, please check out the following video from Youtube: