Market Crash Imminent: Get Out While You Can

Finally our bleating of the past year is turning to reality. Watch for the usual over-reactions now. For the past few weeks, every bit of news has been forced into the "good news" cookie cutter. Now, watch every bit being squeezed into the "bad news" cookie cutter.

Step in The Economic Clock™: it may not be a great day to day timing device, but it certainly helps you tell The Economic Time™ - and that is where the money is made: the trend is your friend.

1. Our take on current convulsions

We are not going to waste your time and money by saying "I told you so" - regarding a falling market and a rising yen.

Thus, we'll re-iterate our long-held views that:

• the sub prime crises are deeper than markets initially wanted to accept
• the yen will climb now that carry trades get unwound
• America's Economic Time keeps rotting away (sub. req.)
• Beijing may say that she is tightening, but who ever believed that Beijing runs all of China?
• "de-coupling" is a figment of the imagination: fear and greed, not rationality and sobriety, run the markets. Things are not different this time around, and certainly never in the short term! We have reasons to buy China, but want to wait until the dust has settled and the wounded leave the hospitals...

2. How to save money off this idea

We have just now asked the Bank to sell all individual stock positions, the view being that this is the beginning of the end. That is because markets not only swing from buy to sell, but they also start discounting news. So, as we put forth recently, we thought that that by selling in mid-December we would beat the rush to the door. Today, we have fast-forwarded this and sold out completely.

Going from the fall of 1976 to the fall of August 2000, here is the anatomy of a crash (using Wall Street as our gauge):

• the market has fallen on average about 17 months, with 9 months give or take, so it could fall from six to 26 months. My hunch is that the fall will last shorter - at least through 1Q08
• Over these eight corrections, the market has fallen by an average of 17% (the worst was the August 2000 crash, when the market plunged 44%; in 1987, it ultimately fell by 20%), give or take 12%. This means that the market could fall from 5-29%

3. How to make money off this idea

We have taken the sales proceeds and will be going into a "short" ETF on the S&P.

Also, we have kept all of our commodity ETFs, the logic being that there will be flight to safety, as in: gold, palladium and platinum. Meanwhile, we expect "Muddle East" tensions to rise, so up goes the price of oil even more.

Comments

[Malkiel:]

I thought there was no platinum ETF. If there is one now, perhaps give us its symbol?

I'm willing to respect crash predictions that come backed up with an argument, but I didn't see much explanation of the underlying theory linking the "8 corrections" described above...

2007 Nov 12 11:24 AM

[Malkiel:]

I thought there was no platinum ETF. If there is one now, perhaps give us its symbol?

I'm willing to respect crash predictions that come backed up with an argument, but I didn't see much explanation of the underlying theory linking the "8 corrections" described above...

2007 Nov 12 11:24 AM

[thomas728:]

That's two of us..........What has really changed since September ?

This "Carry Trade" talk is an unmeasurable "potentia"l effect.

From the words of a Specialist: "I see no reason to be long so
I will simply sell into any rally."

And that was uttered in early October.

Me? I'm like any schmo who is long "quality growth" and want these
shorts squashed like a grape.

Tom

2007 Nov 13 03:13 AM

[Silly Wabbit:]

We???

2007 Nov 13 10:27 AM

[Silly Wabbit:]

We???

2007 Nov 13 10:28 AM

[Aquater:]

Averaging past corrections is no argument. Unless there is new considerations, the market has already digested the old reasons of bulls and bears. Since doom and gloom is pretty thick, market may be close to bottoming. But market can do anything, so we'll see. It does seem late, however, to short the market at this point.

2007 Nov 13 11:56 AM

[jonreagan:]

Don't look now, but as I read your little essay (Tues., 1:40) you may have "sold off all your positions" a day early. But there's still time...why don't you try buying them back? You could create a whole new strategic approach: sell low, buy high.

2007 Nov 13 01:44 PM

[dkp:]

thank goodness. i read your artcles two days later.

2007 Nov 13 08:43 PM

[jcrash:]

Oops? I guess you just missed out on probably a 5% or better day. You get scared then Buy some DXD and QID...ride it out...no need to take capital gains on stuff and unwind all your positions.

Get some CD's you don't have the stomach to invest.

2007 Nov 13 09:38 PM

[elwind45:]

The growth rate in the market has clearly slowed. The last three quarters have been one big surprise (the first one) and two mundane. I dont believe this market can deliver earning expansion. Profits are also slowing which will effect forward ppe. The increase in stock price will bump the markets p.e. up. I believe that inflation will increase enough to effect stock prices also. How can companies increase throughput to offset the effects of higher raw material prices? Consumption is being fueled by credit, which should also increase money supply growth. The effect being pressure on interest rates. Further effecting stock prices. I could add a banking system shock, and the spector of further raise in unemployent (from recent 4.4% to 4.7%. I see a bunch of factors which my lead to stagflation. Companies are begining to stop the production lines due to high raw cost and slacking demand. Demand for govies are the last instrument in demand by foreign funds. I believe that a run from govies would be to offshore locations and not into our stock market. The bull talk is whats leading this bull markets recent run. I for one dont trust WAL-MART earnings to be reason for broad expansion of stock prices. AH a 6 month CD that yields 5% , could end up worth 17% in todays stock market enviorment.

2007 Nov 14 05:02 AM

[elwind45:]

Oh just remember the market is only couple % from all time highs SUPERSTARS???

2007 Nov 14 05:06 AM

[jonreagan:]

Yesterday's stock market movement was due to a lot more than just WMT earnings; in fact, news from certain segments of the financial sector calmed the kind of hysteria that people like you are spreading. Goldman Sachs showed that not all financial institutions are poorly run, just some of them--just as JPM did several weeks ago. Several other favorable stories yesterday related to fundamental business success; AAPL's talks with China Mobile to take the i-phone to China was a case in point. The biggest product launch of the year, and perhaps the hottest item this holiday season will now be sold in the largest country in the world. Why shouldn't a company's stock go up on an announcement like that??? Not to mention the fact the company has a full stable of other saleable products, which have captured the consumer's imagination as well as their disposable income.
While I think most of us believe in free speech and thought, one shouldn't be able to scream fire in a movie theater, either. Seeking Alpha should look at headlines like the one on this article and decide whether such shrillness is worthy of their readers' attention. (Obviously, such writers' motives are questionable as well, if not their judgment.) Some things are so far out of the mainstream, that they should just be relegated to the trash can.

2007 Nov 14 02:01 PM

[elwind45:]

4000+ stocks make up a market , look beyond the garden of eden.

2007 Nov 14 05:07 PM