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Jason Burack
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Investor, Entrepreneur, Financial Historian, Austrian School Economist, Investment Analyst, and Contrarian. Co-founded the investor education, financial education and consulting company, Wall St for Main St, LLC in 2009. I've taught beginners how to invest and also consulted for high net worth... More
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Jason Burack
  • Buckle Your Seat Belts! Potentially Enormous Volatility Ahead! 3 comments
    Jan 30, 2014 10:43 PM | about stocks: SPY, DIA, VIXY, GG, PPP, IWV, ONEF, QQQ

    While the majority of retail investors avoided stocks after the 2008 crash, some vowing to never again buy stocks after being burned twice since 1999, professionals who understood the Fed's goal of the Wealth Effect and nominal asset price inflation at all cost have not and the general stock market has been on an absolute tear since then thanks to an artificially inseminated bull market created by global central bank money printing and flight capital leaving other countries and heading into US markets.

    Corrections since the big crash of 2008 have been few and far between with historically tiny (too tiny) corrections normally occurring after the Fed ended quantitative easing (QE) programs or threatened to end them.

    However, since the QE II program started, QE III added more fuel to the fire and then unlimited, never ending QE (QE IV) was announced, the general stock market has not had a meaningful correction of even 10% and if one looks at a chart of the S&P 500 with when QE programs were announced, there is a near perfect correlation of stocks going higher immediately after a new QE program is announced.

    Despite what your broker or talking heads on the mainstream financial media may tell you, nothing in finance ever goes straight up on a chart forever and the market is long overdue for a "normal" correction of 10-15% and that looks like this is occurring now or about to occur in the very near future.

    The problem is that the Fed has continued to signal to the plethora of hedge funds, investment banks, institutions and other large pools of capital who can borrow near 0% unlike the rest of us on Main St that it has to have higher asset prices in stocks, real estate and bonds at all costs.

    The big shots on Wall St have made enormous gains even after 2008 on the long side using very large amounts of leverage to buy assets, which boosts gains.

    The problem with having no corrections, is that corrections are healthy in any market and according to author Nassim Taleb of Black Swan and his newest book, Anti-Fragility, corrections actually make markets stronger in the long term as they climb a wall of worry and overcome adversity like anything else in life.

    While the Fed has recently implemented a token taper cutting QE back to ONLY $75 billion/month, then another taper this week to $65 billion/month (this is only the stated amount and in reality QE is still way higher than $85 billion/month), the question remains would the Fed allow free market forces to occur in the general stock market and would a correction of more than 15% be allowed by the Fed without further market intervention?

    The Fed has clearly wanted stocks to rise about 10-15% per year since 2009 for many reasons that are part of its Wealth Effect theory and the Fed has actually helped financially engineer even higher stock market gains than that recently.

    Worried about a stock market bubble, the Fed tried to reduce QE because it believes it is still in control of managing/manipulating all markets. Will the Fed be able to stay in control? Will the Fed decide to reverse its taper of QE if a large stock market correction of more than 15% does occur soon?

    Wall St for Main St thinks the Fed would reverse its tapering course and start increasing QE again, if a larger stock market correction does occur.

    Unfortunately, a drop in asset prices in stocks, bonds or real estate of 20% or more because of the enormous levels of debt and leverage (most assets are being held with enormous amounts of leverage) still in the US and global financial system could spell the perceived need, which as free market economists Wall St for Main St does not condone, for short sighted Keynesian central planners to want to intervene even further to save or bailout too big to fail large banks, institutions, etc who gambled big again on higher stock and real estate prices and lost.

    In conclusion, US stock markets are long overdue for a needed correction to show everyone that markets (even manipulated ones) do not go straight up.

    The stock market will most likely have a "normal" correction but even a 10-15% correction may be too large for the Fed to not do anything and just stand on the sidelines without even further interventions.

    In other words, the Fed does not want corrections in asset prices because they are aware of the large amounts of leverage in the system and are worried what a drop in asset prices will do to firms employing leverage.

    Expect volatility to finally start to increase now in stocks, commodities, etc.

    Based on recent price action in 2014, it also appears a sector rotation is beginning where Smart Money is taking profits in many general stocks and moving into gold, silver and precious metal miners. The shares of the miners are outperforming the metal for the first time in years and corrections in the most quality gold and silver companies are being strongly bought on dips.

    If the stock market does have a 15% or larger correction, quality dividend stocks, quality technology stocks and quality mid-caps and small caps that are still growing revenues and earnings would be great buys as well but it definitely appears the best gold and silver miners have bottomed.

    Primero has already taken out WS4MS favorite Brigus Gold and Goldcorp made a hostile takeover bid for Osisko that is expected to go through so the better run gold miners think the market has bottomed as well.

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Comments (3)
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  • alan shapiro
    , contributor
    Comments (319) | Send Message
     
    Brilliant comments Jason! You get it, and it's great to read someone that does! I've been saying this for what seems like forever. If you read my many comments on EMMET's column ,then you know, but he made it very easy (because we agreed on mostly everything). I've recently commented on Eric Parnell's column because he too seems contrarian and very sensible .I still feel like I have to keep on my toes, because I admire Marc Faber, Peter Schiff, Rob McEwen, Fleckenstein, etc., and the MSM snickers at these folks, especially after last year. So be it! Eventually I'll be proven right, it's just a matter of time, and I think it will be sooner than most think. Remember, because of what the fed has done (and is still doing), the next crisis will be different.
    4 Feb, 05:43 PM Reply Like
  • Jason Burack
    , contributor
    Comments (1764) | Send Message
     
    Author’s reply » I have a very large contacts list. I speak with Dr. Marc Faber and Jim Rickards in emails fairly often. Same with Doug Casey and Jim Rogers.
    4 Feb, 10:21 PM Reply Like
  • Jason Burack
    , contributor
    Comments (1764) | Send Message
     
    Author’s reply » Thanks! Glad you liked our article, you can sign up for our email list at wallstformainst.com in order to receive more articles. I strongly encourage you "subscribe" to our You Tube channel too so you will be notified when new podcasts are out!
    4 Feb, 10:31 PM Reply Like
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