"Beta usually Trumps Alpha."
"Inflation steals money from Savers and gives it to Bankers."
Jim Rickards, Bloomberg, 08/28/15
"We fully expect the S&P to decline 40% to 55% over the current market cycle… The only question is the Triggers."
John Hussman (Hussman Fund), 08/27/15
As we are now just passing through the August Mini-Crash, it is essential to consider Beta (Major Trend, Sector, and Economic) Realities, in order to Profit and Protect going forward.
The first Reality is that, Economic, Market, and Technical Realities all indicate we are now in a Bear Market. And One Key Rule for Beginning Bear Markets is that simply "Buying and Holding" is usually a Recipe for Short, Medium and sometimes even Long-Term losses.
Just look at most any Historical Chart of the Beginning of Most any Major Bear Market in most any Sector. Indeed, otherwise Excellent "Alpha" Profit Opportunities become scarce in Bear Markets.
Another Reality is that, in a beginning Bear Market, and just after a Crash, many Sectors exhibit Violent Bullish Rallies - witness the violent Rebound this last Full Week of August before the Bear starts to Growl again.
So consider these and the following Key Realities for Profit and Wealth Protection going forward.
Fed QE and other Actions have served mainly to artificially boost the Stock Market (and to help The Private, for-profit Fed's share-holders - the Mega Banks) It has certainly not helped the Middle Class or Main Street. This is reflected in the Real Statistics for the U.S. (Shadowstats -Note 1) not the Bogus Official ones.
Consider the following cogent analysis:
"…The entire stock market, has lost $1.77 trillion since the June 22nd, 2015 top at $22.527 trillion. …
"Think about this: In just a few weeks, one-third of the $5.0 trillion total of all QE programs from the Fed has been wiped out! A third of all that monetary printing out of thin air that the Fed gave to Wall Street in exchange for interest bearing securities held by Wall Street, some of those securities not so good, in QE 1, 2, and 3 has now disappeared from a stock market collapse. Instead of placing that $5.0 trillion in the real economy through a tax rebate to Main Street (Individuals and small businesses) in conjunction with the U.S. Treasury,… the Fed chose to give it to Wall Street to drive up the stock market artificially. … All it accomplished was a temporary levitation of the stock market and a huge rise in the cost of living for Main Street."
Robert McHugh, 08/24/2015
Indeed! But the Key Point, as the recent Sell-Off shows, is that there is an intensifying Threat to Long Equities positions in general. Conversely, there is a Great Profit Opportunity if we intelligently play the downside and a Great Threat if we fail to do so and stay long.
The Technicals, Fundamentals and Interventionals indicate it is highly likely Equities have topped (on May 19) and have begun a Multi-Year Chopping Decline ending at Dow 6000ish within the next 18 months to 2 years.
Therefore, one provident and likely profitable Strategy going forward is to sell interim tops and let Big Beta take care of the rest.
Among the many reasons for the Equities Sell-offs present and prospective are
- The U.S., Chinese and Eurozone Economic Fundamentals - all lousy (see Shadowstats note) with disinflating or deflating economies, and unpayable Debt in many Major Nations
- Technicals - Two Hindenburg Omens on the clock.
- Multi-year Jaws of Death Pattern Topping
- S&P just within 1 point of all time high a few weeks ago, but 10% of NYSE stocks generated new 52 Week lows, at the same time - very Bearish
- Industrials forming a completing "Rounding Top" - Classically Bearish
- A break below the Bottom Boundary of a declining bearish Wedge
- A Death Cross in the Dow
- Chinese Shares keep dropping despite Central Bank Intervention
- Equity Volumes Crash on Up Days - Very Bearish
- Walmart's Negative Guidance reflects the Reality that Consumers are hurting
- Commodity Price Decline
- Unpayable Sovereign and Consumer Debt Abounds
- And several More.
Consider that the Chinese A Shares (Shanghai) dropped by nearly 50% at one point recently - a Harbinger for U.S. and Eurozone Markets - until they were rescued (albeit only temporarily) by Massive Government Intervention which damaged the Credibility of those "Markets" as Markets. Indeed, Short Sellers were threatened with Jail, and large Shareholders were (and still are) forbidden to Sell. Thus, the Chinese Markets are stabilized for a while, but have fallen again, showing The Central Government is ultimately powerless to support the Markets. Thus, in desperation, they have resorted to Currency Devaluation and interest rate and Reserve Requirement Reduction, which won't work over the middle or long-term either because they have not solved their structural problems, e.g., too much Debt.
And consider that the U.S. and Eurozone Markets and Economies are greatly affected by what happens in China, the World's Second largest economy.
Moreover, Credit (i.e., Debt) can not be expanded much more, if any.
Total Sovereign + Commercial + Consumer Debt to GDP Ratio
Courtesy of The Aden Sisters, adenforecast.com
Therefore much of the Trillions in debt outstanding worldwide will eventually be defaulted on probably mainly by Hypermonetary (and therefore by Price) Inflation. Puerto Rico and Greece and Chicago are expected to lead the Way!
Nonetheless, we think it is quite likely there will be one or more mini-bounces back before The Full Fury of the Crash materializes because initially in this Building Crisis Investors will want to rush to the perceived Safety of U.S. Equities and the $US. Indeed, a Bounce began recently after the Mini-Crash.
So we are in for some Major Chopping in the Equities Markets but with a downtrend beginning. Note the fact that The Big Boys Investors (alleged "Smart Money") have been and still are "distributing" to Smaller "Retail" Investors and their Talking Heads in the Main Stream Media are thus touting "Recovery", and "Buy the Dips".
But Greece is the Template for what is coming to several Major Sovereigns. Whatever happens with Greece in the near future (and it appears Bailout #3 is being implemented), we think Greece will eventually leave both the Eurozone and the Euro Currency - its Debt can not be paid and the Debt of other Sovereigns is ultimately unpayable also. Thus, Greece may or may not be the catalyst for the Major leg down of The Coming Crash, But there are other Triggers coming like the Eurozone Peripheral Countries and Puerto Rico, Chicago and the contracting U.S. Economy, and especially China, whose economy is Decelerating.
Thus, China will be no Salvation either. China's rate of growth is far less than the official 6 to 7% and may even be 0% according to Marc Faber. And Chinese stocks listed in the U.S. have helped to suppress the U.S. Markets Bounce and accelerate its Fall. For the long run, China's recent Equities Crash and Devaluation is more significant.
The Bottom Line is that this Global Economic Contraction is only beginning, so there is much more downside to come. Credit Expansion has about Maxed Out and QE helps mainly Mega-Bankers and Wall Street.
And Fed (and other Central Bank) Policies have created a Series of Bubbles in recent decades, and the Biggest ones are about to pop. Equities First, then Sovereign Bonds a few months later.
The Markets have now chopped down with The Mini Crash already hitting our first forecast Downside Targets 16,000ish on the Dow and a corresponding % down on the S&P and NASDAQ. (Of course, very short-term, there may be bounces - e.g., perhaps the Dow could rise to 17,700ish but the Bounces will not last.)
In this regard, Deepcaster's forecasts have been remarkably Prescient lately. They enabled those who followed our Recommendations to take approximately 40%, 65% and 110% Profits after only 4, 2, and 3 days respectively in August alone. (See Note 2 - Recent Profits Taken)
And, as we forecast, the Tech Sector should be among those hit the hardest (and was in the recent Mini-Crash) because it is likely its currently high earnings expectations will be slashed later this year. And many of the Tech stocks, especially in Social Media, are quite overvalued anyway.
We reiterate, The Great Deception is that Investors have been encouraged to believe that Great Asset Bubbles generated by Fed and other Central Banks' Policies are/reflect Genuine Economic Recovery and Growth. They will learn differently The Hard Way and soon.
And Deepcaster's forecasts reveal more Mega-Moves coming very soon and thus more quite Extraordinary Opportunities for Profit, … and Great Losses for the unprepared.
The sudden Chinese Yuan Devaluation was no surprise. China is in trouble, with massive unpayable internal debt and a decelerating, if not contracting, economy.
So when the IMF recently announced that China's admission into the IMF and ascension to Reserve Currency Status of the Yuan would be delayed a year, that was the last straw.
China joined the Currency Wars and devalued the Yuan, thus Joining the Race to the Bottom which thereby intensified.
Of course, the impact on Companies doing business with China will be severe. And we have already seen that with, e.g., Apple's stock fall recently - it is only the beginning of the downturn for such companies, especially those doing business, or hoping to do business, with China.
Recent $US weakness and the implementation of another "Extend and Pretend" deal with Greece, has thus temporarily boosted the Euro - this trend should continue a few more weeks.
But, speaking of Mega-Risks, consider The Overview of the U.S. and other Sovereign Debt markets, another Key Reality.
The International Sovereign Bond Market ($58 Trillion) is in a Bubble. Greece is not the only Country that can never repay its debts. Neither can Italy, Spain, or Brazil or, probably China and the U.S. though the latter two can Print their way into HyperPriceInflation, and probably will as their Economies continue to slow.
But every $1 Million in Sovereign Bonds is "backstopping" $20 Million or more in Derivatives.
(And we reiterate the Global Sovereign Bond Market is $58 Trillion.)
That is, Sovereign Bonds backstop over $700 Trillion in Derivatives as reported by the Bank for International Settlements - the Central Bankers' Bank (see bis.org Statistics-Derivatives).
In sum, the financial system is more leveraged than it was in 2008!
And the U.S. alone has 30% more debt than in 2008.
Therefore, Every Sovereign Bond Default or Threatened Default, risks a Domino Effect leading to Collapse (think AIG, which U.S. Taxpayers bailed out for $180 Billion because inter alia it guaranteed Bond/Interest Rate Derivative Contracts). And in the event of collapse, many Counterparties will not be able to pay.
In sum, so our overview/forecast is:
The U.S. Economy is contracting/disinflating as is China's and, yes, the Eurozone's.
The recent Mini-Crash and/or one more Bad U.S. Jobs Report (which is likely in September) and/or other Negatives will make The Fed constrained not to raise rates in September or even in December.
And, Real GDP Growth is slowing in the Eurozone and in China as well.
But Price Inflationary Pressures are building thanks to The Fed's and other Central Banks' Monetary Inflation Policies.
This Economic slowing plus the weakening, then Crashing, Equities Market will eventually cause The Fed to launch another Round of QE thus further weakening the Exchange Rate Value of the $US and launching serious Price Inflation. Then Gold and Silver and Certain Agricultural Prices will Skyrocket.
We expect this to occur soon after our forecast Next Equities Crash runs its course.
In sum, keep the Realities in mind and consider investing in the Precious Metals and Big Beta Positions for Profit and Protection.
August 28, 2015
Note 1: Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported August 19, 2015
0.17% / 7.77%
U.S. Unemployment reported August 7, 2015
5.26% / 23.0%
U.S. GDP Annual Growth/Decline reported July 30, 2015
2.32% / -1.20%
U.S. M3 reported August 7, 2015 (Month of July, Y.O.Y.)
No Official Report / (NYSE:E) 5.57% (i.e., total M3 Now at $16.865 Trillion!)
Note 2: Our attention to Key Timing Signals and Interventionals and accurate statistics has facilitated Recommendations which have performed well lately. Consider our profits taken in recent months in our Speculative and Fortress Assets Portfolios*
- 110% Profit on Russell 2000 Puts on August 21, 2015 after just 3 days (i.e., about 13500% Annualized)
- 65% Profit on Russell 2000 Puts on August 20, 2015 after just 2 days (i.e., about 12000% Annualized)
- 40% Profit on a Retail Sector ETF Put on August 7, 2015 after just 4 days (i.e., about 3630% Annualized)
- 80% Profit on a Retail Sector ETF Put on July 27, 2015 after just 6 days (i.e., about 4850% Annualized)