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The Dow Closes At A Record High For The 9th Straight Time But Experts Warn That A Stock Market Crash Could Be Imminent August 7, 2017

The bigger they come, the harder they fall.  On Monday, the Dow Jones Industrial Average closed at a record high for the ninth straight session.  It has been a remarkable run, but many experts are pointing out that big trouble is brewing under the surface.  As you will see below, 79 components of the S&P 500 have already dropped more than 20 percent below their 52-week highs, and it is mostly just a handful of high flying tech stocks that are still propping up the market at this point.  Over the past several weeks, I have been documenting so many of the prominent voices that are loudly warning about an imminent stock market crash, and in this article you will hear some more of these warnings.  There is no way that stock prices can keep going up like this, and when the inevitable correction does arrive it is going to be exceedingly painful for millions of investors.

When the market is about to turn in a major way, one of the key things to watch is market breadth, and according to Brad Lamensdorf market breadth has now turned “exceedingly negative”

Market breadth, a measure of how many stocks are rising versus the number that are dropping, has turned “exceedingly negative,” according to Brad Lamensdorf, a portfolio manager at Ranger Alternative Management. Lamensdorf writes the Lamensdorf Market Timing Report newsletter and runs the AdvisorShares Ranger Equity Bear ETF HDGE, -0.70% an exchange-traded fund that “shorts” stocks, or bets that they will fall.

“As the indexes continue to produce a series of higher highs, subsurface conditions are painting an entirely different picture,” Lamensdorf wrote in the latest edition of the newsletter.

When Lamensdorf uses the phrase “exceedingly negative”, he is not exaggerating at all.  As I mentioned above, 79 components of the S&P 500 are already in a bear market

According to an analysis of FactSet data, 79 components of the S&P 500 are trading at least 20% below their 52-week high; a bear market is typically defined as a 20% drop from a peak.

Another key measure that I like to keep my eye on is Robert Shiller’s cyclically adjusted price-to-earnings ratio.  At this point, it is roughly at the same level as it was just before the stock market crash of 1929, and the only time it has been higher was during the peak of the dotcom bubble.

This is why so many investors are making extremely large bets that a major correction is imminent.  History tells us that stocks are likely to only go down from here.  And when stocks do start falling, the price action could become quite violent.  In fact, Barry James is comparing this current market to the Yellowstone supervolcano

Warning: A correction in the market is “inevitable” and there are three key factors that could spark chaos on Wall Street, according to James Advantage Fund president Barry James.

The investor likened the market to Yellowstone National Park’s famous supervolcano, which many believe is close to eruption.

Of course not everyone agrees with James.  Michael Wilson of Morgan Stanley insists that everything is just fine and that “there continues to be a level of skepticism that seems out of whack with what is actually happening”.

In the end, we will see how the coming months play out.

Over the past several years, there have been two primary trends that have been relentlessly driving up stock prices.  One of these trends has been an unprecedented level of stock buybacks.  And so far this year, hundreds of billions of dollars worth of stock buybacks have already been announced

Through May, some $390 billion in buybacks have been announced this year, $13 billion more than at this time in 2016, according to figures compiled by Jeffrey Yale Rubin at Birinyi Associates, a stock market research firm.

June 28 was the biggest single buyback announcement day in history. That was when 26 banks disclosed buybacks worth $92.8 billion, largely a response to having just passed the stress tests administered by the Federal Reserve Board. That figure blew past the previous record of $56.4 billion announced on July 20, 2006.

Secondly, central banks have been pumping trillions upon trillions of dollars into the global financial system, and this has perhaps been the biggest reason for the surge in stock prices.  But now central banks are starting to pull back, and that could mean big trouble very soon.  The following comes from Matt King

With asset prices displaying a high degree of correlation with central bank liquidity additions in recent years, that feedback loop makes the economy, upon which both corporate profitability and bank net interest margins depend, more reliant on central banks holding markets together than almost ever before. That delicate balance may well be sustained for the time being. But with central banks beginning to move, however gingerly, towards an exit, is it really worth chasing the last few bp of spread from here?

Throughout our history we have seen financial bubbles come and go, but we never seen to learn from our mistakes.  Right now, Warren Buffett is sitting on nearly 100 billion dollars in cash in anticipation of being able to buy up financial assets for a song after a crash happens, but meanwhile multitudes of ordinary Americans continue to pour vast quantities of money into stocks even at such absurd valuations.

Despite all of the warnings, many will be caught unprepared when the music stops playing.  Just like all of the other financial manias in our history, this one will come to a bitter end too.  The following comes from the New York Times

In the late 1960s the mania was for the “nifty 50” American companies like Disney and McDonald’s, which had been the “go-go” stocks of that decade. In the late 1970s it was for natural resources, from gold to oil. In the late 1980s it was stocks in Japan, and in the late 1990s it was the dot-com boom. Last decade, investors flocked to mortgage-backed securities and big emerging markets from Brazil to Russia. In every case, many partygoers were still in the market when the crash came.

In life, timing is everything, and those that got out of the market in time are going to end up being very happy that they did so.

But those that stay in too long are going to see their “paper wealth” disappear in a blinding flash, and there won’t be any way to get it back once it is gone.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

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Remember This Milestone: The Dow Jones Industrial Average Hits 22,000 For The First Time In U.S. History August 2, 2017

The Dow hit the 22,000 mark for the first time ever on Wednesday, and investors all over the world greatly celebrated.  And without a doubt this is an exceedingly important moment, because I think that this is a milestone that we will be remembering for a very long time.  So far this year the Dow is up over 11 percent, and it has now tripled in value since hitting a low in March 2009.  It has been quite a ride, and if you would have told me a couple of years ago that the Dow would be hitting 22,000 in August 2017 I probably would have laughed at you.  The central bankers have been able to keep this ridiculous stock market bubble going for longer than most experts dreamed possible, and for that they should be congratulated.  But of course the long-term outlook for our financial markets has not changed one bit.

Every other stock market bubble of this magnitude in our history has ended with a crash, and this current bubble is going to suffer the same fate.

But many in the mainstream media are still encouraging people to jump into the market at this late hour.  For example, the following comes from a USA Today article that was published on Wednesday…

“It’s still not too late to get in,” says Jeff Kleintop, chief global investment strategist at Charles Schwab, based in San Francisco. “The gains are firmly rooted in business fundamentals, not false hopes.”

I honestly don’t know how anyone could say such a thing with a straight face.  We have essentially been in a “no growth economy” for the past decade, and signs of a new economic slowdown are all around us.

But even though price/earnings ratios and price/sales ratios are at some of the highest levels in history, some analysts insist that the stock market still has more room to go up

On the flip side, investors with time to ride out any short-term market storm should not rule out getting in the market now. Economies around the globe are improving and are boosting the profitability of corporations in the U.S. and abroad, says Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners in Charlotte, N.C.

Zaccarelli won’t even rule out Dow 25,000 by the end of 2018.

Personally, I believe that it is far more likely that we would see Dow 15,000 by the end of 2018, but over the past couple of years the bulls have been right over and over again.

But the only reason why the bulls have been right is because of unprecedented intervention by global central banks.

Today, the Swiss National Bank owns more than a billion dollars worth of stock in each of the following companies: Apple, Alphabet, Microsoft, Amazon, Exxon Mobil, Johnson & Johnson and Facebook.

So where does a central bank like the Swiss National Bank get the money to purchase all of these equities?

It’s easy – they just print the money out of thin air.  As Robert Wenzel has noted, they simply “print the francs, exchange them for dollars and make the purchases”.

If I could create as much money as I wanted out of thin air and use it to buy stocks I could relentlessly drive up stock prices too.

Our financial markets have become a giant charade, and central bank intervention is the biggest reason why FAANG stocks have vastly outperformed the rest of the market.  The following comes from David Stockman

Needless to say, the drastic market narrowing of the last 30 months has been accompanied by soaring price/earnings (PE) multiples among the handful of big winners. In the case of the so-called FAANGs + M (Facebook, Apple, Amazon, Netflix, Google and Microsoft), the group’s weighted average PE multiple has increased by some 50%.

The degree to which the casino’s speculative mania has been concentrated in the FAANGs + M can also be seen by contrasting them with the other 494 stocks in the S&P 500. The market cap of the index as a whole rose from $17.7 trillion in January 2015 to some $21.2 trillion at present, meaning that the FAANGs + M account for about 40% of the entire gain.

Stated differently, the market cap of the other 494 stocks rose from $16.0 trillion to $18.1 trillion during that 30-month period. That is, 13% versus the 82% gain of the six super-momentum stocks.

If global central banks continue to buy millions of shares with money created out of thin air, they may be able to keep this absurd bubble going for a while longer.

But if the Fed and other central banks start pulling back, we could see a market tantrum of epic proportions.  In fact, almost every single time throughout history when the Federal Reserve has attempted a balance sheet reduction it has resulted in a recession

The Fed has embarked on six such reduction efforts in the past — in 1921-1922, 1928-1930, 1937, 1941, 1948-1950 and 2000.

Of those episodes, five ended in recession, according to research from Michael Darda, chief economist and market strategist at MKM Partners. The balance sheet trend mirrors what has happened much of the time when the Fed has tried to raise rates over a prolonged period of time, with 10 of the last 13 tightening cycles ending in recession.

“Moreover, outside of the 1920s and 1930s, there is no precedent for double-digit annual declines in the balance sheet/base that will likely begin to occur late next year,” Darda said in a note.

President Trump is going to get a lot of credit if the stock market keeps going up and he is going to get a lot of blame if it starts going down.

But the truth is that he actually has very little to do with what is really going on.

This stock market bubble was created by the central banks, and they also have the power to kill it if they desire to do so.

And once this bubble bursts, we may be looking at a crisis that makes 2008 look like a Sunday picnic.

Goldman Sachs and others are already warning that this stock market rally is on borrowed time.  Let’s hope that it can continue at least for a little while longer, but in the end there is no possible way that this story is going to end well.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

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Goldman Sachs Says That There Is A 99 Percent Chance That Stock Prices Will Not Keep Going Up Like This July 31, 2017

Analysts at Goldman Sachs are saying that it is next to impossible for stock prices to keep going up like they have been recently.  Ever since Donald Trump’s surprise election victory in November, stocks have been on a tremendous run, but this surge has not been matched by a turnaround in the real economy.  We have essentially had a “no growth” economy for most of the past decade, and ominous signs pointing to big trouble ahead are all around us.  The only reason why stocks have been able to perform so well is due to unprecedented intervention by global central banks, but they are not going to be able to keep inflating this bubble forever.  At some point this absolutely enormous bubble will burst and investors will lose trillions of dollars.

The only other times we have seen stock valuations at these levels were just before the stock market crash of 1929 and just before the dotcom bubble burst in 2000.  For those that think that they can jump into the markets now and make a lot of money from rapidly rising stock prices, I think that it would be wise to consider what analysts at Goldman Sachs are telling us.  The following is from a CNBC article that was published on Monday…

Investors may be in for disappointing market returns in the decade to come with valuations at levels this high, if history is any indication.

Analysts at Goldman Sachs pointed out that annualized returns on the S&P 500 10 years out were in the single digits or negative 99 percent of the time when starting with valuations at current levels.

Do you really want to try to fight those odds?

Unfortunately, it appears that is precisely what a lot of investors are planning to do.  In fact, Schwab says that they are opening new accounts “at levels we have not seen since the Internet boom of the late 1990s”

New accounts are at levels we have not seen since the Internet boom of the late 1990s, up 34% over the first half of last year. But maybe more important for the long-term growth of the organization is not so much new accounts, but new-to-firm households, and our new-to-firm retail households were up 50% over that same period from 2016.

And a different survey found that Millennial investors in particular are eager to pour money into the stock market

Furthermore, according to a June survey from Legg Mason, nearly 80% of millennial investors plan to take on more risk this year, with 66% of them expressing an interest in equities. About 45% plan to take on “much more risk” in their portfolios.

One of the fundamental tenets of investing is to buy low and sell high.  Those that are getting in at the peak of the market are going to get absolutely slaughtered.  Trillions of dollars of paper wealth will be completely wiped out by the coming crash, and I wish that I could get more people to understand what is about to happen.

I recently wrote about how some really big investors are betting millions upon millions of dollars that a major stock market crash is going to happen in the very near future.  The financial markets are far more primed for a crash than they were in 2008, and there are certainly a lot of potential “black swan events” that could push us over the edge.  In his most recent article, Simon Black listed some of the things that he is currently watching…

– North Korea is threatening to nuke the US
– Donald Trump is firing his entire cabinet
– The Federal Reserve has dropped interest rates to record lows and drowned the world in trillions of dollars of cash
– Debt levels are at record highs
– Entire banking systems, especially in Europe, are in need of massive bailouts
– The US government will run out of money in less than 90-days and hit the debt ceiling once again

You only make money in the stock market if you get out in time.  And since just before the crisis of 2008 I have never seen so many prominent names in the financial community warn about a coming stock market crash as I have over the last 90 days.  For example, legendary investor Jim Rogers is warning that there will almost certainly be a crash “this year or the next”, and that it will be “the worst in your lifetime and my lifetime”

The best-selling author expects the next financial crisis to be the “worst” he has ever seen.

“We’ve had economic problems in the U.S. or in North America every four to eight years since the beginning of the Republic so to say that we’re going to have a problem is not unusual,” he told Kitco News from the Freedom Fest conference in Las Vegas.

“I would expect it to start this year or the next…and it’s going to be the worst in your lifetime and my lifetime.”

What goes up must come down, and markets tend to go down a whole lot faster than they go up.

And in the environment that we are in today, caution is a very good thing.  I really like how billionaire Howard Marks put this the other day…

I think it’s better to turn cautious too soon (and thus perhaps underperform for a while) rather than too late, after the downslide has begun, making it hard to trim risk, achieve exits and cut losses.

Perhaps this will be the first giant financial bubble in our history to end smoothly, but I wouldn’t count on it.

In the end, I expect this one to end just like all of the others.  And I anticipate that the coming crisis will ultimately be worse than anything we have ever faced before because this current bubble has been artificially inflated for so long.

Hopefully stock prices will go up again tomorrow, but it would be exceedingly foolish to ignore all of the warnings.  Goldman Sachs says that there is a 99 percent chance that stocks cannot continue surging like this, and in this case I believe that Goldman Sachs is entirely correct.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

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