Michael Snyder, the author of The Economic Collapse Blog, has been bearish across different asset classes for a long time now and the recent months prove, with high probability, his predictions could be extremely accurate this time. In his latest piece he says the following:
After enduring their worst August in 17 years, U.S. stocks are off to their worst start to a September in 13 years. Just yesterday, I declared that we would be entering the “danger zone” this month, and it didn’t take long for the action to begin. Historically, this month is the worst month of the year for stocks, and most of the biggest stock market crashes throughout our history have come in the fall. On Tuesday, the Dow plunged another 469 points, and it is now down more than 10 percent from the peak of the market back in May. That means that we have officially entered “correction” territory. Asian stocks also crashed hard on Tuesday, so did European stocks, and the price of oil plummeted about 8 percent. For a long time, there have been a lot of people out there that have been warning that a financial crisis would happen in the second half of 2015, and they are being proven right. It is actually happening.
The Volatility Index (VIX), which shows the market’s expectation of 30-day volatility and is a widely used measure of market risk, skyrocketed at the end of August and started trading at the levels above 30. As a reminder, the levels above 20 are already considered as risky.
Marc Liu who is a deep value, special situations, contrarian investor and the CEO of Capitol Isle Partners LLC, believes the market has topped out and the forthcoming correction (whatever size) ultimately should create some good buying opportunities for long term market players.
Here are the five top major points that support his bearish outlook.
1. MARGING DEBT
The level of margin debt reached $464 billion, or 2.78% of the GDP, in April of this year. Levels this high have only happened two other times – once in Mar. 2000 (2.78%) and again in July 2007 (2.62%).
2. BEARISH PATTERNS
Currently, Tom McClellan sees a number of bearish patterns warning that the big one is likely to hit Wall Street very soon, he reported. For one, the advance-decline line, which tracks the number of stocks participating in a trend, started declining nearly four months ago.
3. QUANTITATIVE EASINGS
The Federal reserve started its Quantitative Easing Programs, simply knows as QE’s, in August 2008. The money printing actions artificially drove interest rates lower and pushed the market higher.
According to Bartlomiej Fraszczyk, EMerging Equity Co-Founder, that Central Banks coordinated approach resulted in
disrupting the valuations across different asset classes. The current asset bubble is probably so big we can’t even imagine the size. Many say the 2008 credit crunch will look like a walk in the park against what we are heading towards.
4. THE U.S. DOLLAR
Marc Liu also thinks that:
The strength in the US dollar also provided fuel to the fire, as funds from all over the world came to the US seeking a safe haven. As the other economies all weakened, the US was just coming out of its recession. Problems in Brazil, Italy, Spain, Portugal, Russia and finally China created a panic mentality that poured money into the US markets.
Moreover, Marc noted that US companies with operations overseas like Apple or GE were holding vast sums of cash offshore in order not to have to pay taxes. As the interest rates came down (thanks to QE’s), they realized they could borrow money almost for free and buy back their own stock. The buybacks were definitely one of the major market rally contributors.
To strengthen the bearish case, Louise Yamada who is a top notch technical analyst has recently made a very negative market related comment. She noted that momentum has been declining for four months, which by her work, is a “classic” sell signal.
This is suggesting to me that we are looking at a bear market,
Yamada said Tuesday on CNBC’s “Futures Now.”
She projects the S&P support levels at 1,800 and 1,600 which implies a potential loss of 25% or even more.
The last two times the market saw a similar shift in momentum were in January 2008 and June 2000.