Can the market crash?
Define crash! Early this year, markets dropped double digits within days. We could call that a crash. If you are asking whether we could have a 1987 crash…well, that would be approximately 6,000 Dow points. Oh hush! We never take any price action off the table but crashes just do not happen often. The world is littered with pundits calling for crashes on a daily basis. Every time the market is hit, they come out of the woodwork professing genius. Let’s just say that conditions are such that yes, things can worsen. Why? LEVERAGE/MARGIN… is the highest on record. Margin is the best friend of the market while it is going up. It is the biggest enemy when markets are going down as the leverage has to come off first before the real selling starts. Why? THE PASSIVE INVESTOR has been lulled to sleep by a market that refuses to go into a real bear market. Passive becomes less passive when markets go down. There are trillions in passive funds. Why? THE MORONS AT THE CENTRAL BANKS have created asset bubbles that only when the music stops will we know.
Can the markets wash out soon?
Sure! We saw it happen early this year. Markets bottomed and then took time repairing but the lows were in.
Could a further drop affect the election?
Hell yes. Every 100 point drop matters. I can see the ads now. “THE TRUMP DUMP!” “LOOK WHAT TRUMP HAS DONE TO YOUR 401K!” Of course, the media who hardly reported the good…will run 24/7 if markets turn bearish.
Are you worried about President Trump blasting the Fed?
Again, hell yes. It is not a whopping 2% Fed funds that could cause a worsening stock market. Guess what could cause a worsening stock market? Correct. President Trump interfering with markets and the Fed with his mouth. His words are simply ill-advised. To think a 2% Fed funds rate is problematic…sorry. Keep in mind, the important capital is tied to longer rates that the Fed is not playing with right now. The president is making a huge mistake calling Powell “crazy!” If he wants to call someone crazy, let it be Bernanke who started this easy money train down the tracks.
Speaking of Bernanke, the WSJ took him to task this morning in an op-ed. THANK YOU. We know it is now many years ago, but he started this moronic experiment. He also got other countries to follow suit. Europe and Japan still have negative rates and are still printing money. They will never know real price discovery…until price shoots the middle finger back…which may be happening now.
What people are saying:
IT IS GOOD WE ARE OPENING DOWN THIS MORNING AS IT GIVES THE MARKET A CHANCE TO WASH OUT.
We think that is thinking a little too short term. We suspect the damage that has been done, at the very least, needs some more time and price.
THE ECONOMY IS STRONG AND EARNINGS WILL BE GREAT.
Careful. Markets look forward, not backwards. In fact, markets could not give a crap about yesterday. Keep in mind, with energy prices and interest rates spiking, the cost of everything has gone up. We will know soon enough how much effect there has been during not just earnings reports, but more importantly, the guidance. We do not want to hear more of what PPG just said.
THE MARKET HAS CORRECTED 5% 23 TIMES SINCE THE 09 LOWS AND EVERY TIME, THE MARKET CAME ROARING BACK EVENTUALLY.
That is the good news…BUT IT IS ALSO THE BAD NEWS as we promise you, the bear market has not been extinguished….even with all the easy money…and yes, way overdue.
“THIS IS JUST A BLIP! STOCKS ARE CHEAP! THE DROP IS PROVIDING GREAT VALUES.”
The market could care less about what people think. Value is what the market thinks.
And lastly, just remember our reports of past months. Remember what we have been saying on radio. With the DOW/S&P/NASDAQ/NDX all near highs, a ton of stuff was already bearish including many of the world markets. Negative divergences were all over the place and picked up in the past couple of weeks. With 50% of the market bearish, it is easier to sell off markets if they decide to come down. We were in hopes that if we could get past September and October earnings, that we could have a normal end of year rally, narrow but nevertheless, a rally. But when we saw last week that the 50% that was working start to roll over, we knew something was up causing us to get real worried on October 4th. We are amazed but not so amazed how much destruction there has been but what really has us worried is what is on the new low list. INDUSTRIALS, AIRLINES, CHEMICALS, MATERIALS and all kinds of crap are plunging. If you are a big believer the market is a great forecaster…then one has to wonder whether the economy is topping out with the numbers heading south in the months ahead. We are already seeing some worrisome numbers in other parts of the world. Hopefully, this is just another nasty correction, akin to what we saw at the beginning of the year. But we must tell you, the internals are much worse, world markets are much worse and now a president is interfering with something he should not be interfering with.