2007 Redeux?

[CptTrips]

Or will 2007 look like child's play?


BTW.  This has nothing to do with political parties.  Everyone has dirty hands on this one.

*Note: log scale on the vertical axis.  That's important to understand full scale of the risk.


https://www.hussmanfunds.com/comment/mc211120/


My concerns....

Society is on a knifes edge of devolving into general violence as it is.

This bubble has been inflated to insane Extinction Level Event levels. 
Fed could keep it levitated as long as they could keep rates at 0%.
Inflation is showing signs of not being "transitory".

The Fed would prefer not to raise rates.  Pumping unlimited free money is the cocaine that is keeping everything high.  Inflation might force their hand.
They'll have to raise rates if inflation doesn't flatten soon.
If they raise rates and the market crashes, they reeled in almost no rates to be able to lower to slow the crash.  They have no ammo left to fight a collapse except negative rates, which I'm pretty certain is illegal in the U.S.

China might be the canary in the coal mine or the first domino.  Might be a good time to make a try for Taiwan.  Focus everyone on an external enemy.  Strike while the West in distracted with an economic collapse.

What would a hot-war with China look like in the midst of an 80% market drop and 20% unemployment and 15% inflation?

Next year might be a wild ride before it's over. 

[dieter]

There are some really wild indicators going on in Europe also.  Putin is putting the screws to the European union in no light manner with his escalation of the migrant crisis via Belarus; massing of troops on the Ukraine border, etc.  We are in for a very interesting few years.  Nothing like having aggressive nations in Europe and the Pacific huh?  Especially with the economics as fun as you just pointed out.  You are just pointing out some of the really fun stuff, there is a bit more to it then just that, as I am sure you are well aware of, kind of makes you pucker a little bit.     

ULDieter

[guncrasher]

you mean it's the 80s again. when if you had a really good credit interest was 18% on buying a home. companies were laying off tens of thousands of workers. hell at&t laid off something like 250k operators and sent the jobs overseas.

also about the time when the faith of the world was on a single Russian guy who risked everything on a hunch.

semp

[CptTrips]

There are some really wild indicators going on in Europe also.  Putin is putting the screws to the European union in no light manner with his escalation of the migrant crisis via Belarus; massing of troops on the Ukraine border, etc.  We are in for a very interesting few years.  Nothing like having aggressive nations in Europe and the Pacific huh?  Especially with the economics as fun as you just pointed out.  You are just pointing out some of the really fun stuff, there is a bit more to it then just that, as I am sure you are well aware of, kind of makes you pucker a little bit.     

ULDieter

Yeah.  Authoritarian regimes might use an external conflict to distract their population from their own economic collapse.  You can always claim it is the enemy doing it to you.  And people tends to check their brains in at the door once shooting starts.  It's all about Nationalism and winning the war then.  And if there were territorial gains you wish to grab, there will be no better time perhaps for generation to come than when your adversaries are totally consumed with their own domestic cataclysmic economic collapse and their population are doubly uninterested in getting involved anywhere overseas. 

If I were Putin or that Panda guy, it's when I'd make my move.

I'm pretty sure they are both smart enough to not attack the U.S. directly (Japan taught that lesson).  That would only wake the Giant.  I can't say the same for an foreign allies who's names we can barely pronounce anyway.  Our public at this point would probably very inclined to say, "Fekit; we got our own problems."

Stay safe over there.  I doubt things would start to unravel until spring/early summer.  But who knows. 

[CptTrips]

you mean it's the 80s again. when if you had a really good credit interest was 18% on buying a home. companies were laying off tens of thousands of workers. hell at&t laid off something like 250k operators and sent the jobs overseas.

I remember the 80's.  That's a important point, because the only way Volcker was able to tame that inflation was by bringing down the rate hammer hard and mercilessly.  They knowingly had to accept a hard recession to get control of inflation.  (I think this is going to be way more painful than the 80s, IMHO.)

That's the reason that I believe the Fed has to start acting next year if inflation keeps rising.  They learned the Volcker lesson and the Fed fears inflation even more than they fear a stock collapse. 

A smaller percentage of voting American's are invested in the stock market.  Every working family in America, and a ton of Retirees are impoverished by run-away inflation.  If the Fed had to lay a sacrifice on the economic alter it would probably be the stock market.  (https://www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market/?sh=7862ce2b1154)

If for no other reason than it is in their actual written charter to keep a handle on inflation.  It doesn't say anything about them being responsible for propping up overly greedy, over extended, irrationally exuberant  Wall Street.  They can write that loss off to Moral Hazard.

We'll see.  This is one of those times I would love to be proven utterly and completely wrong.  I'm just not in the mood to deal with a whole 'nother level of world drama.

What's that old curse Chinese put on their enemies?

"May you live in interesting times."

[CptTrips]

And, if I were Putin or the Panda, I'd get in cahoots with the other and arrange to both make their move at the same time on different sides of the globe, while their adversary is still busy cleaning up the bodies of stock brokers who have splatted on the pavement from the 30th floor window on Wall Street.

Halves the risk for both as opposed to acting singly.


And it makes sense to re-nominate Powell.  Let that poor shmuck take the blame.  I bet there was no smart money begging for the job at this particular time.  No one who has a brain wants to be in his shoes the next year or two. 

[Eagler]

I think they are pushing for Marshall law so that when the financial time bomb blows, they will have forces in place to control the extreme civil unrest that will follow.

To get where we accept Marshall law as a viable alternative the sheet really has to hit the fan thus all of this turning on each other for every reason under the sun is the plan and manipulation of the masses is historic.

War with Russia and or China are also on the possible horizon for the same above reasons..a nice big war has gotten the world out of a great depression once already

When the bottom drops out financially as many say it will the true wild west begins making the gang lootings today look like child play

Throw in news like this nice and early now to justify the use of nukes later...and it gets real interesting
https://www.bloomberg.com/news/articles/2021-11-22/china-launched-missile-from-hypersonic-weapon-in-july-ft-says

Eagler

[guncrasher]

marshall law? wasnt that named for general marshall when he got promoted to 5 stars with the rank of marshall, he changed it to general because he didn't want to be called marshall marshall?



semp

[Chris79]

I think they are pushing for Marshall law so that when the financial time bomb blows, they will have forces in place to control the extreme civil unrest that will follow.

To get where we accept Marshall law as a viable alternative the sheet really has to hit the fan thus all of this turning on each other for every reason under the sun is the plan and manipulation of the masses is historic.

War with Russia and or China are also on the possible horizon for the same above reasons..a nice big war has gotten the world out of a great depression once already

When the bottom drops out financially as many say it will the true wild west begins making the gang lootings today look like child play

Throw in news like this nice and early now to justify the use of nukes later...and it gets real interesting
https://www.bloomberg.com/news/articles/2021-11-22/china-launched-missile-from-hypersonic-weapon-in-july-ft-says

Eagler

I think that is the last thing the Feds want to do. They lack the resources to implement it on a nation wide level and relying on states via the National Guard is futile due to the current bi-polar politics exhibited between states. OP is correct however on his economic outlook and I do fear we are heading towards “interesting times”. Now whether it’s 2007 redux, 1918 Russia, Weimar Republic, or something never before seen is anyones guess. I can say this with a great degree of confidence, if a economic collapse were to occur while the country is as politically stratified as we currently are, the consequence would be a watermelon storm of epic proportions.

[oboe]

marshall law? wasnt that named for general marshall when he got promoted to 5 stars with the rank of marshall, he changed it to general because he didn't want to be called marshall marshall?



semp

I think he means "martial" law. 

[guncrasher]

I think he means "martial" law.

I know what he means, I just think it's funny when somebody brings it up.  same thing when they call the boarder instead of border.

we went thru this in the 80s, 2008, and the 70s and 60s. martial law wasn't declared then, but somehow I hear more and more how is gonna happen this year or next year, but ignore the fact that last year, people in position or advisors went around the country calling for the insurrection act.

think the whole thing is nothing but conspiracy theories but what worries me is that more and more people are buying into it.

semp

[decoy]

What's that old curse Chinese put on their enemies?

"May you live in interesting times."

That's actually Part I of the curse.

Part II is: May you find what you are looking for.

Part III is: May you come to the attention of the authorities.

But, interesting times, indeed.

[CptTrips]

Another data point....

For the last year or two, Buffett has been quietly liquidation stock exposure and is now sitting on his largest pile of cash ever.  Sounds like Warren is expecting much cheaper deals to come.

https://www.bloomberg.com/news/articles/2021-11-06/buffett-s-cash-pile-tops-record-with-149-2-billion-on-hand

https://www.fool.com/investing/2021/10/17/heres-why-warren-buffett-isnt-buying-many-stocks-r/


[edit] And one more....

As I pointed out that first chart is in log scale on the vertical axis.  That is because the gyrations on the right side of the chart are so large that a linear scale chart would completely have hidden the fluctuations on the left side of the chart.  At linear scale those would have looked almost smooth.

The downside is that I think it can give the impression that the risk is not as high as it really is.  Based on that chart, for the market to simply return to it's long-term historical averages (something the market has NEVER failed to do eventually in it's history), S&P would have to drop from it's current 4000ish level to ~1000ish.  It would require a collapse of 75% from current valuations just to get back in line with economic realties that have been durable for 150 years.  And generally, that level of panic will over shoot and have to come back up, so might see as low as 80%+ drop at some point. 

The Bulls will reply markets go down, then they come back up again eventually.  Yes.  But it took 6 years for the S&P to recover after 2001 and took the Nasdaq 15 years.

That means you have to hold those risk assets all that time (15 years?) jsut to get back to where you started.  If you sell any before that, you take the loss.  They are called risk assets for a reason, so at any point a particular stock can go to 0.  Usually that is why you are paid a risk premium in the form of increased value to compensate you for the risk you incur.  In a case like 2001 you had to hold that risk for Wall Street for 15 years just to break even. 

In that period you couldn't get access to that money without taking a loss (which prevents you from reallocating that money to something more profitable), and you got paid nothing for the privilege of holding all that risk for 15 years.  You held Wall Street's risk for them for free.  And God forbid if you had planned to retire at any time in that 15 years.   

[Eagler]

If/ when the dollar loses its status and is replaced, it will not matter how many you have stashed away as they will be useless...

See how no one is buying our debt anymore but the fed itself

They are getting rid of dollars as they see what we a doing to it by printing trillions out of thin air...for no real purpose but to keep our corrupt politicians in power by establishing a nanny state cradle to grave..

New reserve currency coming soon IMO as the dollar is losing its value by the second..

We can never get out of the debt that grows every split second

https://www.usdebtclock.org/

Eagler

[CptTrips]

And I would totally understand if anyone were to laugh out loud at the thought of an 80% collapse from current levels. 

But...

As it happened, the tech-heavy Nasdaq 100 lost an implausibly precise 83% of its value from March 2000 to October 2002.

It's not impossible.



[edit]  Note for reference.  That is not all in one drop.  There are always sucker-rallies that make people think the worst is over.  Those might last a couple of months before the fall continues.  It's almost like a perfectly designed psychology trap for the smart money to squeeze out every last possible dollar from the rubes who don't completely get it.  Historically a popping bubble can take 16 to 24 months to fully unwind with several sucker-rallies in the interim.  Keep that in mind.


Good luck out there.