…For US stocks — and by implication most other equity markets — the danger signals are piling up to the point where a case can be made that the end is, at last, near. Take a look at these examples of indicators that should scare the hell out of anyone with a big stock portfolio.
The above are edited excerpts from an article* by John Rubino (dollarcollapse.com) entitled Is THIS The End?.
The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (sample here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Rubino goes on to say in further edited excerpts:
Margin debt has peaked
In good times, optimistic investors tend to borrow money against their stocks to buy more stocks. This “buying on margin” generally goes hand in hand with rising share prices, and tends to peak and then decline just before the markets turn down. As the following chart illustrates, margin debt hit a record in January, turned down in February, and is now falling hard.
- Margin Debt: It Doesn’t Matter ’til It Matters! Is Now the Time to Be Worried About the S&P 500?
- No Problems Foreseen – Yet – from Sky Rocketing Margin Debt BUT
Interest rates are plunging
Rising interest rates are generally seen as a sign of a growing economy in which the demand for money is strong. Falling rates point to the opposite. Since equities are valued on future cash flows which in turn depend on future growth, falling interest rates are generally associated with weak equity markets….
Market breadth is contracting
In a healthy bull market most stocks move up. This indicator — the percentage of stocks that rise along with the overall market — is known as market breadth, and lately it has turned highly negative….
The velocity of money is still plunging
This is a measure of how many times a typical dollar is spent in a given time period. Theoretically, in an optimistic, growing economy, dollars are spent frequently and therefore the velocity of money is high, while in a shrinking economy worried citizens tend to hoard their cash, resulting in a low money velocity.
The following chart definitely paints the latter picture, though it has admittedly done so since the 1990s. The question today is whether there’s a point at which all the new dollars being pumped into the system fail to offset consumers’ reluctance to spend their dollars, and where that point might be. The answer is unclear, but the chart still looks ominous.
Now, do these and the many other bear market signals mean the current run is over? Not necessarily, because such indicators apply to normal markets, which this one clearly is not.
The world’s governments are actively trying to inflate asset bubbles to make the average person feel rich enough to start spending again (thus sending the velocity of money back up to more traditional levels), and their effectively-unlimited printing presses give them plenty of ammunition.
- The European Central Bank, for instance, is about to start monetizing eurozone debt on a scale that, if it’s to have an appreciable effect, will be huge.
- China is easing bank lending standards and talking about other stimulus measures, while
- Japan’s central bank is buying bonds and encouraging the national pension plan to start buying riskier assets.
One could make the case that the financial markets are responding rationally to the prospect of trillions of new dollars looking for a home in stocks and bonds (and high-end real estate and fine art and the other preferred assets of the 1%), but the case can also be made that all of this manipulation hasn’t really affected fundamentals and that more of the same is unlikely to make much of a difference.
What we are witnessing, in short, is a truly fascinating attempt by the world’s major governments to suspend the laws that have, thus far in human history, governed economics – and the signs of their imminent failure are spreading.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
* http://dollarcollapse.com/the-economy/is-this-the-end/ (Copyright © DollarCollapse.com)
Greed may have been good for Gordon Gekko. but in the investment world it rarely is. As Warren Buffett is famous for saying “…be fearful when others are greedy and greedy when others are fearful” [and now is such a time]…to start showing some level of fear here in the face of extreme greed by the crowd. The crowd can be right for a long time, but they are rarely right at extremes. While this time may be different, the probabilities suggest that at the very least it will be a more difficult environment for equities going forward.
The 4 fundamentals and technicals discussed in this article accurately called stock market crashes in 2000 and 2007 and these same market metrics are again TODAY warning that a possible financial tsunami is brewing on the horizon. No one knows for certain WHEN the tsunami will hit Wall Street…but, without question, today’s stocks exhibit extremely exaggerated valuations, and extremes never last, so make no mistake, a major stock sell-off looms.
Market historians will recall the term “Nifty 50” originated in the 1960’s bull market to describe 50 wildly popular large-cap stocks at the time. Interestingly, some of the same names from that list are leading the market higher today. The question for investors, of course, is what this selective advance means for the markets going forward.
The current U.S. equity market has something for everyone. Whether you are bullish or bearish, there is no shortage of indicators or charts you can use to support your thesis. Let’s run through both the Bull and the Bear case here. In the spirit of Confirmation Bias, feel free to skip ahead to the part that best supports your current positioning.
Are we near the end of one of history’s great stock market rallies? I don’t think so. Yes, prices are in the upper half of their long-term trends, but it’s not what you might call “scary-overvalued.” There is still plenty of room on the upside before historical precedents are violated. Let me explain further. Read More »
Are we in the third phase of a bull market? Most who will read this article will immediately say “no” but isn’t that what was always believed during the “mania” phase of every previous bull market cycle? With the current bull market now stretching into its sixth year; it seems appropriate to review the three very distinct phases of historical bull market cycles. Read More »
I’d argue that the record low volume shows investors aren’t looking ahead as much as looking behind and reminiscing at how good things have been over the past five years or so. They’re expecting more of the same even though it’s mathematically impossible people. Read More »
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It doesn’t matter until it matters! IF margin debt should start decreasing swiftly, history would suggest something different is taking place in the mind of aggressive investors. Will a decline in margin debt from all-time highs matter this time? Read More »
Last year’s “Sell in May” period was only the third time since the turn of the century that stocks have postedstockcrash-2 double-digit gains from May through October so, with stocks still near all-time highs as the calendar flips to May, do the law of averages suggest we’re on the brink of a major pullback over the next six months? Read More »
In the midst of all the optimism we see towards key stock indices these days, there are two leading indicators that are flashing warning signals. They say, “Be careful, and don’t get caught up in the euphoria.” Read More »
No stock can resist gravity forever. What goes up must eventually come down. This is especially true for stock prices that become grotesquely distorted. We have been – and still are – living in another dotcom bubble, and – like the last one – it is inevitable that it is going to burst. Read More »
Is the latest credit-balance trough a definitive warning for U.S. equities? In this article we examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter. Read More »
It’s frustrating to see key stock indices keep pushing higher when historically proven market indicators are all warning of a crash ahead. Irrationality is exuberant to say the very least, and that’s why I believe this rally is counting its last days. Read More »
There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this “cut and save” article. Read on! Words: 974 Read More »
With both the fundamentals and the technicals saying the stock market is a risky place to be, we await its crash back to reality. Here’s why. Read More »