Economic Collapse — The Train Wreck that is Happening Now!

Even the Tweedledumbs of Wall Street are finally catching on to the fact that global economic collapse is happening all around them. Two weeks ago, they could have stood inside the building shown on the left with their nicely polished, rose-colored glasses and seen only signs of an improving housing market. Now enough shingles are falling on their heads that they’re starting to realize things are falling apart.

To back up my case that even the US economy is now collapsing, I’ll quote the permaBULLs who are finally joining me — though they’ve never heard of me — in agreement that the US stock market is crashing and/or that we are experiencing a global economic collapse. Anyone can quote the permabears to support a bear market; so, I’ll build my case stronger by quoting The Resistance.


Even bullheaded Jim Cramer can smell a bear and glimpse a global economic collapse


CNBC’s Jim Cramer is a man who usually can’t get out the word “bear” even when one is eating his butt. So, one sure sign the bull market is dead is when you hear Cramer, who less than two weeks ago was prating about now being the time to buy “the dip” in the stock market, stating that we have clearly entered a bear market:


I think we’re very much IN a bear market. (“Cramer: We’re in a bear market“)

Jim Cramer waved goodbye to September and a horrendous third quarter on Wednesday. The market declined almost 10 percent during that time, and “every rally turned out to be a trap or a sucker’s game!” (“Cramer: I can’t be bullish“)


While the bear market is now obvious enough that even Cramer cannot avoid admitting it has a bite he doesn’t like, his foresight is limited to thinking it will turn out to be something like the mini crash that I also predicted back in August 2011 … a month before it happened (which he also missed).

In other words, Cramer now gets it without getting it. Little does he perceive how big are the gaping jaws of this particular bear who has his hind side, though even Cramer does casually mention “the threat of collapse,” moving along quickly as if collapse is barely worth a mention.

As a result, the loud-mouthed but dimly synapsed Cramer still reassures his viewers, “We want to be buyers.” Maybe your “we” does, Cramer; but mine sure doesn’t — if I have a “we.” These crashing stock prices are, in Cramer’s opinion, now approaching bargain-bottom prices. In my opinion, you ain’t seen nothin’ yet.

Last week I was going to list Cramer among the village idiots who still believed the stock market was going to find its upward trend again. The only reason I didn’t is that the village is fertile with idiots, so my idiot list was getting long for today’s short attention span. (A problem I always have with my writing: Do you want substance with enough facts/quotes to solidly back up the opinion, or do you want a few quotable sound bytes? In a world that feeds on bytes, I guess I’m contrarian there, too.)


What is the current evidence of a global economic collapse?


What one calls something is always less easy to say when one is just entering it than after one has come out of it.

My big prediction for this fall was not merely that the US stock market would crash (by which, I mean it will have to do worse than become a bear market, defined as a 20% drop). I also said we will enter a period of global economic collapse, and I’ve said that collapse will be worse than what we saw at the bottom of the Great Recession. So, I’ve somewhat defined what it will look like, and clearly it doesn’t look anything like that yet.

How, then, is my prediction turning out, now that fall has officially begun?

Let’s start with the change in trend for US employment since that is the Fed’s key way of measuring recessionary trends:


U.S. employers slammed the brakes on hiring over the last two months and wages fell in September, raising new doubts the economy is strong enough for the Federal Reserve to raise interest rates by the end of this year.

Payrolls outside of farming rose by 142,000 last month and August figures were revised sharply lower to show only 136,000 jobs added in August, the Labor Department said on Friday. (“Job Growth Cools in Last Two Months, Raising Doubts on Economy“)


Well that didn’t sound too good, except as an indicator that my prediction might prove right; so, let’s look at US gross domestic product, which is how economists assess recessionary trends:


The U.S. economy is on track to grow 0.9 percent in the third quarter. (“Atlanta Fed Sees 50 Percent Drop in GDP Growth Estimate for Q3“)


That estimate by one Federal Reserve bank is a sharp shrinkage of US GDP from the 3+% reported for previous quarter, and that decline is consistent with what the Federal Reserve now knows about September’s equally severe decline in manufacturing:


Surveys conducted by regional Federal Reserve banks signal that U.S. manufacturers came under severe stress in September.

Seven of these surveys have been released over the course of the month….

All these regional surveys pointed to shrinking manufacturing sectors, with some prints coming in at their worst levels since the Great Recession….

The Empire State manufacturing index earlier this month indicated back-to-back months of contraction, with the employment sub-index and six-month forward outlook hitting multiyear lows…. The Kansas City Fed’s index has been stuck in negative territory since March, with new orders, shipments, employment, and exports all declining in September.

…Two regional indices confirmed that the pain is widespread. The ISM Milwaukee Purchasers Manufacturing Index sank to its lowest level since 2009. (“US Manufacturing Got Crushed In September“)


Yikes! That sounds really bad, and those are surveys by the Federal Reserve, which has been looking to build a case for raising interest rates. Now, let’s take a look at what this shrinkage in manufacturing means for jobs in an easy-to-read chart:


Mfg Jobs 2015 ADP


Nice. We haven’t seen that kind of job drainage since 2009, the belly of the Great Recession, and the only reason it looks small right now is that it has just begun to heat up near the end of the year. Didn’t someone on this blog (that would be me) say that the reason this economic collapse would be so bad is that it is really all about falling back into the belly of the Great Recession? I’ve said, since stimulus efforts began, that the belly of Great Recession was merely propped up into positive territory by vast amounts of artificial life support and that the Great Recession would reveal its true depth once the artificial life support finally ran out.

But, lest you think it is only manufacturing that is getting hit, take a look at the broad sweep of job losses in America during September:


The cuts come as the world’s largest retailer struggles to shore up its profit margins, which have been weighed down by a $1 billion investment announced earlier this year to increase wages for half a million store-level workers and other cost pressures. The company’s stock is down 26 percent so far this year. (“Wal-Mart Said to Cut Hundreds of Jobs at Headquarters“)


O.K. but that’s just Wal-Mart, and it is a small employment cut, so maybe its profits are really only down because it finally decided to share a small percentage of its billions in profit with its employees. Right?

Wrong. (For starters, Wal-Mart is an icon of American retail — for better or worse — and right now things are looking too weak at Wal-mart to even accommodate what still amounts to pretty low wages.)

This is not just Wal-Mart. It is a September sweep of major businesses showing employment reductions:


The number of announced layoffs by U.S.-based companies surged in September from the previous month, and Hewlett-Packard’s outsized cuts raise a red flag, John Challenger, CEO of Challenger, Gray & Christmas, told CNBC’s “Squawk Box” on Thursday.

“It’s interesting that we are beginning to see some big layoff announcements this year,” he said. “One of the things you start to see as you get near the end of a period of expansion, but before it really turns, is you start to see major layoffs occurring, big mega-layoffs like we’re seeing now.

U.S.-headquartered companies put 58,877 jobs on the chopping block last month, up 43 percent from just more than 41,000 in August.

…Challenger said the computer sector led all other industries in layoffs in September. (“Big layoffs may signal end of expansion“)


Well, that doesn’t sound too sweet either. The computer industry, which has led the bull market for years in the US, is the industry now leading the fall-off of jobs. So, this is a sea change.

Other big lay-offs came in September from ConAgra, which cut 30% of its office-based workers during a move of headquarters. (Maybe just a streamlining business decision in that particular case.) More indicative of trend,  Chesapeake Energy is laying off 15 percent of its workforce after major losses in the last quarter. Chesapeake is the nation’s second-largest producer of natural gas. Think about it: the energy industry is where almost all job growth happened during the so-called “recovery.” So, this is the unwinding of what little recovery we saw — the vanishing of the illusion. All told, the energy industry has made almost 75,000 job cuts this year!

Other big cuts this year, outside of the energy industry and computer industry, have come from Target (17,000 jobs cut), Procter and Gamble (6,000), American Express (4,000), JP Morgan Chase (5,000), Caterpillar (5,000).

That’s why the ‘Incredibly fearful’ Fed braces for jobs report today:


Data-dependent Federal Reserve officials suddenly are finding the data turning against them.

A year that was supposed to provide the Fed with plenty of ammunition to justify a rate increase has fallen considerably short. Economic growth remains mired, inflation increasingly has become a bygone remnant of years past and industrial activity is nearing contraction levels.

Moreover, the stock market is tumbling, investors’ nerves are frayed and a government shutdown, narrowly averted for October, looks increasingly probable in December, right around the time the U.S. central bank gets its final opportunity to start normalizing interest rates.

On top of it, corporate America has seen a few high-profile episodes of mass layoffs.


That jobs report, mentioned earlier, did not come out as the Fed hoped to see in order to ease it’s concerns about raising interest rates:


Payrolls rose less than projected in September, wages stagnated and the jobless rate was unchanged as people left the workforce, signaling the global slowdown and financial-market turmoil are rippling through the world’s largest economy.

…Revisions to prior reports cut a total of 59,000 jobs from payrolls in the previous two months.

(“Hiring Slows as Employers Add Just 142K Jobs“)


Comments Michelle Girard, an economist at RBS Securities,


“Every aspect of the September jobs report was disappointing.”


Says Brian Jacobsen, a portfolio strategist at Wells Fargo Funds Management,


“You can’t throw lipstick on this pig of a report.” (Newsmax)


The percentage of the US population that is employed is now at its lowest since the bad recession we had in 1977. That’s your “recovery.”

True, you just can’t put enough lipstick on this pig. The fact above paint a picture of a nation in retreat. Last fall I scoffed at the ridiculous people at Goldman Sachs and Bank of America (and several other entities) that believed in the “recovery” and were projecting 2015 to be another good year of growth in the stock market, albeit volatile and bit slower in growth than previous years. That was the standard line that prevailed on Wall St.

I seriously wondered if all the people at Goldman and BO America had put their heads through a noodle maker after what had just happened that October. The volatile part, of course, I agreed with because it agreed with me when I saw the October 2014 plunge as the beginning of greater volatility that would typify the new year.

As for the other part of their predictions, however, they are now all retreating from their 2015 projections to come more and more in line with what I predicted late last fall. Each month, they nip their projections of good times back a little more severely, and have finally gone negative. But how good are predictions that are revised after the fact? Why do people even listen to them? These are the same strutting buffoons who missed predicting the Great Recession.


Goldman Sachs now expects the S&P 500 to finish in the red in 2015.

Chief U.S. equity strategist David Kostin lowered his year-end price target for the S&P 500 to 2,000 from 2,100, citing slower than anticipated growth from the world’s two biggest economies. (“Goldman Sachs Slashes S&P 500 Price Target, Sees Negative Return for US Stocks“)


Look at what is really happening to see how far behind the curve BofA and Goldman Sachs remain, even with their retreat:


Stocks will fall about 5 percent from current levels and may even slide into bear market territory in the next few months as emerging markets like China rattle investors, said Bob Janjuah, senior adviser at Nomura Holdings Inc.

He forecast that the S&P 500 stock index will end the year at 1,820 from its current level of about 1,920 amid signs of economic weakness.

“I fear that we could even see prints in the low 1700s which would entail a 20 percent move (an official bear market) in the S&P 500 from its 2015 high of 2134,” he said in a Sept. 30 report obtained by Newsmax Finance. “Globally I expect things to be even weaker.” (“Nomura’s Janjuah: Brace Yourself for Deeper Stock Declines“)


Here BofA and Goldman are getting on board with what is happening late in the game by re-predicting the future after it has happened … and they are still running high above what will actually happen. Maybe that’s why one of these companies is now seeing its own much-deserved decline:


Bank of America Corp. is cutting dozens of jobs across the firm’s trading and banking divisions after Chief Executive Officer Brian Moynihan pledged to trim expenses amid a decline in trading revenue. (“BofA Said to Cut Dozens of Traders, Bankers as Revenue Drops“)


Ah, justice. Their Revenue should drop. It should fall through the floor. As should their traders and pathetic bankers. As usual, though, the CEO is starting with cuts at the wrong end. Moynihan should have started with himself. It’s always everyone’s fault but his. I mean, after all, how can he blame the decline of revenue on falling market conditions when his own company advised all their clients last fall that things were favorable for stock market growth this year, and advisement is their business? Given that they said it would be such a favorable year, doesn’t that mean Moynihan must be doing an abysmal job if he now has to lay off traders in a thriving market?

The heads of these companies are dumber than the head on a dollar bill and more corrupt than a three-dollar counterfeit. In fact, conspiracy theories are created because people believe that those in charge could not actually be this dumb.

Here is where the stock market has gone over the course of one year since the stock market crash I predicted for October 2014:





Exactly right back to where it was when things fell apart on October 2014. When the market rebounded back then, I said it would round off and crash again and eventually (in the spring of 2015) pegged that crash for the fall of 2015. Here we are.

David Stockman, President Reagan’s budget advisor, sees the event of October 2014 as a watershed — a marker of where the market is really going now, and he says that the present drop back to that level is not merely a retest of that level:


Here we are again, knocking on the door of the Bullard Rip low of last October 15th. While we will know soon enough whether this battered and bloodied bull will give up the ghost on this trip down and slice through 1867 on the S&P 500 or stage another half-hearted rebound, one thing cannot be gainsaid.

To wit, all the reasons for a deep correction ahead—–not merely the perennial Wall Street hyped “retest”—— remain in tact; and a passel of new ones have appeared, too.

…In the interim, the global commodity collapse has gathered force, and is now spilling over into financial market mechanics in the form of the Glencore meltdown and CDS blowout. (“This Is Not A Retest——Take # 2“)


If Wall St. is going to call this present market drop a “retest” of what happened on October, 2014, then that must mean they see what happened in October, 2014 was a part of what is happening now. So, even by the “retest” line of thinking, if the market crashes now, the plunge in October 2014 was connected to this crash.

Did you notice that last bit about Glencore? This could be the Bear-Stearns that starts our return to the belly of the Great Recession. Glencore, the world’s largest commodities trader, is now teetering on the edge bankruptcy. Other major commodities traders are not doing much better.


The 15-month commodities free-fall is starting to resemble a full-blown crisis.
Investors are reacting to diminished demand from China and an end to the cheap-money era provided by the Federal Reserve. A Bloomberg index of commodity futures has fallen 50 percent since a 2011 high, and eight of the 10 worst performers in the Standard & Poor’s 500 Index this year are commodities-related businesses.

Now it all seems to be coming apart at once. Alcoa Inc., the biggest U.S. aluminum producer, said it would break itself into two companies amid a glut stemming from booming production. Royal Dutch Shell Plc announced it would abandon its drilling campaign in U.S. Arctic waters after spending $7 billion. And the carnage culminated Monday with Glencore Plc, the commodities powerhouse that came to symbolize the era with its initial public offering in 2011 and bold acquisition of a rival in 2013, falling by as much as 31 percent in London trading.

It’s about to get worse…. “In commodities you’re going to get a lot of failures, companies closing up.” (“With Glencore, Commodity Rout Beginning to Look Like a Crisis“)


Glencore’s equity is down another -30% today, only weeks after having raised capital to shore up its balance sheet for “Armageddon.” The cause of the rout is a note from Investec which suggests Glencore equity could be wiped out (and probably already is worth nothing) if commodity prices remain at current levels. Investec’s biggest concern is the amount of debt on Glencore’s balance sheet. This is a theme that BK et al have harped on for quite some time – the commodity house of cards was built on the false belief that China’s appetite would never end and commodity prices would always go up. Sound familiar? It should because it is the same dynamic that caused the housing crisis/financial crisis of 2008. (“Is Glencore the Bear Stearns of 2015 and Deutsche Bank the Next AIG?“)


Deutsche Bank’s problems are that it has about a $76 TRILLION exposure to derivatives. You know, those things that played a major role in causing that thing we called “the Great Recession.” Those derivatives, says Bank of America, are now a junk-bond “train wreck that is accelerating.” This time, it is not all “mortgage-backed securities,” but includes junk bonds issued to commodities producers, particularly in the energy industry and mining industry, where Glencore was king.

Apparently, even that dim candle in the wind that calls itself the “Bank of America” is finding the world is full of darkened denial towards its recent glimpse of illumination:


Around this time last year, when our view on HY [high-yield bonds\ began turning decidedly less rosy, the biggest pushback we got from clients was that we were too bearish. A couple of months back, as our anticipated low single digit return year looked likely to come to fruition, many clients began to sympathize with our view, but challenged us on our contention that there were issues beyond the commodity sector. Tellingly, we now have an Ex- Energy/Metals/Mining version of almost every high yield metric we track (it started off as just Ex-Energy last year). Point out the troubles in Retail and Semiconductors and pat comes the reply that one’s always been structurally weak and the other’s going through a secular decline. Mention the stirring in Telecom and we’re told that it’s isolated to the Wirelines. When we began writing this piece, Chemicals and Media were fine, and Healthcare was a safer option; not so much anymore. At this pace, we wonder just how long until our Ex-Index gets bigger than our In-Index.

That however is just the beginning. We suspect that this is the start of a long, slow and painful unwind of the excesses of the last five years.(“BofA Issues Dramatic Junk Bond Meltdown Warning: This “Train Wreck Is Accelerating”)


BofA pats itself on the back that now single-digit prediction of stock-market growth for 2015 came to fruition (because its clients thought it should have been more bullish). Yet, in the same breath, BofA admits things are now looking even worse than that “bearish” prediction. So, what they are really saying is that they didn’t get it as wrong as they could have. Even though they have already had to revise their predictions downward, it sounds like BofA feels they were almost prescient for having overestimated the market less than their clients did.

Ahem. Is that not what I said about Bank of America’s predictions last fall — that their single-digit predictions were far too rosy compared what would really appear? So, they pat themselves on the back now for being a wee bit less wrong than they could have been as they finally (almost a year later) begin to sense what I warned of back in their rosier days. They are perhaps a little too beholden to what their clients want to hear (and what they want their clients to believe).

I, on the other hand, don’t care what anyone wants to hear or wants to believe. Denial is 99% of our problem from the very start of this crisis. So, get over it! The sooner we stop saying, “Oh, that’s too gloomy of a picture” and start seeing reality for what it is, the sooner we will take the serious corrective action that is needed and stop relying on unsustainable stimulus measures and stop leaving the responsibility for our economy to central banks.


Bond defaults starting to create global economic collapse … again


It’s same song, second verse.

I hate to quote the Dark One so much, but it is illuminating when even The Dark begins to see clearly. It is particularly atypical of BofA to paint things in such stark terms as what I’m about to quote. Bank of America expects bond defaults to start to rise over the next couple of years. Sound familiar? Sound like where we stood with mortgage defaults in 2007, which then rose for the next few years, which resulted in the defaults of mortgage-backed securities?


As more investors continue to see the forest for the trees, we believe they will see what we have seen: a series of indicators that are consistent with late cycle behavior that we think clearly demonstrates a turn of the credit cycle…. We often see that a cycle is approaching its end when the bad apples start visibly separating out from the pack as idiosyncratic risk surfaces. We saw this first with Energy and Retail, then Telcos and Semis, and now creeping into some of the perceived ‘safe havens’ such as Healthcare and Autos…. We believe the market is now reflecting the thesis we have outlined in recent months: lower commodity prices will trigger rising contagion, and weakness will spread to the broader credit markets (in particular lower-quality high yield)….This, in our view, is a virtual certainty.


Oh, yes, they have had such foresight! They are now certain of the kinds of things I was certain of a year ago. Thanks for coming on board with me, BofA? And I’m sure you’ll get all the credit.


Time’s proclaimed “Master of the Universe” predicts a stock market crash


Don’t just take all of this from me — someone no one of importance knows — or especially from the Dark One. Take it from Time’s “Master of the Universe.” Billionaire financier Carl Icahn, whom Donald Trump would tap to be his Secretary of the Treasury, just released a strong warning video today in which he says,


I’ve been worried for the last five, six months about the market and the economy and the dangerous spot that we’re in…. This country needs — somebody to wake it up. The same type of short-term thinking that is happening in government is happening in corporate America…. It’s financial engineering at its height. The earnings that are being put out today — I think they are very suspect. These earnings are fallacious. And, yet, analysts look at it quarter for quarter. If your earnings went up for the quarter, your stock goes jumping up…. If you really do GAAP [Generally Accepted Accounting Principles], you haven’t really increased earnings for three years…. We are making earnings with financial engineering…. I’ve seen this before a number of times. I’ve been around a long time. I saw ’69, ’74, ’79 …  ’87, and then 2000 wasn’t pretty, and I think a time is coming that might make some of those times look pretty good…. The public, they got screwed in ’08. They’re going to get screwed again.


Icahn, is an icon of the financial world. When Time magazine called him “Master of the universe” on their cover, they said he was “the most important investor in America.” The Icahn of finance is speaking in nearly apocalyptic terms about the US economy and where it is headed.


Major hedge fund managers, where we saw so much trouble in the economic collapse 2008, are in trouble again


There’s no big bank failure on the horizon. The housing market is booming, not melting. Yet for a handful of well-known hedge fund managers, 2015 is looking a lot like 2008, when their industry suffered record losses and investor withdrawals…. Every struggling hedge fund has struggled in its own way, yet September did a lot damage for many managers, including Ackman, who slumped as much as in all of 2008…. “Hedge funds are reeling from a relentless rout that has all but killed a year’s worth of alpha in a matter of two weeks.” (“Hedge Funds on Track to Rival ’08 Slump“)


The Fed heads are already dead and don’t know it


One of my bold claims for this fall was that the Federal Reserve would wind up in a position where it would no longer matter if it raised interest rates or not. They would be damned if they do and damned if they don’t. 1) If they raised rates, the end of life support would shock-pop the stock bubble created by free money that can be borrowed at zero-percent interest. 2) If they chose, after so much talk about raising rates, to not raise them, people would cue in quickly that there really has been no recovery. After seven years, the still believes the economy is too shakey to even weather a quarter-of-a-percent interest boost. It would give the lie to their narrative of recovery.

I am now seeing that exact argument materialize in many places. Here is one example:


The Federal Reserve continues to change the criteria for raising interest rates, which in turn creates increasing uncertainty and signals that all is not well with our economy….

The result of these moving goal posts and unclear goals is increasing uncertainty. Its most visible impact is in the increased volatility in the stock market.

It also sends a clear signal that our economy continues to be in a state of emergency. The accommodative monetary policies of bond buying and zero interest rates were sold to Americans as emergency measures to help stabilize the U.S. economy. There continuation means that our economy has been in a state of emergency for almost 7 years. Chair Yellen even confirmed this by stating that the U.S. economy is too fragile to withstand the normalization of interest rates, even with a slow ramp up over many years.

It seems that the Federal Reserve finds itself in between the rock and a hard place it wanted to avoid. (Newsmax)


The truth that now dawns is that, rather than having been through seven years of recovery, we have been through seven years of being in a state of emergency. The Fed’s recovery charade is in need of its own recovery.

America is collapsing.



What about my prediction that this would not just be a US stock-market crash, but a global economic collapse?


Suffice it to say for the moment, that everything is only so much worse in the other economies of the world.


The U.S. economy, which has been outshining most others around the world, is weakening. Lackluster growth overseas has reduced exports of U.S. factory goods. China, the world’s second-largest economy after the United States, is slowing. Europe is struggling. Emerging economies from Brazil to Turkey are straining to grow at all. (Newsmax)


I won’t spend much time on this because I think everyone knows that things look even worse in the rest of the world right now than they do in the U.S. So, let’s just look at what one of Europe’s largest and most influential banks, Credit Suisse, has to say:


The financial markets have been flashing doomsday signals in the past few months.

China’s stock market rout, commodities getting crushed, and a loss of investor confidence at Glencore and Volkswagen have combined for the worst quarter since 2011.

A team of Credit Suisse analysts led by James Sweeney looked at investor appetite for risk and found that it fit the profile of a full-blown panic. (“CREDIT SUISSE: The markets are gripped by ‘panic’“)


Hmm. “Full-blown panic.” No wonder the bullheaded Jim Cramer is even getting the point that the bull markets in stocks are dead. The bear is back everywhere, and she is angry.

In fact, twenty of the world’s emerging markets are officially in recession. By “emerging markets” economists mean smaller nations with economies that were rapidly rising during the vaunted “recovery” from the Great Recession. Now, they are rapidly falling.

From the beginning days of quantitative easing and low interest rates, I have said that both were artificial life support and that our “recovery” from the Great Recession would end as soon as all the artificial life support. It would end because those stimulus measures were resolving nothing that needed to be fixed; so, their effect is temporary, and they are not economically sustainable because you cannot run the money press at full speed forever without creating far worse problems.

More recently, I said that we will not even have to reach the point where the last of artificial life support (zero interest by the Fed) ends before the effects of stimulus end. That would happen this fall, I claimed, because the Fed’s stimulus has reached the point in the curve of deminishing returns where maintaining stimulus is now more damaging to the illusion of recovery than it is helpful. Simply put, the Fed has been making so much noise for so long about the possibility of raising interest rates that not raising them would cause many people to start to wonder if the Fed will ever be able to raise interest rates without killing its “recovery” (which, of course, it never can; see previous paragraph).

So, it’s now game over. The illusion is giving way. It no longer matters if the Fed raises interest rates. Even many of the permabulls are starting to see that the emperor at the Fed has no clothes. (And we’re talking Grandma Yellen, so yikes!) Even Bank of America is able to see it now and boasts of how prescient they were … just for being less rosy a year ago than they might normally have been. That’s foresight, Bank of America style!


I am betting my blog that we are now in a US stock market crash and a global economic collapse


Last year, I nearly bet my blog that the stock market would crash in the fall. In fact, I wrote that into an article and later mentioned that I had made that bet. When I went back to look for it months later (when it still wasn’t clear what the plunge in Sept.-Oct., 2014, really was), I found I must have thought the better of going out on that limb and taken the bet out before publishing the article. Searching back through several articles, I couldn’t find it.

Though I stopped short of betting my blog, I did predict a stock market crash for the fall of 2014. For several months after that, it may have looked to some readers here like I was wrong. I sometimes wondered myself. Now, I think a strong case can be made that the October 2014 plunge, to which the present equal plunge is being compared, was the first major foreshock of a bear market that has been unfolding ever since and is now developing into a full-blow economic collapse.

Therefore, I am going on record now as betting my blog that we are, in fact, in an unfolding stock market crash and a global economic collapse. Many still don’t see it that way (a.k.a. folks like Cramer who see it as a bear market that will end soon). So, I’m not making this bet after the fact. Many Wall St. gurus, in fact, still do not agree that we are in bear-market territory, much less a full-blown stock market crash. We won’t know who is right until we have enough of it behind us to know for certain what to call it.

My bet is this: If the present downturn does not develop into a stock market crash that is also part of a global economic collapse, I’ll stop writing this blog. To be more specific, before this bear is done raging, I am betting the stock market will be down more than 20% and may eventually drop as much as 60%. In fact, I believe the world is entering an economic apocalypse because the bursting of the recovery illusion that so many have put their stock in (literally) is going to be horrifying for all of those who have believed in it and very difficult for even the prepared.

I suspect there will be some additional emergency shoring to maintain the illusions a little while longer because I can’t imagine the government wouldn’t dress the corpse up as well as it can during an election year where ALL incumbents stand to fail if the economy completely collapses on their watch. Yet, I also cannot imagine any efforts will be successful in reversing or slowing slide for even as much as a year.

Regardless, the illusion is now breaking up. All that might be obscured for the election year is just how bad the failure of our present economic system really is.

So, get ready for The Great Recession, Part Two!




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  1. Ping from Knave_Dave:

    Thanks for pointing out that the links aren’t showing up for you. I see them on my computer, so will have to check from another device to see if I can still see them or need to do something to fix them.

    This is the first I’ve heard of the problem with GM. I’ll have to look into it. I don’t know how the interest rate change would affect them, but I do think there are likely to be hidden surprises out there (like you point out with GM) that would suddenly pop up as troubles when the free interest is over. What affect might it have, for example, on oil producers that are already struggling if some of their financing is through conventional adjustable-rate loans? They’re already hanging on by their teeth. What does it mean for companies that have financed with bonds and that planned to role their bonds over via a new bond issue when the old ones mature when the new bonds will be at a higher rate?

    I think the biggest question in terms of paying higher interest is what impact it will have on the federal government’s interest paid on the national debt? When interest rates go up everywhere else because of the change in the fed’s bank rate, the federal government will have to offer higher interest on its bonds to compete with the other investment options people have. We’ve doubled the national debt during the Obama years but have done so during a time when interest is as low as it has ever been. I don’t think the government has paid any attention to whether or not it can support that debt once interest rates start rising.

    As for Trump, I don’t like him as a person; but I don’t have to like someone to think they’d do OK as president. I think that neither the Republicans nor the Democrats have anyone who can get us out of the mess they’ve created. They cannot seem to think outside of their boxes. Neither of them are willing to make the tough economic structural changes that are needed. Maybe Trump is. My concern with Trump is that his brash personality will cause many people not to work with him, especially in foreign affairs. Still, we need something to shake up the status quo.


  2. Ping from Argues a lot:

    Hey Knave Dave, solid analysis as usual. I just read a newsletter on the auto sector. They say if there is a rate hike that will be the catalyst that pops the obscene bubble. That will be the last nail in the coffin for GM considering they have 71% of loans in sub-prime auto. I wanted to hear your take on this bubble, and the last section of your article addresses some books about global collapses but no links? Also what’s your take on Ichan and Trump?

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