A Preliminary Report on the Stock Market Crash of 2010: Who Is Saying What
By Evan Pritchard
Oct. 10, 2010–People are saying all kinds of things about the stock market these days and predicting all kinds of things. The actual situation is too complex for anyone to prove their position, and much of it is political, but some of it makes sense. They all seem to have different reasons for thinking a crash will come this year, and different dates when they think it will happen. And some of the people saying it have a lot of credibility. The important thing is, who is saying these things and why?
Looking at the Dow Jones averages of late, the average person would just see good news. DJIA (Dow Jones Industrial Average) was at 14000 in 2007 but then came the mini-crash of 2008. It was down at 9800 in July, then on October 8th it peaked at 11, 032, highest since May 1st. NASDAQ and is now up to 2417 (Oct. 12th) The New York Stock Exchange has gone from 7000 on September 1st to 7478 10/10 (and up to 7490 as of 10/12). The NYSE, which was once at 10,000 in the good old days of 2007, went from 6400 in July to 7478 as of 10/10), up 1000 points in only 3 months. Looking at these figures, the layman would say Obama must be doing a great job, and things are looking optimistic. But nearly all the independent experts are calling for “the big one” in the next 85 days.
Fortune Magazine is calling for a crash. Shawn Tully, senior editor at Fortune, wrote back in May, “Here’s how I see the odds. The chances are about one in three that we suffer a huge, wrenching correction in the next year or two similar to the one in 1987. That possibility is so high because stocks are so startlingly expensive. Another high probability event is that markets go on a long sideways grind, with smaller drops along the way. What’s extremely unlikely is that the market rises substantially from current levels and stays there for any extended period./Whatever happens in the next couple of years, the odds are overwhelming that investors who buy stocks today will reap puny returns for 10 years.”
Another article in the current Fortune Magazine noted that 11,000 is a “key” level.” And says, “The last time the blue chip index traded above that level was just days before the”flash crash” that sent the Dow tumbling nearly 1,000 points in one day.” Fortune Magazine of October 9th feels the surge is due to bad news on unemployment figures, and that the government is sure to provide the stimulus to correct that soon. It seems that high prices and low employment is an unusual combination that is hard to fix.
Charles Gasparino has a new book out called Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street. On a radio interview on NPR on Saturday October 9th, he said that the stock market is acting very strangely, reaching 11000 points but with a very low volume. This means (vaguely, as no one seems sure what volume means) that a few people are doing a lot of buying and selling at unusually high prices. Generally the market has risen quickly in recent weeks, and that sometimes is a bad sign. Such a rise has come just before each of the other mini-crashes. Gasparino said that “people should not be in the stock market at this time,” that it is too unstable. What is sounded like he was saying was that he foresees a crash, but presumably does not want to be blamed for triggering a panic. Pointing out White House connections with the worst Wall Street firms, he blames Obama for the coming disaster.
The Activist Post wrote, “…Thursday August 12, the US equities market triggered a confirmed technical indicator known as the “Hindenburg Omen.” This omen, as you may have guessed, suggests that a stock market crash is on the way. However, it doesn’t mean just any crash — according to Albert Edwards, a London-based strategist at Societe Generale SA, the indicator means “a savage equity downturn is imminent.” But no one seems to be able to explain what the Hindenburg is.
Gerald Celente said, on August 16th, (Alex Jones radio) “It’s only going to get worse, there is no recovery.” He said the unemployment rate, all included is about 22% Not 9.5 % as reported. There is word of a plan for regulation of gold sales by January 2012, and a 1099 requirement, some are fighting it. Trendsjournal.com Celente says, on RT America,“The bailout bubble will burst. Greece is the canary in the mine…a symptom of what’s more to come.”
When asked on RT America, “Whats next? Celente answered,“The crash of 2010…We said it on Jan 13th of this year, and were sticking with it. The world markets will go through a crash before 2011. This is just a cover up, you can’t keep printing paper money… You have to be out of your mind to invest in the stock market; its a rigged game…The system is collapsing.”
Gerald Celente appeared on Fox Business news broadcast on December 29th, 2009, and said that bailouts and stimulus were 5.5 trillion after March of 2009, and foresees a 40% drop in the dollar’s value soon, leading to the Greatest Depression. He said that during the “Great Depression” in 1929-39 we had a trade surplus, now we don’t.
Dennis Slothowers report, Stealth Stocks, says that the Stock Market crash could begin as early as October 31st, 2010 (Halloween). But he doesn’t say why he predicts that date. Of course it is obvious; that is two days before the Republicans are going to try to scare Americans into turning their backs on their President, thereby inadvertently or strategically triggering the crash, depending on your point of view.
Tony Robbins (at his website, see Daily Motion) issued an “Economic Warning,” parts one and two, August 25th, 2010. In this lengthy and atypical video speech, he makes a carefully worded announcement, the meaning of which is hard to miss. He says, “Right now is a time you might want to consider…educating yourself, pulling your (money) off the table. The next six seven months, the financial world you know is about to change radically… It’s coming quick…Try to know the road ahead. Protect yourself. Protect your investments. This economy is going to get worse before it gets better. The interest rates are about zero. The economy is driven by one thing, spending. 70% of the economy is consumer spending. When people stop spending the economy goes into a shrinkage. I see it as it is, not worse than it is. According to the U of Michigan study, consumer confidence is at its lowest since September 11th. The economy is going to shrink. Credit is not in demand. We’re seeing the single largest drop for demand for credit in 60 years. We are paying back more than we borrowed.
Several financial commentators have mentioned the date December 30th, 2010 as the day of the Great Crash. There seem to be two sets of reasons for this date. One is that is the day that the Reagan tax cuts for the rich expire, and the other is that is the time that the Chinese government decides whether to invest in the US dollar or to dump it, which would cause it to collapse. Let’s look at these two simultaneous threats to the stability of the stock market.
Gasparino, speaking on NPR on October 9th, said that Obama was resisting extending the tax cuts for the rich on December 30th, on ideological grounds, but argued that the economy needs stimulus right now and tax cuts for the rich are the perfect stimulus; it’s a no brainer. It seems that many of the super rich, stripped of these huge tax cuts, will take their money out of the stock market and put it in foreign investments instead. That could certainly trigger a crash.
Mediamatters attacked Fox news on their reporting of the Reagan Tax Cut extension bill. On June 10, 2010 , they posted, “On Fox & Friends, guest Art Laffer misleadingly claimed that “President Obama has decided to let Bush’s tax cuts expire,” falsely claimed that the “dividend tax rate’s going from 15 to 39.6 percent” and pushed the dubious claim that Reagan “postponed tax cuts which… caused the deep recession of 1981-82.” In fact, under President Obama’s proposed budget, tax rates would only increase on top earners, and dividend taxes for those taxpayers would increase to 20 percent, not 39 percent.”
But the Socialist Worker heaps the blame more on the Republicans than the White House. They pinpoint House Minority leader John Boehner of Ohio, who has ambitions of becoming House Majority leader and is wining and dining the big Wall Street leaders, GS, Citigroup, R.J. Reynolds, Miller/Coors UPS, etc. to raise money for Republican campaigns. It doesn’t mention that these Republican candidates, if they win, would vote to restore the Reagan tax cuts for the rich after their inaugerations on January 20th, 2011. And a Halloween stock market crash would pretty much give Republicans the house.
According to The Socialist Worker article, “The Republicans have big plans for November and are stepping up their fundraising. Republican consultant and White House puppet-master during the Bush era Karl Rove and former Republican National Committee chairman Ed Gillespie have gotten together to create “American Crossroads,” a 527 group that has vowed to raise $52 million for House and Senate elections.”
But on Wall Street, experts are saying privately that they are watching the calendar for December 30th, 2010; if strategists don’t induce a collapse to spin the election, it will happen naturally on that day because the super-investors will pull their money out of the stock market to place it in other markets or Swiss bank accounts where it will not be subject to the pre-Reagan level taxes or in any case, significantly higher taxes on incomes over $250,000. There is a big argument over what level the new taxes will be on these incomes. Obama’s website says that the top 2% will be asked to return a portion of the money they saved via tax cuts over the last eight years. He says no family will be made to pay more in taxes than they did in the 1990s. But which year? Republicans are claiming that he will make the top 2 percenters pay pre-Reagan levels, 39.6% which would be very high indeed. Obama flatly denies this charge. Media sources are saying Obama plans to set the taxes for 2 percenters at 20%. But there’s nothing in writing, and that ambiguity could contribute to a panic of the rich that could lead this thinly supported and overpriced market down to the dogs.
The China Syndrome
The other reason for the interest in December 30th, as a possible “crash” date, is that this is the approximate time that the Chinese government decides what currency they will invest in each year. This year’s choice will be especially difficult in that the US Senate has pretty much passed a bill that would place huge tarrifs on Chinese imports, a bill that The New York Times suggests may be in violation of international trade agreements and laws. In July, Obama was told by the Chinese that “we will not dump the US dollar any time soon.” This is not an exact quote, and in fact the original wording may have been in Chinese, but “any time soon” could be five months or five years. The Chinese realize that a stock market crash in New York is not good news for Peking, but if there is enough anger in China about the tarriff bill, it could lead to trouble. For example it might lead them to depeg their currency from ours, or it could lead them to buy up less US dollars than in the past. Any of these actions, combined with other factors mentioned here, could accidentally trigger a loss of confidence in the market and a subsequent crash.
Experts have been talking about this problem since July 2005 when China abandoned a fixed exchange rate. Every December 30th, people get nervous that the Chinese will dump the dollar and invest in Euros, or some other currency. The US dollar has been the world’s standard currency since about 1950, but since the Euro was created, it has been a year by year decision, and there have already been some close calls. The Chinese invest in “baskets” of mixed currency, and peg their exchange rate to the US dollar (always keeping the Yuan slightly below the dollar) so it would be easy to gradually phase out the dollar and peg to an average of many currencies. And yes, any sudden moves in that direction would cause the dollar to collapse. We also owed them $268 billion in 2008, the most money anybody has ever owed anybody else. Now it is down to $227 billion!
The Smoots-Hawley Tarrif act was passed around 1930, which greatly worsened the great depression. (economicthought.net) There are those in the financial industry who argue that the tarriff bill coming up to the House for approval could trigger or worsen a depression regardless of how China decides to peg their yuan.Tarriffs are considered desperate measures for a reason. They can stir up trouble with trading partners.
The whole matter of pegging the Chinese currency to the dollar instead of a basket of currency is hard to grasp at first. The Chinese are keeping the Yuan a tad below the dollar in value, which helps insure that the US never resolves the trade deficit, but on the other hand, if they unpegged, it could have the effect of removing the dollar from its role as the world standard. Paul Krugman wrote on January 1st, 2010, “Here’s how it works: Unlike the dollar, the euro or the yen, whose values fluctuate freely, China’s currency is pegged by official policy at about 6.8 yuan to the dollar. At this exchange rate, Chinese manufacturing has a large cost advantage over its rivals, leading to huge trade surpluses.”
In The Wall Street Journal published on October 8th,Dee Woo wrote, “….Washington can’t afford a weak-dollar policy—because the only thing standing between the U.S. and a Greek-style sovereign debt crisis is the dollar’s status as the global currency. A weaker dollar would threaten that status. Within 20 years, according to the Congressional Budget Office, U.S. debt is projected to equal 140% of gross domestic product (GDP), and this doesn’t even include the budget troubles of state governments. In Greece, debt is a mere 115% of GDP.
“For now the Fed can absorb difficulties because, unlike Greece, the U.S.’s public debt is denominated in its own currency. But that might not always be the case. Many countries have already begun seeking refuge in reserves of currencies other than the dollar, and since December 2006 there has been more value circulating in euros than in dollars. The collapse of the dollar as the global currency is not an impossibility.”
The new Trade Tarriff bill is the first of its kind, and is obviously targeting China a competitor rather than ally. It is an unfriendly gesture towards China, in response to similar tarriffs on their end. It is one of the few ideas that both Republicans and Democrats agree upon, but nonetheless it is extremely risky, as China’s economy is so strong. As Dee Woo wrote in the October 8th, Wall Street Journal, “All this means that the U.S. should adopt a collaborative approach toward China. Now is a bad time for confrontation. The U.S. currently needs China more than China needs the U.S. China’s cheap labor and capital are good for American corporations. All China gets in return is more greenbacks. If the Chinese start to believe that it’s just useless paper, that will be very bad news for America.”
The New York Times on September 9th, 2010, published a story by Christine Hauser, that stated, “United States trade deficit narrowed by 14 percent in July as exports by American companies rose by about $2.8 billion, suggesting that trade would be less of a drag on growth in the months ahead. “ This is good news overall.
Another date that comes up is not Halloween, but October 29th, two days before, because that’s the day the Great Stock Market Crash of 1929 occurred. This year that would be four days before the midterm elections. I hate to sound cynical, but I’m sure John Boehner would rather have his custom made stock market crash four days before the election rather than at the end of the year, thus making him House Majority Leader. If there was a major crash like 1929, it would almost certainly make many voters angry with Barack Obama, and their way of showing anger towards an incumbent has been to vote for the other party, so that they can stop his bills in the house with a two-thirds vote or write new bills with their majority. In fact, after January 20th, 2011, the new “Republican” inauguration date, it would allow Republicans in Congress the opportunity to write a bill to replace whatever bill Obama writes as far as extending the Reagan Tax Cuts bill is concerned. Of course, when that legislation gets to the Democratic Senate, it may get ugly.
Bill O’Reilley on the Spin Factor had a lot to say about an Obama-led stock market crash. He has said that a crash has never been more predictable, calling it “inevitable.” But we expect that from him.
The History Channel suggests a large crash is coming, drawing parallels between 1929 and now. Andrew Carnagie was Secretary of Commerce and was compared to Alan Greenspan. Bush was compared (indirectly) to Hoover. Credit was too easy before 1929, and the market was unregulated. The difference is now we have a global Capital Market System, which seems to have some fatal flaws as did the old pre-1929 system. They suggest that a crash will “test” the system.
According to the History Channel, between 1929 and 1932 stocks lost 90% of their value. 25% became unemployed. In 1931 Hoover tightened credit and raised taxes, a big mistake, then in 1932 they tried bailouts but it was too late. January 1933 saw FDR and the New Deal. The market did not return to pre-29 levels until 1943, at the end of the war. In 2008, some homes in America lost 70% of their value. Mark Twain was quoted as saying, “History doesn’t repeat itself, but it rhymes.”
Wax Your Surfboards, Here Comes The Elliot Wave
The Elliott Wave Principle is a form of technical analysis that investors use to forecast trends in the financial markets by identifying extremes in investor psychology, highs and lows in prices, and other collective activities. Ralph Nelson Elliott (1871–1948), a professional accountant, developed the concept in the 1930s. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves. Elliott published his theory of market behavior in the book The Wave Principle (1938), in a series of articles in Financial World magazine in 1939, and most fully in his final major work, Nature’s Laws – The Secret of the Universe (1946). Elliott said that “because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable.” (Wikipedia)
The Elliott Wave is a hot topic of discussion right now because experts are seeing a crash coming based on this pattern. Here’s the scoop.
Posted at Yahoo Finance: Expert Analyst Bob Prechter “Quite Sure” Next Wave Down Will Be Bigger and March Lows Will Break
Posted Aug 11, 2009 11:52am EDT by Aaron Task in Investing, Newsmakers
Related: ^DJI, ^GSPC, SPY, DIA, QQQQ, ^RUT, BGZ
In late February, Robert Prechter of Elliott Wave International said “cover your shorts,” and predicted a sharp rally that would take the S&P into the 1000 to 1100 range. With that prediction having come to pass, Prechter is now saying investors should “step aside” from long positions, and speculators should “start looking at the short side.”
“The big question is whether the rally is over,” Prechter says, suggesting “countertrend moves can be tricky” to predict. But the veteran market watcher is “quite sure the next wave down is going to be larger than what we’ve already experienced,” and take major averages well below their March 2009 lows.
Yes, the late 2007-early 2009 market debacle was just a warm-up to what Prechter believes will be the bear market’s main attraction. In this regard, he says the current cycle will echo past post-bubble periods such as America in the 1930s and England in the 1720s, after the bursting of the South Sea bubble.
The 2000 market peak market a “major trend change” for the market from a very long-term cycle perspective, and the downside is going to continue to be painful well into the next decade, Prechter says. “The extreme overvaluation, the manic buying and bubbles in the late 1990s [and] mid-2000s are for the history books – they’re very large,” he says. “The bear market is going to have balance that out with some sort of significant retrenchment.”
Expert Investor Jimmy Rogers Pessimistic Amid High Stock Values
Article in Investing Magazine, Jimmy Rogers, posted at Yahoo Finance, October 6th, 2010
Stocks, gold, energy and other commodities soared Tuesday after the Bank of Japan announced plans to dramatically expand its quantitative easing program. The BOJ’s action spurred expecations for similar efforts by other central banks, Bloomberg reports, which helped the Dow climb 1.8% to within reach of 11,000. Meanwhile, gold hit another new record above $1,340 an ounce, silver reached a 30-year high and tin jumped to a record near $26,000 a metric ton.
But don’t confuse strength in such “risk” assets with an improving economy, says Jim Rogers, chairman of Rogers Holdings.
“When you print a lot of money, the people who get the money are better off — there’s no question about it. But the country, the world is worse off,” Rogers says. “Sure some of us feel much better, especially people in the financial markets but…the world is not getting better. The world is getting worse.”
Sticking to themes he’s expressed here (and other venues) for many months, the legendary speculator remains bullish on “hard assets,” notably precious metals and agricultural commodities.
“Gold could correct for a few months [but] the bull market in gold is not over – far from it,” he says. “I’m much more bullish on agriculture than I am even on gold. I own both. You should become a farmer – farming is going to be a great, great profession.”
Rogers predicts “more turmoil” in the currency markets, more problems in the stock market, weakness in bonds and, ultimately, inflation.
“Central banks and governments are going to print money until we run out of trees. It’s outrageous,” he says. “Printing money is not the right thing to do, but they don’t know that. Eventually, they’ll run out of trees.”
In the meantime, he owns the Swiss franc, euro and yen but is not actively short any currencies, including the greenback.
The dollar is a “terribly flawed currency” and is “going to have big problems in the next decade,” he says. “But that doesn’t mean it won’t go up. Everyone is very pessimistic [on the dollar], including me. I wouldn’t sell it right now.”