Stocks Bear Market Not Over And Stock Markets Will CRASH This Fall
Stock-Markets / Stocks Bear Market Aug 03, 2009 - 04:48 PMBy: Graham_Summers
A lot of commentators have begun heralding a new bull market in stocks. Day after day, I hear that March was THE bottom, that the next bull market has begun, and that anyone betting on another collapse is a moron.
These claims are not only wrong, they are completely misleading and should be depicted for what they are: nonsensical hype from sources with conflicted interests: folks whose jobs and income stem largely from people remaining bullish.
More often than not, these are the same guys who claimed that Bear Stearns marked the end of the Financial Crisis (how’d that work out?) and that the Federal Reserve can pump our way back into a bull market (how’s that working out?).
The reason this is entirely wrong is because this recession is not your average run of the mill excess inventory recession: the kind of economic contraction we’ve experienced post-WWII.
No, this is a DE-flationary debt collapse, a bursting of a 30-year credit bubble that papered over enormous drops in real incomes, standards of living, and financial stability. The private sector hit a point of total debt saturation in 2007
This recession so far has been the first taste of DE-flation the US has experienced since the ‘30s. Comparing it to every other post WWII recession is like comparing apples and oranges. A debt bubble cannot be re-flated by issuing more debt. A second grader can understand this. I don’t know why guys with PhDs, alleged experts, and the like don’t get it.
For 30 years, our economy grew by borrowing from the future. I mean that the US’s economic growth was funded largely by the use of credit: borrowings that would be paid back down the road.
In simple terms, the economy grew based on imaginary, not REAL demand. We pulled forward future sales of cars, TVs, homes, and the like. By using credit, we bought things NOW, that we would have normally bought LATER. This pulled future sales, future corporate earnings, future incomes, and future economic growth to the NOW through the ‘70s, ‘80s, and ‘90s.
So instead of having a safe, annual rate of consumer spending growth (say 4-5%), we saw double digit rates of growth: for example, between 1980 and 1990, credit card spending increased more than five-fold while average household credit card balances quadrupled. That’s NOT normal.
This lead to the single largest debt bubble in history ($49 trillion in private sector debt and $50+ trillion in public sector debt). And a debt bubble can continue until you can no longer meet debt payments. The private sector hit its “debt wall” in 2007. The public sector continues to grow its debts, creating an even larger bubble that will have even worse consequences.
Now, as you know, there are only two ways of dealing with a debt problem:
- Paying it off
- Defaulting
The US consumer has begun both. From February to May of this year we paid off $45 billion in credit card debt. Consumer credit contracted $3.3 billion in May, the fourth consecutive monthly decline (this makes our current credit contraction the longest running since 1991).
And we’re just getting started…
Total consumer debt at the bubble’s peak was $2.57 trillion (the other $46 trillion was corporate). So the fact we’ve paid off about $50 billion of this means Joe America has a LOT more (98%) debt to pay back and default on before he’s finished de-leveraging his balance sheet.
Folks, we’ve got a long, LONG ways to go before this crisis and Crash are over. Anyone who’s telling you the Bear market is over either isn’t looking at the data or is basing their analysis on “a gut feeling” or some other nonsense. They’re all going to get destroyed this fall.
Tomorrow I’ll show you two charts that should make your jaw drop. And I’ll explain why today’s market is mirroring the Crash of 1929 almost PERFECTLY. I’ll also explain why this market rally is just about finished and why anyone buying stocks today is going to get obliterated very shortly.
In the meantime, I’ve put together a FREE Special Report detailing THREE investments that will explode when stocks start to collapse. I call it Financial Crisis “Round Two” Survival Kit. These investments will not only protect your portfolio from the coming carnage, they’ll also show you enormous profits: they returned 12%, 42%, and 153% last time stocks collapsed.
Swing by www.gainspainscapital.com/gold.html to pick up your FREE copy!!
Good Investing!
Graham Summers
Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets.
Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.
Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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