Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

How Bubbles Burst In A Global Market

Stock-Markets / Liquidity Bubble May 02, 2014 - 06:52 PM GMT

By: Raul_I_Meijer

Stock-Markets

More curious numbers every day. An increase of 288,000 jobs in the BLS report’s Establishment Survey, but a decline of 73,000 jobs in the Household Survey; an additional 988,000 Americans left the labor force for an all time high of 92 million not in the labor force, as the Labor Participation Rate moved towards lowest since January 1978 and the Birth/Death model added 234,000 jobs. This is where I think: you tell me.


Most interesting graph of the day must be the Bank of America one Tyler Durden posted, which shows where the smart money parted ways with the mom and pop greatest fools.

That takes me to a Jeremy Grantham note Durden also posted, in which Grantham describes how he and his people at GMO have tried to define bubbles to figure out when this one will burst. His preliminary conclusion is, with a lot of caveats, and I’m oversimplifying, that he would expect a run up in the S&P all the way to 2250 or higher before the crash, which he sees happening around the time of the next US presidential elections, in 2016.

  1. … this year should continue to be difficult with the February 1 to October 1 period being just as likely to be down as up, perhaps a little more so.
  2. But after October 1, the market is likely to be strong, especially through April and by then or in the following 18 months up to the next election (or, horrible possibility, even longer) will have rallied past 2,250, perhaps by a decent margin.
  3. And then around the election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse, depending on what new ammunition the Fed can dig up.

Looking at that, I’m wondering about the double trend in that graph above: how much longer will mom and pop keep buying in the face of the smart money leaving, and how much more can the smart money sell? Does that look like a trend that can last another 30 months? What about UK housing prices, can they rise 30 more months? Does Grantham think Japan will last another 30 months, given that Abenomics looks like a sure failure, despite the ‘great’ March sales numbers which were due only to that April 1 tax hike? What does he think of China, where, no matter how much numbers may contradict each other, it looks hard to deny matters have hit a serious snag?

I’m wondering if models like Grantham’s maybe look too much and too exclusively at American markets through history, and pay too little attention to the fact that the – potential – influence of other markets has increased to higher levels than seen in at least a long time. Is that what we see when he posits the 2016 US elections as a possible turning point? That his theories are based on too much all US all the time, perhaps because the advent of Asian and other emerging markets has no precedent in history over the past 100 years?

I know that bubble collapses are impossible to pinpoint, and I know that Grantham comes with all the caveats he builds into his notes, and that it’s hard to foresee which central banks will come with which next round of bankers’ wives and children first, but then again, Grantham does post this graph from John Hussman, and he does write this comment:

Exhibit 8 shows an equally disturbing Hussman exhibit in which he has collated very bad things that happen to markets. His exhibit suggests that whenever this large collection of troublesome predictions line up like they have recently there has been a very serious and fairly immediate market decline. While I have no quarrel with the eventual outcome and recognize that possibly the bear market’s time may have come, particularly in light of recent market declines (April 13, 2014), I still think it’s less likely than my suggestion of a substantial and quite lengthy last hurrah.

Hussman’s graph, as is obvious, is based on US markets as much as Grantham’s thoughts are. Perhaps that is simply too limited in today’s world. Because I don’t think anyone could argue that either China or Japan, or Europe, would NOT be able to sink the S&P. Whereas 50 years ago, that would have looked entirely different.

Anyway, that struck me in what Grantham writes. Not that it’s impossible that a real big crash, of which he’s as sure as I am by the way, will take 30 more months to materialize, but I see too many risk factors around the globe that could sink the S&P, to agree with his analysis. For instance, I think the Fed may feel it can continue to taper because it’s found a way to transfer the negative effects to emerging markets (I’m sure that’s a major consideration), but a major shock in some of those markets may backfire and take enough air out of Wall Street to cause serious damage there.

All that remains in today’s financial systems is a paperthin layer of trust, in the Fed, the S&P, the government, and that’s true for many countries, with their own central banks etc. In the present time, those risks no longer simple add up, they get multiplied into a kind of exponential function. And that’s new, historical models don’t capture that. It’s new to the extent that analyzing only the S&P’s history may well be woefully insufficient. Global financial markets have developed a cross-breeding incestuous relationship that’s a sort of an all for one and one for all, in which they all rise together and get swallowed up by a sinkhole together. And the more QE is applied across global central banks, one after the other, the deeper that hole becomes, in an exponential fashion. I think that needs to be part of any US market analysis.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved 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.
Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules