Is the Stock Market Near Collapse?

[Smaulgld]

Is the Stock Market Ready to Collapse?

13:56-18:26 discussion of the tenuous position of the stock market with sky high valuations and no underlying fundamentals to support them.
The stock market could do down on a moment’s notice and stay down because the companies are not doing that well and will do worse after a stock market crash, so a swift rebound may not happen even if the Fed attempts to reflate. The Fed appears to be trying to talk down the market a little perhaps to avoid a larger correction or crash.
Ron Paul and Elizabeth Warren vs. The Fed
30:20-35:48 Discussion of the difference between REAL questioning of the Fed, like Ron Paul vs the faux populism fake theater questioning of Elizabeth Warren.
See Ms. Warren and Janet yuck it up after the hearing.
Breaking Point for the Stock Market
41:22-46:10 Market participants certainly know they are participating in a farce. When does the market stop playing along. When is "dot bomb!" called? What happens to the economy when the market crashes? Will investors dive back in expecting a quick rebound?
What Happens after the Next Stock Market Crash?
The stock market is at an all time high but the US economy is nowhere near its all time peak. Sales are down and its not the weather.
Massive Stock Market Collapse?
51:00 prospects for a market collapse are discussed. Bubble companies with no earnings can not be blown back up especially in a post crash economy. Companies will fall to fair value and drift lower as their prospects decline. The Fed would like to ease some froth out of the market to avoid a larger crash. Discussion of central planning and their involvement in the stock market which is close to price fixing.
Podcast Summary
http://smaulgld.com/stock-market-ready-to-collapse/

[Carson]

It doesn't seem to me the breaking point of the stock market is what we have to worry about. I see the problem as being the breaking point of the people.

Let me try and explain.

I'm seeing the stock marked as only a reflection of the value of the currency. When they double the amount of money in the system the stock market adjust accordingly by changing the asking and selling price.

Take a look at this chart Robert Sahr came up with based on the Consumer Price Index showing the devaluation of the dollar.



Even before the central banking system we have now we were able to introduce counterfeit money into the system and throw the value of the dollar off. See how we did it in times of war numerous times?

Now look at a long term look at the Dow Jones Industrial average.



Notice how its baseline of about 500 matches Robert Sahr's charts baseline of about $5.00. Then they both top out at about 13000 and $130.00 respectively. I thinking the DOW is adjusting to keep its value current with the devaluation of the dollar.



And now that gets me to the problem I see coming as the breaking point of the people.

All the time the counterfeiting is going on with the central bank it is stripping the wealth out of all of our everything. According to Robert Sahr's chart that has been happening at the rate of about 8% a year for the last fifty years after going off of the gold and silver standard. Most of the change happens slow and unnoticed like a frog in a pot of water that the temperature is slowly being raised to a boil.

Since we are already looking at stock lets look a little more into the way that is changing. On the one hand it is remaining stable and pacing the devaluation of the dollar. If you owned a million dollars of stock in the seventies it would be worth now about thirty four million. It would have kept you up with inflation all of those years, unless your one to the people that has to pay their capital gains taxes. Then all of a sudden your out about a third of your millions on the ILLUSION of a gain.

The eight percent a year effects us in o so many other ways.

Now lets take a look at a chart of our recent history in regards to the breaking point of the people. Something most of us would have felt.



I'm thinking this chart shows what happens when we reach our breaking point and we start defaulting on loans.

Some of the bigger drops might be labeled the Dot.com bust or the Housing bubble. There are also many others in there many of us felt personal. The Dot.com bust our Housing bubble weren't isolated to housing or stocks. They hit us all at home in many ways.

Anyway what they did do is cause a lot of defaulting on loans. I think that crashes currency out of the system. When currency crashes out of the system the remaining currency in the system gets more valuable. See how the stock market adjust by lowering its prices to keep current?

Also what I think I'm seeing in the chart is the devaluation of the dollar reaching peaks that we just can't keep up with. So much value is being taken out of the currency that businesses that were once profitable can no longer keep up. They can no longer employ the working man as the wealth in the capital capitalism needs to function is stripped away. Men a women without work can't keep up with their bills like house payments.

And the whole thing crashes currency out of the system with the defaulting of loans.

Then there we find ourselves. We are down at the bottom of those peaks and what happens? Well low and behold the dollar has regained enough value that employers might once again be able to make a little profit. Low and behold the phone rings and your going back to work.

As the wheels of capitalism once again pick up a little speed what happens. Someone fires up the fake money presses to get their way on something or other and shove a wrench in to the gears of progress! See the line start heading back up?

[Madison320]

And now that gets me to the problem I see coming as the breaking point of the people.

All the time the counterfeiting is going on with the central bank it is stripping the wealth out of all of our everything. According to Robert Sahr's chart that has been happening at the rate of about 8% a year for the last fifty years after going off of the gold and silver standard. Most of the change happens slow and unnoticed like a frog in a pot of water that the temperature is slowly being raised to a boil.

I think the breaking point is when price increases hit a certain point where it's obvious to everyone. I'm not sure what that rate is, maybe 10-20%. When you start seeing stuff you buy all the time rising every month, that's when it'll get noticed. And I think the first thing noticed is going to be gas prices. It's been creeping up but nothing big yet.

[Smaulgld]

Excellent analysis. Isn't it all tied together though?

[Smaulgld]

Food has been on a stead rise up as is college tuition and housing costs.

[Nic]

I don't think the market is going to collapse until the fed is ready to let it collapse. Don't fight the fed. Their printing press is bigger than your brokerage account.

[jllundqu]

EVERYBODY PANIC!!!!!

[HOLLYWOOD]

[oyarde]

EVERYBODY PANIC!!!!!

I never panic , just load another magazine , make sure the knife is sharp , enjoy the quiet

[acptulsa]

EVERYBODY PANIC!!!!!

Lots of folks on this forum saved/made themselves money playing it right in 2008. I doubt this one will send many into a tailspin...

[tangent4ronpaul]

I think the breaking point is when price increases hit a certain point where it's obvious to everyone. I'm not sure what that rate is, maybe 10-20%. When you start seeing stuff you buy all the time rising every month, that's when it'll get noticed. And I think the first thing noticed is going to be gas prices. It's been creeping up but nothing big yet.

We order out from time to time. The price is higher every week. Milk 4x, gas - WOW!, everything else... Yeah...



Welcome to Weimark Germany or Nigeria...

-t

[Madison320]

We order out from time to time. The price is higher every week. Milk 4x, gas - WOW!, everything else... Yeah...



Welcome to Weimark Germany or Nigeria...

-t

I have a hard time remembering how much I paid for stuff. Even stuff I buy all the time. But gas will get noticed by everyone. When it hits $5,6,7 a gallon you can bet it will get noticed.

[helmuth_hubener]

Let me try and explain.

Let me try to explain. All long-term charts like this should be on a log scale. Charts like these two you posted showing long-term appreciation ( chart #2) or depreciation (#1) on a simple linear scale are highly misleading. I might go so far as to say irresponsible. In an case they do not give an accurate picture of reality. They are highly distorted. Compound phenomenon plotted on a linear scale makes every graph look like a hockey stick. It gives a highly distorted picture.

[Zippyjuan]

They also only show one half of the picture. They don't show what happened with incomes.

I thinking the DOW is adjusting to keep its value current with the devaluation of the dollar.

What has the DOW done in relation to the dollar? We need to not speculate but look at an inflation adjusted DOW Jones chart.



http://home.earthlink.net/~intellige...om-dj-infl.htm

[TheCount]

Lots of folks on this forum saved/made themselves money playing it right in 2008.

By buying stocks in the second half of the year? By holding Treasury bonds?

[HOLLYWOOD]

Show this chart with the one percent remove, then report back...

They also only show one half of the picture. They don't show what happened with incomes.



What has the DOW done in relation to the dollar? We need to not speculate but look at an inflation adjusted DOW Jones chart.



http://home.earthlink.net/~intellige...om-dj-infl.htm

[helmuth_hubener]

By buying stocks in the second half of the year? By holding Treasury bonds?

Don't ask questions like that!

Too inquisitive! Just accept!

[DamianTV]

Here is a stupid question: what does it matter? Wall Street is completely disconnected from Main Street, thus, Stock Market does NOT benefit the little guy who cant afford to buy Stocks. We are gonna suffer the financial consequences of their greed no matter what. So what difference does it make?

[helmuth_hubener]

Here is a stupid question: what does it matter?

Well, in the long term, the state of the stock market reflects the state of American business, and thus of the American economy. So, if the economy is doing poorly (declining or stagnant productivity), the stock market will inevitably also do poorly in the long term. If the economy is doing well (more productive, higher living standards), the stock market will inevitably also do well in the long term.

Thus, if one looks at the growth or shrinkage of the stock market in real terms (that means adjusted for inflation), as, for instance, Zippy's chart above shows, one can get a general idea of how the economy has been doing. Then again, Zippy's chart doesn't include dividend reinvestment, which makes it, too, a failure of a chart. Since apparently I hate everyone else's charts, here are two that are halfway decent:





In both cases, the green line is what's relevant and what you should be looking at (in my opinion).

Now all the ups and downs do not necessarily have any significance. The stock market is very volatile, and it is not tracking the economy perfectly 1-to-1, so something like a running 10 year average might be more useful to get an idea of how the economy is.

Anyway, during the last 14 years, for instance, it's been very hard to get any real returns from the US stock market. That would seem to indicate that American business is really struggling; in other words that the economy is bad. And sure enough, I think that you would probably agree that the economy has been relatively bad during that period.

During the 1980s and 1990s, you can see that the stock market grew by leaps and bounds. And sure enough, the American economy was pretty good during those decades.

During the late '60s all through the '70s and into the early '80s, the stock market was stagnant or even shrinking. And sure enough, that was a very bad era, economically.

I hope that answers your question at least a little.

[DamianTV]

Truth be told, that was intended as a sarcastic remark...

[Ronin Truth]

The collapse is now one day closer than yesterday.

[oyarde]

By buying stocks in the second half of the year? By holding Treasury bonds?

Yeah , I bought some stock , and just held everything I already had pretty much .

[helmuth_hubener]

Truth be told, that was intended as a sarcastic remark...

And yet, it deserved a reply. Because stock market performance does matter. Or at least it is a reflection of, or a result of, something that does matter. Namely: the health of American business.

[Ronin Truth]

They also only show one half of the picture. They don't show what happened with incomes.



What has the DOW done in relation to the dollar? We need to not speculate but look at an inflation adjusted DOW Jones chart.



http://home.earthlink.net/~intellige...om-dj-infl.htm

"How doth I Elliott? Let me count the waves."

[Smaulgld]

That is the point there is a severe disconnect- The Fed and press keep touting the stock market rise as a sign of a great economy when its just a function of the Fed printing money so the rich get richer and because there is noting supporting the market the collapse will be monumental

[Ronin Truth]

History says, the collapse will begin very shortly after the last share is bought.

[helmuth_hubener]

That is the point there is a severe disconnect- The Fed and press keep touting the stock market rise as a sign of a great economy when its just a function of the Fed printing money so the rich get richer and because there is noting supporting the market the collapse will be monumental

In other words, you think that the stock market is rising because of high inflation. High inflation is causing the stock market to rise.

The problem with this theory is that there does not appear to be any high price inflation right now, and it's not even clear to me that there's particularly high monetary inflation (relative to other recent historical periods). That is, there isn't particularly more money being created right now than 10 years ago, or in the '90s, or in the '80s.

So, since there is no high inflation (as far as I can see), high inflation cannot be the sole cause of the stock market rise.

Even more fundamental to understand is this: stock market performance is primarily linked to one cause: business performance. If business is prospering, the stock market will do well. If not, than not. This is the strongest and most direct causal factor in stock market performance. If you are trying to explain large long-term trends in the stock market and are not doing it on the basis of business performance, your analysis is highly flawed.

The state of business leads to the state of the stock market. The two are directly linked. Every other potential causal factor affects stock market performance indirectly -- that is, insomuch as it affects business performance, that business performance in turn affects stock market performance. High inflation is bad for business. So, during a period of high inflation (like the 1970s in the US) one can expect business to do relatively poorly, and the stock market to do relatively poorly. That is a big problem with your explanation: it is theoretically wrongheaded. Times of high inflation are bad for business, not good. If we are in a high inflationary period, we can expect that business will be struggling, not prospering, and the stock market will probably be doing fairly poorly.

[Ronin Truth]

In other words, you think that the stock market is rising because of high inflation. High inflation is causing the stock market to rise.

The problem with this theory is that there does not appear to be any high price inflation right now, and it's not even clear to me that there's particularly high monetary inflation (relative to other recent historical periods). That is, there isn't particularly more money being created right now than 10 years ago, or in the '90s, or in the '80s.

So, since there is no high inflation (as far as I can see), high inflation cannot be the sole cause of the stock market rise.

Even more fundamental to understand is this: stock market performance is primarily linked to one cause: business performance. If business is prospering, the stock market will do well. If not, than not. This is the strongest and most direct causal factor in stock market performance. If you are trying to explain large long-term trends in the stock market and are not doing it on the basis of business performance, your analysis is highly flawed.

The state of business leads to the state of the stock market. The two are directly linked. Every other potential causal factor affects stock market performance indirectly -- that is, insomuch as it affects business performance, that business performance in turn affects stock market performance. High inflation is bad for business. So, during a period of high inflation (like the 1970s in the US) one can expect business to do relatively poorly, and the stock market to do relatively poorly. That is a big problem with your explanation: it is theoretically wrongheaded. Times of high inflation are bad for business, not good. If we are in a high inflationary period, we can expect that business will be struggling, not prospering, and the stock market will probably be doing fairly poorly.

Massive QE = high inflation. tick, tick, tick.

[acptulsa]

They also only show one half of the picture. They don't show what happened with incomes.



What has the DOW done in relation to the dollar? We need to not speculate but look at an inflation adjusted DOW Jones chart.



http://home.earthlink.net/~intellige...om-dj-infl.htm

Usually you argue that inflation numbers aren't deliberately downplayed and the drop in the actual value of the dollar isn't deliberately underestimated. And now you're showing us charts demonstrating beyond a shadow of a doubt that all of that is happening and has been happening for generations.

Make up your mind.

[helmuth_hubener]

Massive QE = high inflation. tick, tick, tick.

Massive quantitative easement does equal massive monetary inflation, all else equal.

However, all else is not equal.

As it turns out, all else is anything but equal. So, as investors, we should adjust to that reality of life, embrace it, and choose a strategy that takes the world as it really is, rather than how we think that maybe it would be, or could be... if only all else were equal.