4 Clues for a Stock Market Collapse:
1. Drama of the Looming Debt Ceiling:
Treasury secretary, Jacob Lew, just uttered a Horse-whisper that the next market crash may likely commence about mid-October, 2013. Those weren't his exact words but he reported the Treasury's "extraordinary measures" to prevent hitting the debt ceiling will be "exhausted in the middle of October." Now recall the intense drama around a government shutdown the last time in 2011.
That drama was provoked when Standard & Poor's downgraded the credit rating of the United States for the first time in history, a truly ominous sign!. The market quickly dropped more than 15%! Now, we're staring at the same exact situation as the government's debt level pushes hard up against the debt ceiling in October, 2013.
2. Huge Amount of "Stimulus" Buying by the Fed:
Mr. John Williams states "The Federal Reserve bought 110% of the net issuance of U.S. Treasury this year meaning the Federal Reserve Bank bought every new dollar of debt issued." Mr. Williams says this is "a pace suggestive of a Treasury unable to borrow otherwise."
Pursuant to Mr. Williams' calculation as of mid-October, 2013, purchases by the Federal Reserve could approach 140%! This is clearly absurd and can't go on forever. (It owns about a third of it now! Eventually the Fed will own the whole federal debt market, which is craziness!). When it ends, interest rates will likely rise. That could bring the easy-money party to a close.
The government published their restated GDP numbers and asserted the economy expanded at a 2.5% rate during the second quarter of 2013. Allegedly this was a 47% boost from the 1.7% original government estimate. They are attempting to 'fool us' into believing the economy has recovered completely now from the financial crisis of 2008, and the economy is higher now than anytime during the peak year of 2007. Don't we know how the government "massages" it's numbers?!
"No other major economic series has shown a parallel pattern of full economic recovery. Either the GDP reporting is wrong, or all other major economic series are wrong" according to Mr. Williams.
3. Despite Government Reporting - A Much Weaker Economy:
Experts agree there's a mountain of nonsense in the government's economic reporting. (Mr. Williams states the GDP report "remains the most worthless and most heavily politicized" of the government series"). When one observes the 'median household income' -something nearly impossible to subvert -there is NO recovery; these are official numbers by the government. The point here is there has NOT been a full recovery!
4. Rising Market and Slowing Profit Growth
· The stock market pushed to a new all-time high on Aug. 2, 2013 - even though earnings growth slowed considerably.
· The S&P 500 is considered an approximation for the market. Earnings growth for the S&P 500 turned up barely 2% over the second quarter, due to positive earnings by financial businesses ( insurers & banks). Earnings fell 3% actually for the overall market if you remove financials. Analysts now say the third quarter's earnings growth was just 3.7%, versus a robust 6.5% at the beginning of the third quarter of 2013- which is a monstrous 43% drop in earnings!
A rising market and slowing profit growth mean valuations have increased. Per a report by Bloomberg, "Valuations last climbed this fast in the final year of the 1990s technology bubble, just before the index began a 49% tumble."
The market sold at 30 times earnings in 1999. On average it goes for 18 times earnings today (August, 2013). That's still a number that's up there, which reflects way too much optimism regarding future market growth.
10 Wall Street seers were interviewed by Barron's recently. They all predicted an 8% earnings growth for the second half of 2013, a rosy picture! We believe that soon it will become obvious that is a 'fairy tale', and stock market investors will be in for a big shock!
