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Why I Think Stocks May Crash, Hard

Most news doesn’t reach my attention, unless I look for it, or someone tells me about it. Got out of following that distressing soup of lies and counter lies, some time since. Current stock market outlook, however is now reaching almost everyone by now I should think. Stock markets seem to be reaching a critical mass for potentially a large correction, which isn’t good for anyone.

It’s said that China has some problems, and hence that’s reflected in global stocks in other countries. However the FTSE100, is and does seem to be in a down trend that’s been going on for months now. So not convinced the immediate Chinese problems are the cause.

A problem is that when stocks start selling, others start selling their stocks too, it turns into to a selling frenzy. Short selling on stocks is rarely pretty, or predictable, fortunes have been wiped out in seconds. From what I understand, RBS has advised their clients, well basically to “sell everything” within the last few days. Doesn’t sound particularly responsible for a global bank, but I have no control over what they say. It’s also possible that RBS might be right.

WHAT I think the problem is, is, that trillions of dollars, yen, euros and pounds have been printed, in what’s called “quantitative easing” (QE). Governments in US, UK, Europe, Canada and Japan (and others ?) all have been doing this for several years now, in almost a competition to see who can devalue their currencies the most, because a lower currency on foreign exchange markets stimulates exports. Basically it’s cheaper to buy goods from Japan into US if the Japanese currency is “lower”. The problem with QE is that your $1 today after QE is worth 99c tomorrow, and 98c the next day, and so on until they stop “printing money”. So any money you had, has become worth less than it was. Or like Robin Hood in reverse, take from the poor, give to the rich. It’s awful for people who’re net savers, because each day one’s money will buy less and less, just the same as heavy inflation. Possibly a bonus for people who’re net borrowers, as one’s debts would be shrinking.

Most of the printed money in QE  has ended up in the stock market, pushing it to record highs last year and as a result into the pockets of banks and the very wealthy. A little may have filtered through to “real people” like you and I, in what started to look like economies in UK, US and Europe that might be actually recovering.

Alongside with this, interest rates have been kept artificially low, well since Lehman bros and others broke the global financial system back in 2007, by basically being a bunch of crooks and taking massive risks with other people’s money. Low interest rates have ALSO artificially inflated the stock market. AND the only people who can truly access this very low interest borrowing are banks and wealthy individuals and corporations, the rest of us are still paying 5% PLUS to borrow money, so someone is scamming us, on top of getting cheap borrowing. Into the pockets of the banks and the super wealthy, again, I shouldn’t wonder. Sceptic, me, never 🙂

And why do governments want stock markets to rise ? It makes it look like their economies are prospering. Good stock market = prosperous economy. Well superficially, that’s so, but as I just explained all that was being propped up by quantitative easing and low interest rates. So, it’s probably actually been a lie, which may now be unravelling.

Also, it’s widely reported that commodities markets appear to have been manipulated, with “someone”, probably market makers, or banks working in collusion, or governments, or all of the above using derivatives to exert MASSIVE pressure downwards on things like precious metals. Why would they do this ? Well if precious metals start soaring it signals to people that money is being driven into precious metals which are traditionally seen as a “safe haven” in times of crisis. Basically, if things go bad in the markets, investors sell risky investments, and put the money into safe havens, like precious metals. So, powers that be, don’t like precious metals going up, when their economies are supposed to be starting to recover, because then we’d know for sure they’re lying to us. So, some reckon they’ve been manipulating commodities markets for these reasons.

So what happened recently ? Quantitative easing has ceased and they’re talking about raising interest rates. And what does the stock market look like ? It doesn’t like it, one bit, it’s been on a downtrend, a correction, for a few months – is my conclusion looking at FTSE100 chart, which is almost certainly virtually identical to the S&P and Dow Jones. THE FREE MONEY GIVEAWAY IS OVER, SO NO MORE FREE MONEY TO PLAY BUYING ON THE STOCK MARKET, is what end of QE and low interest rates means. The wealthy and the banks have probably already banked their profits, and may already be starting to run short trades on the stock markets, to cash in on a possible signification drop. The house always wins, follow the commercial traders in investing, 99 times out of 100 the retail investors LOSE, by being on “the wrong side of the trade”.

So what happens next ? No one can say for certain, but I’d advise caution to anyone doing virtually anything involving large sums of money. Especially, but by no means limited to investing in stocks. RBS could be right, could be a good time to close your positions, and either bank them, or move into something with less potential risk. Precious metals may not have been such a great investment over the past few years, but possible that might be place to put your money, how much lower could they go ? But even that, there’s no certainty on. And I don’t give investment advice, so don’t ask me – do your own due diligence, don’t take my word as the basis for your financial future, these are purely my opinions expressed here.

At the very least pay attention to what’s happening in the financial markets, and be cautious in what’s looking like a potentially volatile and uncertain period going into 2016. Hopefully there won’t be a massive crash, that isn’t good in any way for the likes of you and me, I mean another several years of recession, with the wealthy and banks getting yet richer while we suffer, who wants that ?

Just my 2 cents, 2 yen, 2 pence or 2 thai baht, if it helps you, then great, if not, then great too, it’s all the same for me in the end.


Don Charisma

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39 thoughts on “Why I Think Stocks May Crash, Hard

  1. Don, you’re one of the precious few people who understand this. Excellent post! QE is just ‘modern’-speak for Wiemar Republic Monetary policy. China’s problems are multi-fold; they were too reliant on exports to the USA and now that we’ve had 7 years of 0 or -2% economic growth, China is starting to feel real pain; they’ve never backed up their currency with anything more tangible than massive debt, and their banks are little more than payday cash-loan operations on steroids. All of China’s businesses being all or partly owned by the Communist Party of China isn’t helping either. Too much state central planning, little to no innovation. Despite all their economic ‘growth’, they still import nearly everything they sell domestically. Or ‘copy’ it and reproduce under a different name and far less quality. All this time, and all the money made, could have and should have been reinvested in domestic innovation, invention, small business creation, even in their military/aerospace development, and not one coin went to any of that. China can’t even make jet engines or fan blades. They have to buy them from Russia.

  2. Happy New Year, Don. You present a well reasoned opinion. I’ve been following what’s being said in the Wall Street Journal, a pretty good newspaper for people
    who follow the markets. The opinion there is that we could be sliding into a recession and that the market is self-adjusting, now that the FED has resumed fiddling with interests rates. Whatever happens, it doesn’t look rosy and for people like me, who are on a relatively fixed retirement income, it’s very troubling.

  3. Your points are well reasoned, but I have seen this before and timing is everything (ignoring the old saw “that you can’t time the market”).

    The problem with “sell sell sell” is that it may now be too late. Selling at the bottom is never a recipe for success. Still, selling some stocks (or funds) at peaks above where we are today is not bad advice.

    1. Agreed, timing is everything, add in you can’t time the market, and you have luck is everything … Or if you’re a bank, insider information and collusion is everything …

      Who says this is bottom, we won’t know when stocks have hit rock bottom until after the fact. In any case it depends on the investor, and their appetite for risk. The guy who needs his money to support himself, or pay college tuition, is a different beast to the guy who’s earning $1M a year as a CEO. Investments require one to be able to leave the money there, and not touch it, is my point. Some may need access to their money, now, rather than years down the line.

      So one guy may choose to stop loss himself out here, and take 2/3 of his money instead of 1/2 or 1/3, a month or a year later … Another guy may hold, and a year or three later has doubled his money.

      So again we have timing, add to that means of the investor and probably luck.

      The FTSE100 is in a downward wedge, hitting repeatedly historical support levels over last few months. The wedge can resolve up or down, only time will tell. Support levels are pretty strong, so let’s hope they hold, for everyone’s sakes. However the more times support gets tested, and resistance not broken, with that downtrend line, the more “worried” investors are likely to become, and the less likely to invest “long” in stocks. Which would all potentially contribute to further downside action …

      1. Telegraph says UK not included, so not particularly worried. The government / ECB seems to be wiping their hands of it, in favour of making the banks creditors fit the bill. What I think this means is pension funds can be raided legally, and probably people’s savings ? … But didn’t study in detail so I could be wrong !

      2. Yeah one of my sources reported it was law across the EU that if someone has more than 100k euros in a bank that becomes insolvent, the bank can liquidate those assets to payback its “secured creditors”, in the U.S. it works different but if the bank becomes insolvent, it can replace your money with stock in the failing bank, im looking to close my bank account a move to a credit union, they’ll do anything to prevent the big banks from failing, im sick of the way they run the world!

      3. Certainly time to be careful with one’s money, although traditional safe havens like gold haven’t been that safe … hopefully none of this will ever directly affect me, but, very useful to keep informed, and perhaps avoid doing things which put one at more financial risk than one needs to take …

      4. Most brokers offer free demo accounts these days, so you could use one of those for free … Be careful with real money, it can usually be lost quicker than it can be made 🙂

      5. I think it’s possible to give oneself a competitive advantage by studying the financial markets. But we’re talking studying, following and watching for months/years, realistically, and a lot of discipline to run trades based on solid, good decisions. For those entering the markets without adequate preparation, it’s gambling.

        The best way to make money on the markets is to have insider information, so if you can get that, then you almost can’t lose. However don’t tell anyone you have insider info, as you can be prosecuted for insider trading 🙂

        So my advice, is do it for fun, if you enjoy learning about the markets. Otherwise something else might be more profitable and enjoyable 🙂

      6. Yeah i wanna start a business after the impending depression and if successful ill probably put most of my money in federal bonds, much safer:) but some are predicting a breakup of the eurozone after all the strict austerity germany has imposed on its european neig hbors, you think that may be coming?

      7. Someone told me UK is holding a referendum whether to stay in EU … Strikes me as a bit of a waste of time, like it was with Scotland, but government would prefer to be doing anything other than actually creating real prosperity, which they continue to fail at miserably …

        As for the other member states, dunno, some would benefit like Germany, others would be screwed, like Greece … If EU breakup … But can’t see it happening, sounds like just talk to me …

        Business sound like a good idea … Dunno about federal bonds, personally would like to keep my money as far as I can from the reach of government, so federal bonds might not suit me …

  4. Seems like the roller coaster continues. Recent VIX index suggests we are in for further volatility, though yesterday it was a bit more subdued. Bythe way, do you find it interesting the way the press and the unwashed masses (oops I repeat myself) only talk of volatility when the market rebounds or trends down?
    And the root cause of the GFC had more than just a bit to do with governmental pushing, the subsequent events they were at it again, just doing some corporate welfare follwed by QE (perhaps I repeat myself again!). They aint about to stop so watch this space as they say.
    Should be a fun year, but there will be plenty of opportunities arise.

    1. Well, stocks going up is “fat dumb and happy”, but of course when they’re going down it’s panic city … but you know that already …

      And sounds like you’ve reached the same, if a little jaded, conclusions I have about how markets are no longer driven by their fundamentals … wow, what they can do with derivatives these days … and that guy from the FED, saying X bullshit or Y bullshit …

      Like the close on a positive note, wishing you every success in 2016

  5. You’re right, we’re in for a bumpy ride. The governments have lied to us and the real situation is that the markets are horribly manipulated. Low interest rates have forced the savers into the stock market because they can’t live on the returns they get from bonds.
    The days of the US dollar as a reserve currency may be over and it is a good thing. The price of gold has been manipulated to keep it low so they can buy back the gold that belonged to Germany and return it to them. (whoops that was classified information)
    QE did nothing to get us out of the mess we were in in 2008. They didn’t use it to stimulate the economy and build infrastructure. The bankers used the low rates to continue with the “carry trade”.
    That’s just a start to my rant. (my apologies)

    1. Sounds like could be a good plan. But be careful as a crash likely will have a contagion effect on other markets, which may not necessarily behave as expected … anyway, you know what you’re doing

  6. The internet is all over this issue, but the U.S. Congress apparently believes the issue does not exist…just saying…

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