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Schizophrenic Stock Markets Point to a Crash Coming!

June 18, 2019

The above graph (if updated) would extend the schizophrenia since 2017. Today, our Dow is at 26, 480 (near another record). The S & P 500 is at 2921 and near another record. The Nasdaq is now at 7968. Is any of this normal? I don’t think so!


Our schizophrenic electronic stock markets suggest that something big is about to occur. I have never witnessed such erratic behavior of our markets in the past. I now believe that a huge CRASH is on the horizon for various markets (including the U.S. markets). Today, the Dow Index was up some 400 points in a matter of seconds on pure emotion about potential trade deals with China. Did our economy improve any? Nada!


The Wall Street Journal had a great article by Phil Gramm today, former Chairman of the Senate Banking Committee. This article points out that the current interest rate on Excess Reserves is much too high and this rate is actually causing a decrease in the overall money supply in our markets. He suggests that rates for parking excess reserves must be lowered to induce new lending by our banks. I would agree. He also points out that the Fed Funds Rate is not the key rate at this point in time. The key rate is the rate on Excess Reserves (paid to banks by our Fed).


It appears that Excess Reserves are growing and this situation reveals a slowing economy. The article is entitled “How the Federal Reserve Lost Its Mojo?” Phil says that ‘never in the Fed’s 105-year history has it had less control over market interest rates than it has today’. He seems to expect the Fed to lower rates either now or very soon. I would agree on this analysis by Phil Gramm.


As I write, the 10-year treasury bond rate is at 2.061%. It dropped to 2.03 at one point. The Fed Funds rate as of today is 2.37%. This points to a situation where investors appear to be desiring ‘safe-haven’ investments for their cash and savings. All this means that our economy is slowing and the rise of our electronic stock indices does not represent reality on the ground. A financial crash is on the horizon and I would expect our Central Planners to act on this reality soon.


Keep in mind that our electronic stock indices do NOT reflect reality within our real markets (actual production represents our real market). These electronic markets can go UP and UP even as the REAL economy tanks. I watched this same situation over in Venezuela in 2017 and 2018. The Caracas General electronic market crashed in both 2017 and 2018. It is now on its third round of attempting to pump-up the market in Venezuela. It’s not happening!


Our digital/electronic markets are actually FAKE markets in that they do not measure the real economy. Our real economy consists of Food, Clothing, Shelter, and Transportation (mostly). This economy has slowed significantly and one measure of this slowing is the Baltic Dry Index (now at 1093), another is the declining demand for air cargo and a peak in aircraft orders. Cargo demand has fallen by 4.7% recently.


The other indicators are growing debt, slowing demand for residential homes, and the hype around the Trump/Xi meeting at the G-20 next week. I would expect some development in the China trade situation at this meeting. But nothing will change materially IMO. The current cycle for growth is the longest in history and this cycle is now ending. After 10 years of UP the trend is now heading DOWN. Personally, I expect some significant policy changes by our Central Planners within the next couple of months.


Astute observers of our markets recognize that a new trend is emerging. The inverted yield curve within our bond markets was a signal that the prior 10 year cycle was ending. I now expect that a recession is on the horizon and may already have started. The measures for revealing this reality will come later. But I now sense that our markets are in great trouble and some type of financial crash is coming. The next two meetings of our Federal Open Market Committee (FOMC) could reveal this change in sentiment. Watch the markets (and the actions of our central planners) on your smart phone app for all the details.


Have a good day! I am:

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