8/11/2015 – A big down day with the Dow Jones down 210 points (-1.19%) and the Nasdaq down 62 points (1.22%)
Today’s sell-off and subsequent market adjustments were caused by China’s “unexpected” Yuan devaluation. In simple terms, most nations are now in a full blown currency war. Trying to devalue their way to prosperity at the expense of someone else.
A more complex view incorporates understanding that China’s move opens up a door to future fundamental adjustments throughout the world. From interest hikes in the US to the price of oil. He is a very simplistic view for the time being. Q&A: What yuan devaluation means for China, other countries I will attempt to cover this subject in greater detail over the next few weeks.
Now, Gross Sees Global Economy Dangerously Close to Deflation
Once there is a “whiff of deflation, things tend to reverse and go badly,” Gross said Friday in a Bloomberg Radio interview with Tom Keene. Gross pointed to how the CRB Commodity Index isn’t just at a cyclical low, but lower than in 2008 when Lehman Brothers Holdings Inc. went bankrupt.
I have held this premise for a number of years now. Most people believe we escaped deflation in 2008/2009 by the skin on our teeth. End of story. Well, WE DIDN’T. Deflation was simply covered up for the time being by zero interest rates, QE and massive amount of stimulus flowing through our financial system. Now that the stimulus is gone, deflation will become more prominent once again.
When the global economy has as much debt as we do now, estimated to be at around $230 Trillion, there could be no other outcome. Either deflation, outright default or hyperinflation.
Finally, MarketWatch asks Has the bear market in stocks already begun?
We have asked this exact question about 10 days ago. Let’s take a closer look at both sides of the argument.
Bearish Case:
- We might already be in a bear market
- It’s time I reminded you how expensive stocks are — a 50% plunge would not be a surprise
It’s nothing that we haven’t talked about on this blog before. Think about it in the following fashion. The NYSE (largest index by capitalization) is already down 4-6% from its trading range initiation 13.5 months ago. The Dow set an important top on March 2nd, only to set in a double top on May 19th. The Dow Transports are flashing a major bearish reversal sign.
All of the above suggests that the market has been distributing for close to a year and once this distribution period ends, a new bear market leg will kick in. In fact, considering where the indices are today, it might have already started.
Bullish Case:
The primary argument on the bullish side is as follows.
- The market has been consolidating after a big 5.5 year run up: It is resting before the next leg up — Fair enough. I will give them this one. That is technically possible.
- The market is not too expensive: I am seeing this over and over again. This time is different, this sector, that sector, accounting, statistics, etc…. People try to twist their numbers in a million different ways to justify today’s valuations. At the end of the day it is rather simple. Shiller’s S&P P/E is at 27, the third highest level in history (behind 1929 and 2000). It is never different…..case closed
- We are in a secular bull market that has another 10 years to go. Wrong. If you study history you will see that bull/bear markets alternate in clearly defined 17-18 year cycles. The 2009 bottom was a mid cycle bottom, not a terminal point of 2000-2017 bear market. Meaning, we still in a secular bear market that will only complete in 2017-18. You can learn more about it here Market Cycles
Who is right?
I will let you come to your own conclusion. From my vantage point, the market has been in distribution for over a year now.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.
(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. August 11th, 2015 InvestWithAlex.com
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