9/17/2018 – A negative day with the Dow Jones down 92 points (-0.35%) and the Nasdaq down 114 points (-1.43%)
The stock market finds itself at an important, if not difficult, juncture. And while most heavily leveraged bulls see at least a 20% melt up, some bears are calling for an outright crash. No need to guess about what happens next.
If you would like to find out what the stock market will do next, based on our timing and mathematical work, in both price and time, please Click Here.
Let’s talk about the possibility of a crash scenario today……
The Ingredients Of An “Event”
Yes, the correction will begin as it has in the past, slowly, quietly, and many investors will presume it is simply another “buy the dip” opportunity.
Then suddenly, without reason, the increase in interest rates will trigger a credit-related event. The sell-off will gain traction, sentiment will reverse, and as prices decline the selling will accelerate.
Then a secondary explosion occurs as margin-calls are triggered. Once this occurs, a forced liquidation cycle begins. As assets are sold, prices decline as buyers simply disappear. As prices drop further, more margin calls are triggered requiring further liquidation. The liquidation cycle continues until margin is exhausted.
But the risk to investors is NOT just a market decline of 40-50%.
While such a decline, in and of itself, would devastate the already underfunded 80% of the population that is currently woefully under-prepared for retirement, it would also unleash a host of related collapses throughout the economy as a rush to liquidate holdings accelerates.
The real crisis comes when there is a “run on pensions.” With a large number of pensioners already eligible for their pension, the next decline in the markets will likely spur the “fear” that benefits will be lost entirely. The combined run on the system, which is grossly underfunded, at a time when asset prices are dropping will cause a debacle of mass proportions. It will require a massive government bailout to resolve it.
That’s a scary thought, but we would have to agree with the analysis above. We highly recommend that you read it in full.
Our only addition is this. The stock market often does what the least amount of people expect. At this particular juncture very few people expect a market crash. So much so that I get one of two reactions if, god forbid, I bring up the possibility of a market crash. People’s eyes either glaze over or they outright laugh.
Impossible, they say.
Yet, it is the stock market’s job to trap (or to Trump) as many people as possible on the wrong side of a trade. And should a crash develop today, god forbid, it would most definitely trap most people on the wrong side. Finally, don’t forget historic record levels of margin debt out there (at 2x 2007 top). Margin Debt Horror Show Gets Even Scarier. So, should the market accelerate down, we might see a drop the likes we have not since the 1987 crash.
Again, if you would like to find out if the crash will develop and/or what the stock market will do next, in both price and time, please Click Here.
