The Silent Scream Of Crashing Stocks

The Dow/S&P 500 indices are currently more overvalued relative to underlying fundamentals than at any time in the history of the U.S. stock market.  This especially true if you weed out the non-cash net income “adjustments” companies are now allowed to pile into their GAAP income statements in order to puff up their earnings per share facade.

Really, it’s not pathetic or absurd, it’s outright childish.  And the stock promoters and Wall Street “experts” who claim the stock market represents good value now are either tragically mentally disabled or insidiously corrupt.  Likely more of the latter than the former (Jim Cramer, Steve Liesman, anyone on Fox Business or Bloomberg News etc).

I guess the tipping point for me was this idiotic article that appeared today on Marketwatch:  Why 100% of your investments portfolio should be in stocks.  If there were ever something ringing the bell at the top of a market, it has to be that article.

Per this Zerohedge post, there’s just eight stocks which are keeping the S&P 500 being negative this year:   Amazon, Google, Facebook, Home Depot, O’Reilly, Netflix, Nike and Starbucks.   These are the stocks in which momentum-chasing hedge funds have highly concentrated holdings.

I know from watching AMZN everyday closely over the last six months that whenever both AMZN and the stock market open up red, when Amazon goes green the rest of the stock market follows.  Yesterday (November 10) was a perfect example of this.  In other words, AMZN plus the other 7 stocks listed above are being used to keep the stock market propped up.

But beneath the surface of the S&P 500/Dow, dozens of stocks are crashing.  Here’s four high-profile examples, but there are many others (click to enlarge):

CrashingStocks

The underlying stock market “internals” are indicative of a stock market that is infected with a terminal disease: over 44% of all stocks are down at least 10% YTD; only 32% are positive for the year; another 77% are either flat or down more than 10%; the Dow Jones Transports index is down 10% YTD; utilities down 3.5%; the Russell 2000 down 2.5%; biotechs are down 18% since late August.  The list goes on.

The truth is that the U.S. economy, along with the entire global economy, has stalled out and is now quickly contracting.   The last five years of stock market gains, and any measurable economic activity, have been fueled exclusively by money printing and an extreme amount of debt issuance.  But the law of diminishing returns is engulfing the ability of the Central Banks to continue pumping out debt in order to create the mirage of prosperity.

It’s become clear that the Central Banks, at this point in time, are unwilling to let the stock markets engage in unrestrained price-discovery.   Every time the S&P 500 “sniffs” a close below the 50 day moving average the Fed ignites a rally:

Untitled

But you can also see from graph above (yellow line at the bottom) that the MACD overbought/oversold indicator is by far more stretched out to the “overbought” side of boat than at any time since QE began. It’s also more overbought than it was at the peak of the tech bubble in early 2000.

The stock market is thus extremely overvalued and extremely overbought.  Both attributes have been engineered by a Federal Reserve which refuses to let the stock market make any meaningful corrective move to the downside.  The question everyone should be contemplating is:  “for what reason is the Fed not letting the stock market naturally fall?”

Be careful thinking about the answer to that question – which is largely rhetorical for most of you reading this post – because once you “see” the truth, you can’t “un-see” it…

8 thoughts on “The Silent Scream Of Crashing Stocks

  1. At some point (when enough idiots are lured into the market) they will crash the market on purpose.
    But before that happens all the insiders and the “to big to jails” have to have their shortpositions in order.
    I think there is a setup behind all this and it´s better to be a year early than a second late because when it happens you must already be positioned.
    It´s tough when your position are going against you but it will finally turn.

  2. Dave,

    I heard that the SNB owns a billion dollars worth of Apple stock. And that there overall exposure to US Equities is to the tune of 32 billion dollars. How is it that a Central Bank that has the ability to print money can be into US Equities to the tune of 32 billion dollars ? Can you verify if this is true ? I heard it on Dave Janda’s Radio Show with Rob Kirby the other day.

  3. Do you know who Irving Fisher was, and what he said in New York Times on October 16, 1929? Here, have a look at these:

    https://www.idc.org/deployedfiles/ICI/SiteProperties/images/99_GMM_FINK_SPCH.001.jpeg

    and

    https://en.wikipedia.org/wiki/Irving_Fisher#Stock_market_crash_of_1929

    Strange thing is, Irving Fisher was really associated with some other Austrian school economists like Schumpeter. I personally don’t have very high regard for Chicago school economics & so-called “free-market”ers like Milton Friedman, because in reality they’re pseudo-free-maketers. But compared to the Keynesian trash like Paul Krugman, I’ll definitely prefer Milton Friedman any day. Even Friedman thought Irving Fisher was a genius. Unlike Steve Liesman & rest of presstitutes, Irving Fisher was NOT a complete crook or parasite. But he commited that 1 massive blunder in October 1929 which will never be forgotten.

    As if it’s not enough, check out the mental diarrhea that FOMC parasites at Minneapolis Federal Reserve came out with. They have the gall to claim that Irving Fisher was right, and even at the peak of October 1929 stock market was undervalued!!!

    https://www.minneapolisfed.org/research/SR/SR294.pdf

  4. Dave, I’m having the impression that we didn’t hear anything for some time from the IMF and especially Christine Lagarde. Is there something going on behind the scenes? Seems really strange to me. Or maybe my perception is just wrong. What’s your view?

    1. I tune out the IMF and Lagarde. My view is that when the Fed/ECB/BOE lose their ability to keep a safety net under the
      stock market, there will be a financial nuclear explosion that will destroy the middle class. “Middle class” here being defined
      as anyone who doesn’t have enough liquid cash on hand to keep politicians under their control. That’s anyone with net worth under $50 million, unless most of that $50mm is in T-bills.

  5. I think a lot of people are not sure where to place their money if they sell out of the market. Can you trust cash in the bank? If this thing goes down how many banks will go with it?

    Obviously metals are a possibility. But for many people there is storage issues, and liquidity issues. Paying off debt might be a good move.

  6. Answer to rhetorical, best I know, is that since banks have assets in fiat paper dollars they would not exist in a world where fiat currency has no value, hence they defend the fiat currency as best they can

  7. The comments in that MarketWatch article(100% equity allocation) are showing a lot of people aren’t buying the author’s b.s.

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