I stand by my prediction that 2016 is going to be a horrible year for the world in general. I am a great fan of both David Stockman and Paul Craig Roberts and if you conflate their views the world is going to be a disaster economically, financially and geopolitically. – John Embry (email conversation this past weekend)
I find it fascinating that, sometime between the close of trading on December 31st and the start of trading in 2016, the JP Morgan’s equity Einsteins all of a sudden decided that the stock market “might” be overvalued. Per Zerohedge, JPM released a strategy report suggesting that the new robo-trading trading them in 2016 might be “selling any rallies.”
But what changed? The stock market has been overvalued for several years. It was still overvalued from a strict fundamental standpoint when the S&P 500 bottomed out at 666.79 in early 2009. It has been insanely overvalued for the better part of the last three years. No one could see that until Sunday night? All of a sudden JP Morgan has decided that “equities are not attractively priced anymore?”
I suggested in my blog post this past weekend that Thursday’s Fed funds event might be indicative that the Fed is losing control over the markets – Is The Fed Losing Control? I’m wondering if what happened on Thursday with Fed funds rate contained more predictive power than any of us imagined possible…
I opened up the latest issue of my Short Seller’s Journal with this comment:
The current stock bubble is now about 30% bigger than the previous two bubble tops – 2000, 2007. One difference between now and the last two bubble peaks is that the underlying fundamentals are significantly worse now. Just one example is the amount of Government debt outstanding. At the 2000/2007 peaks, Treasury debt as a percent of GDP was 55% and 57%, respectively. Currently, Treasury debt as a percent of GDP is 109%. Keep in mind that the Government also now guarantees FNM/FRE debt, which would add another $7 billion, roughly, to the $18.8 trillion in Treasury debt.
The point here is that the “gravitational pull” from the underlying fundamentals will eventually override the Fed/Government’s ability to keep the stock market propped up.
My feature stock of the week is down 4% today vs. 2% on the S&P 500. My “Quick Hit” idea is down 6%.
Why all of a sudden JP Morgan (and others) have decided that the stock market is overvalued today but it wasn’t last Thursday is beyond me. The excesses and insanity that culminated in the brief financial system collapse in 2008 are even bigger and more pervasive now.
Quietly AAPL stock is now down 23% from its all-time high in 2015. Doesn’t this mean that AAPL is in a “bear market?” If AAPL were continuing to hit new all-time highs the financial media would be in our face with the virtues of the iPhone and stoking anticipation for AAPL’s next product
I don’t know if today’s early morning action in the stock market will be another “false flag” gap down followed up by a massive rally in the last hour of trading. We’ve seen this “movie” several times over the last year, as the S&P 500 forms what appears to be a massive rollover – click image to enlarge.
What I find horrifying – and what is getting lost in the shuffle of today’s market activity – is that fact that Obama is getting ready to flex the muscles of dictatorial control with his threat to issue an Executive Order mandating gun control. Doesn’t anyone remember that Obama is the guy who based part of his 2008 platform on reversing all of the Unconstitutional Executive Orders executed by Bush and who promised to reduce or eliminate the use of EOs? Anyone remember? Anyone? I remember vividly.
My point here is that as the Fed loses control of the financial markets, I fully expect that the Government will impose tighter Totalitarian control over the country. I also expect that the populace will rollover and say “thank you, may I have another?”
China turned off its markets after its stock market dropped over 7% last night. Everyone with whom I’ve discussed this today has expressed disdain. But the U.S. Government has imposed the ability to implement the same shut down in a limit-down move. Why has this not shocked everyone? The duplicity of Americans, even highly educated ones, is incorrigible – if not completely tragic.
All of the highest beta, highest p/e and most overvalued stocks relative to their true underlying fundamentals are getting shellacked today. AMZN is down nearly 6% and NFLX is down nearly 7%. The homebuilders are down 2.5-4% across the board. It’s going to be a profitable year for those who take the leap into the world of shorting stocks. My Short Seller’s Journal is, up to now at least, a unique publication that focuses on ideas for shorting the market. I also offer risk management advice and include some ideas for using options. It’s a monthly subscription with weekly reports delivered to your email. You can access this subscription here: Short Seller’s Journal.