Anatomy of a Stock Market Crash

By David Haggith – Re-Blogged From The Great Recession Blog

The 1929 stock market crash became the benchmark to which all other market crashes have been compared. The following graphs of the crash of 1929 and the Great Depression that followed, the dot-com crash, and the stock market crash during the Great Recession show several interesting similarities in the anatomy of the world’s greatest financial train wrecks. They also show some surprises that run against the way many people think of these most infamous of crashes.

Graphing the 1929 Stock Market Crash

The stock market roared through the 1920’s. Building construction, retail, and automobile sales advanced from record to record … but debt also climbed as a way to finance all of that. This crescendoed in 1929 when the stock market experienced two particularly exuberant rallies about a month apart (one in June and one in August with a plateau between).

Then retail, housing and automobile sales started to fall apart.

Sound familiar?

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Fed QT Bearish For Stocks

By Adam Hamilton – Re-Blogged From http://www.Gold-Eagle.com

Ominously for the stock markets, the Federal Reserve is warning that quantitative tightening is coming later this year.  The Fed is on the verge of starting to drain its vast seas of new money conjured out of thin air over the past decade or so.  The looming end of this radically-unprecedented easy-money era is exceedingly bearish for these lofty stock markets, which have been grossly inflated for years by Fed QE.

Way back in December 2008, the first US stock panic in an entire century left the Fed frantic.  Fearful of an extreme negative wealth effect spawning another depression, the Fed quickly forced its benchmark federal-funds rate to zero.  Once that zero-interest-rate policy had been implemented, no more rate cuts were practical.  ZIRP is terribly disruptive economically, fueling huge distortions.  But negative rates are far worse.

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Robert Shiller is Worried

Re-Blogged From http://reports.pmcapital.com.au

Legendary Economist Robert Shiller is Worried. Maybe You Should Be Too.

Robert Shiller, renowned economist, Yale professor and Nobel Laureate, is worried about the over-priced stock market.  So much so that he is refraining from adding to his own stock positions. One factor, among many, that he says makes him nervous is the CAPE ratio. A recent Bloomberg article notes that while the CAPE metric is still about 30 percent below its high in 2000, it shows stocks are almost as expensive now as they were on the eve of the 1929 crash. “The market is way over-priced,’’ Shiller says. “It’s not as intellectual as people would think, or as economists would have you believe.’’

Stock Markets Sit Blithely on a Powerful Time Bomb

By Wolf Richter – Re-Blogged From Wolf Street

No one knows the full magnitude, but it’s huge.

How big is margin debt really, and how much of a threat is it to the stock market and to “financial stability,” as central banks like to call their concerns about crashes? Turns out, no one really knows.

What we do know: Margin debt, as reported monthly by the New York Stock Exchange, spiked to another record high of $528 billion. But it’s only part of the total outstanding margin debt – which is when investors borrow money from their broker, pledging their portfolio as collateral.

An example of unreported margin debt: Robo-advisory Wealthfront, a so-called fintech startup overseeing nearly $6 billion, announced that it would offer its clients loans against their portfolios.

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Wall Street And Bear Scat

By Mark J Lundeen – Re-Blogged From http://www.Gold-Eagle.com

As seen in the Bear’s Eye View (BEV) chart below, the last all-time high for the Dow Jones Index happened on March 1st.  Since then however, it’s been slowly deflating.  The post-election run up in the Dow Jones (enclosed in the Red Circle) was an excellent advance; one of the best in the post March 2009 market.  So we shouldn’t begrudge the bulls should they now take a rest before their next upward assault on the stock market, which I’m sure they are planning.  However, some plans never get past their conception stage.

I like this BEV chart for the Dow Jones.  It displays each advance and percentage decline of the Dow from its 09 March 2009 bottom (6,547) to its last all-time high of 01 March 2017 (21,115.55).  The typical correction was a little over 5%, with only four double digit declines (none greater than 17%) since March 2009.

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Base Jumping off the Stock Market’s Peak

By David Haggith – Re-Blogged From The Great Recession Blog

According to Bank of America, there is no time to leap into the stock market like the moment before its cataclysmic fall. BofA’s Michael Hartnett has no doubt that the stock market stands on the edge of catastrophic collapse, but the euphoric rise before it takes the plunge could be the greatest financial rush you’ll ever know:

As Hartnett explains, the catalyst for bull in equity and credit markets since 2009 was the “revolutionary monetary policy of central banks” who, since Lehman, “have cut rates 679 times and bought $14.2tn of financial assets.” And, once again, he warns that this central bank “liquidity supernova” is coming to an end, as is “the period of excess returns in equities and corporate bonds, as is the period of suppressed volatility.” (Zero Hedge)

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