Sunday , September 24 2017
Home / LewRockwell / Crash Scenario

Crash Scenario

Summary:
The one thing we can know with certainty is it won’t be easy to profit from the crash. After 8+ years of phenomenal gains, it’s pretty obvious the global stock market rally is overdue for a credit-cycle downturn, and many research services of Wall Street heavyweights are sounding the alarm about the auto industry’s slump, the slowing of new credit and other fundamental indicators that a recession is becoming more likely. Few have taken the risk of projecting a date for the crash, this gent being a gutsy outlier: Hedge Fund CIO Sets The Day When The Next Crash Begins. Next February is a good guess, as recessions and market downturns tend to lag the credit market by about 9 months. Buy Silver at Discounted Prices My own scenario is based not on cycles or

Topics:
Charles Hugh Smith considers the following as important:

This could be interesting, too:

Max Keiser writes [KR1127] Keiser Report: China Effect on Oil & Bitcoin Markets

Tyler Durden writes Putting America’s Record-Breaking Trillion Debt In Global Context

Tyler Durden writes China’s Maritime Strategic Realignment

Wolf Richter writes Harvey and Irma Unlikely to End Carmageddon

The one thing we can know with certainty is it won’t be easy to profit from the crash.

After 8+ years of phenomenal gains, it’s pretty obvious the global stock market rally is overdue for a credit-cycle downturn, and many research services of Wall Street heavyweights are sounding the alarm about the auto industry’s slump, the slowing of new credit and other fundamental indicators that a recession is becoming more likely.

Few have taken the risk of projecting a date for the crash, this gent being a gutsy outlier: Hedge Fund CIO Sets The Day When The Next Crash Begins.

Next February is a good guess, as recessions and market downturns tend to lag the credit market by about 9 months.

Buy Silver at Discounted Prices

My own scenario is based not on cycles or technicals or fundamentals, but on the psychology of the topping process, which tends to follow this basic script:

Crash Scenario

When there are too many bearish reports of gloomy data, and too many calls to go long volatility or go to cash, the market perversely goes up, not down.

Why? This negativity creates a classic Wall of Worry that markets can continue climbing. (Central banks buying $300 billion of assets a month helps power this gradual ascent most admirably.) The Bears betting on a decline based on deteriorating fundamentals are crushed by the steady advance.

As Bears give up, the window for a Spot of Bother decline creaks open, however grudgingly, as central banks make noises about ending their extraordinary monetary policies by raising interest rates a bit (so they can lower them when the next recession grabs the global economy by the throat).

As bearish short interest and bets on higher volatility fade, insiders go short.

A sudden air pocket takes the market down, triggered by some bit of “news.” (Nothing like a well-engineered bout of panic selling to set up a profitable Buy the Dip opportunity.)

And since traders have been well-trained to Buy the Dips, the Spot of Bother is quickly retraced.

Nonetheless, doubts remain and fundamental data is still weak; this overhang of negativity rebuilds the wall of Worry.

Some Bears will reckon the weakened market will double-top, i.e. be unable to break out to new highs given the poor fundamentals, and as a result, we can anticipate a nominal new high after the Wall of Worry has been rebuilt, just to destroy all those who reckoned a double-top would mark The Top.

Mr. Market (and the central banks) won’t make it that easy to reap a fortune by going short.

As the market lofts to new nominal highs, the remaining Bears will be hesitant to go short, and Bulls will note that despite the dire warnings of analysts and the gloomy data on auto sales, credit expansion, productivity, wages, etc., the market keeps chugging higher.

Read the Whole Article

Charles Hugh Smith
Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites. His commentary is featured on a number of sites including: Zerohedge.com., The American Conservative and Peak Prosperity. He graduated from the University of Hawaii, Manoa in Honolulu. Charles Hugh Smith currently resides in Berkeley, California and Hilo, Hawaii.

Leave a Reply

Your email address will not be published. Required fields are marked *