The Crash Of The
“Everything Bubble” Started In 2018 - Here’s What Comes Next In 2019
In
2018, a very significant economic change occurred which sealed the fate of the
U.S. economy as well as numerous other economies around the globe. This change
was the reversal of central bank policy. The era of stimulus and artificial
support of various markets, including stocks, is beginning to fade away as the
Federal Reserve pursues policy tightening, including higher interest rates and
larger cuts to its balance sheet.
I
warned of this change under new Chairman Jerome Powell at the beginning of 2018
in my article ‘New Fed Chairman Will Trigger Stock Market Crash In
2018’. The crash had a false start in February/March, as stocks were saved by
massive corporate buybacks through the 2nd and 3rd quarters. However, as
interest rates edged higher and Trump’s tax cut cash ran thin, corporate stock
buybacks began to dwindle in the final quarter of the year.
As
I predicted in September in my article ‘The Everything Bubble: When Will It Finally Crash?’, the
crash accelerated in December, as the Fed raised interest rates to their
neutral rate of inflation and increased balance sheet cuts to $50 billion per
month. In 2019, this crash will continue as the fed resumes cuts once
again in mid-January.
It
is important to note that when we speak of a crash in alternative economic
circles, we are not only talking about stock markets. Mainstream economists
often claim that stocks are a predictive indicator for the future health of the
wider economy. This is incorrect. Stocks are actually a trailing indicator;
they tend to crash well after all other fundamentals have started to decline.
Housing
markets have been plunging in terms of sales as well as value. The Fed’s
interest rate hikes are translating to much higher mortgage rates in the wake
of overly inflated prices and weaker consumer wages. Corporate buyers in real
estate, which have been propping up the housing market for years, are now
unable to continue life support. Corporate debt across the board is at all-time
highs not seen since the crash of 2008, and with higher interest rates,
borrowing cheap capital is no longer an option.
Auto
markets, another major indicator of economic stability, have been plunging in
extreme fashion. Autos saw steep declines throughout the last half of 2018, once
again as higher Fed interest rates killed easy credit ARM-style car loans.
U.S.
credit is also drying up as investors pull capital from volatile markets and
interest rates rise. Liquidity is disappearing, which means debt is becoming
more expensive, or inaccessible to most people and businesses.
A
false narrative is being presented in the mainstream on these circumstances –
by both the media and central bankers. There has been a considerable amount of
“jawboning” by economic authorities and mainstream analysts in an attempt to
keep the public distracted from the economic crisis as well as keep the
investment world engaged in trading with blinders on. With the propaganda going
into overdrive, we must cut through the fog and mirrors, gauging the most
important threats within the system and determining when they might escalate.
Make
no mistake, as erratic and unstable as 2018 was, 2019 will be far worse.
The Federal Reserve Will Continue Tightening
There
is a lie circulating in the media that Jerome Powell and the Fed are “heroic”
for “going against” past central bank regimes and removing easy money policies.
This is the exact opposite motive behind what is happening. We have to remember
that it was the Fed and other central banks that created the initial crash in
2008 through easy money policies. They then deliberately created an even bigger
bubble (the “everything bubble”) through more monetary stimulus; a bubble so
large that it would collapse the entire U.S. economy including bond markets and
the dollar if it ever burst.
This
circular process of crisis-stimulus-crisis is one that that the central bank
has used for over a century. Former Fed officials like Ben Bernanke and Alan
Greenspan have openly admitted to central bank culpability for the Great Depression as
well as the crash of 2008. Though, as they do this they also assert
that they were “not aware at the time” of the greater danger. I don’t buy that
for a second.
In
almost every instance during which the Fed created a crash environment, banking
institutions were able to use the opportunity to snatch up hard assets for
pennies on the dollar, as well as steal more political and social power. During
the Great Depression, major banks absorbed thousands of smaller local banks as
well as all the assets those banks held. In 2008, banks and corporations
enjoyed a deluge of easy money paid for by American taxpayers for generations
to come, while also vacuuming up hard assets like distressed home mortgages.
An
even greater prize for banking elites is global centralization of economic
authority, which is what I believe their goal is as the next engineered crash
runs its course. As crisis leads to catastrophe, it will be institutions driven
by globalism like the International Monetary Fund (IMF) and Bank for
International Settlements (BIS) that step in to “save the day”.
As
I have noted time and time again, Jerome Powell is well aware of what will
happen as the Fed tightens. He is recorded in the Fed minutes of October 2012
discussing the consequences, including his hint of an impending crash if
the Fed shut down stimulus measures, raised interest rates and cut the balance
sheet.
Yet,
Powell continues tightening all the same, indicating that Fed actions and the
results are quite deliberate. Recent statements by Powell have been wrongly
interpreted by the mainstream to indicate that the Fed might back off of
tightening policies. I predict that this will not happen, at least not until
the crash has already run its course.
I
expect Powell to continue balance sheet cuts at around $50 billion per month
through until perhaps the end of 2019. I also hold to my original prediction
last year that the Fed will hike interest rates in 2019, at least two more
times, with a hike in March. The Fed has continued to show a propensity
for double talk on "accommodation", and there is a good reason for
this...
Stock Markets Will Continue To Plunge
Many
alternative economists have been pointing out over the years the direct
correlation between the Fed balance sheet and stock market prices. As the Fed
bought up assets, the stock market rose exactly in tandem. As the Fed dumps
assets, stocks fall with increasing speed and volatility.
If
you want a perfect example of this, simply examine the central bank's FRED balance sheet totals and
compare them with a year long graph of the S&P500. Do not only look at the
stock plunges, but also the stock rallies. Dramatic cuts in December
facilitated the start of the crash; the recent bounce occurred in part due to
end of the year investment by corporate pension funds, searching desperately
for yield in an environment where bonds are no longer viable or safe.
However, take note that the first week of January also saw Fed cuts flatline.
What
does this mean? Without a massive alternative capital source like stock
buybacks in play, every new large Fed asset cut will result in a steep decline
around the middle of each month. Every pause in cuts will result in a
bounce, but to lower highs. The ceiling for rallies and the expectations
of investors will gradually dwindle until the reality that the party is over
finally hits them.
The
Fed’s recent "dovish" comments, in my view, are completely fraudulent
and highly calculated. Because the central bank has cut stimulus and raised
interest rates to the point that corporations can no longer afford massive
buyback binges, there is nothing left to support stocks except disinformation,
blind faith, and a 1-2 week pause in balance sheet cuts.
This
is a controlled demolition of the economy and markets. The Fed will jawbone as
much as possible to keep the system from imploding too fast, because jawboning
is the only tool that is left. In the meantime, Powell will keep cutting assets
and raising interest rates on schedule. This will inevitably translate into
lower prices in equities as the system is “steam valved” down. Blind faith by
investors will only go so far. They will be left holding the bag, right along
with pensions.
I
expect stocks will resume their steep decline through 2019, and will fall well
below support levels seen in 2017. If December’s decline was any indication, as
long as the Fed continues its current path of balance sheet cuts, I see the Dow
in the 17,000 to 18,000 point range in March-April.
Trump Will Get The Blame For The Crash
Trump’s
incessant propensity for taking credit for the bull rally in stocks makes him a
perfect scapegoat for the ongoing crash. The acceleration in 2019 will be
followed by numerous distractions. While Trump has blamed the Federal Reserve
for recent stock instability, he has at the same time blamed his own trade war. Trump has attached the success
of his presidency to the success of a stock market that he used to call a “big bubble” created by the Fed.
Trump’s
trade war along with the government shutdown are just two factors that are
already being targeted by the mainstream media and globalist commentators as
the causes of the December plunge in equities.
The
shutdown might not continue through January if Trump declares a state of
emergency and begins the southern border wall, making the budget debate rather
moot. That said, I suspect it may continue anyway; this time does feel
different.
Consider
that if the shutdown enters into February there is the threat that welfare
programs like EBT will be delayed, which opens the door to a whole new kind of
insanity. I don't necessarily have anything against the average person
seeking welfare in times of personal crisis. That said, there are
millions of Americans who have made a career out of collecting government aid,
and their attitude is often one of entitlement. If and when their revenue
and food source is cut off, their reaction may be violent.
The
timing of the current shutdown makes it such a useful distraction away from
central bank actions that I would be surprised if it was ended in the near
term. The threat of delays on EBT and government welfare would be a very
juicy crisis that could be exploited by central banks and globalists
I
predict the trade war will continue through 2019, as it has for the past year.
Trump will announce “huge” progress on negotiations with China at times in
order to jawbone stocks up, but days or weeks later this progress will once
again come into question. I realize this is an easy prediction. The trade war
farce has followed a rather predictable pattern lately.
Trump
has been extraordinarily helpful to the banking elites in this regard. In fact,
the Trump Administration seems to add a new escalation in the trade war a week
after every major Fed balance sheet cut or rate hike; just in time for stocks
to drop violently due to the Fed dump.
Other Predictions For 2019
A "Hard Brexit": Look
for the Brexit to enter a possible no-deal scenario with the EU followed by an
aggressive economic downturn beyond what is already occurring in Europe.
While this outcome appears to be a longshot right now, it makes sense according
to the false narrative globalists are building - the narrative that
"populists" are a reckless and destructive influence that is leading
to economic disaster.
Turkey Leaving NATO: This seems like a
done deal already. Turkey is positioning to couple to Eastern powers like
China and Russia through various trade agreements and strategic deals, and
abandoning ties to the West. While this has the potential to drag on for
a few more years, I believe it will happen quickly - by the end of 2019.
Martial Law Conditions In France: The
"yellow vest" protests are going to continue through 2019, and will
probably become more volatile as Emmanuel Macron
attempts to tighten control. Look for protests to grow in spring and
summer as the weather warms up. Macron has not been shy about using his
totalitarian toolbox. I expect him to declare a condition of national
emergency with martial law-like powers in place as soon as the end of this
year. Whether or not this was an intended outcome by the globalists
Macron so closely associates with, I do not yet know. We have not heard
much in terms of specific demands or ideological views from the Yellow
Vests. Understanding the goals and motives of both sides will determine
if there is a false paradigm in play or if the Yellow Vests are a true
grassroots movement.
Summary
To
summarize, the crash of the “everything bubble” has been deliberately initiated
by central bankers. The worst is yet to come in 2019. Trump has made himself a
sacrificial goat for the banking elites, and his administration will be taking
the blame by the end of this year regardless of the facts surrounding the
Federal Reserve’s program of controlled demolition. The year of 2018 was
the beginning of the next phase of engineered crisis, 2019 will see the crash
hit the mainstream consciousness not to mention the doorsteps and wallets of
the general public.
The “Stock Market Crash
Of 2018” Is Rapidly Transforming Into “The Financial Crisis Of 2019”
Stock
markets are crashing all over the world, we are seeing extremely violent “flash
crashes” in the forex marketplace, economic conditions are slowing down all
over the globe, and fear is causing many investors to become extremely trigger
happy. The stock market crash of 2018 wiped out approximately 12 trillion dollarsin global
stock market wealth, but things were supposed to calm down once we got into
2019. But clearly that is not happening. After Apple announced that
their sales during the first quarter are going to be much, much lower than
previously anticipated, Apple’s stock price started shooting down like a rocket and by
the end of the session on Wednesday the company had lost 75 billion dollars in
market capitalization. Meanwhile, “flash crashes” caused some of the most
violent swings that we have ever seen in
the foreign exchange markets…
It took seven
minutes for the yen to surge through levels that have held
through almost a decade.
In those wild minutes from about 9:30 a.m. Sydney, the yen jumped almost 8 percent against
the Australian dollar to its strongest since 2009, and
surged 10 percent versus the Turkish lira. The Japanese currency rose at least
1 percent versus all its Group-of-10 peers, bursting through the 72 per Aussie
level that has held through a trade war, a stock rout, Italy’s budget dispute
and Federal Reserve rate hikes.
This is the kind of chaos that we only see during a financial
crisis.
Investors are also being rattled by the fact that China just
experienced its first
factory activity contraction in over two years…
The People’s Bank of China said on Wednesday evening it had
relaxed its conditions on targeted reserve requirement cuts to benefit more
small firms.
The move came after
China reported its first factory activity contraction in over two years in
December. A long-term Chinese slowdown would cause global havoc.
But of course the biggest news of the day was what happened to
Apple. The Dow Jones Industrial Average was down 660 points on Wednesday,
and the huge hit that Apple took was the biggest reason for that decline.
Including the 75 billion dollars that was just wiped out, the
value of Apple has now fallen by 452 billion dollars since
October 3rd…
In only three months, Apple has
lost $452 billion in
market capitalization, including tens of billions on Thursday
as the tech giant’s stock sank further.
Apple shares have fallen by 39.1 percent since Oct. 3, when the
stock hit a 52-week high of $233.47 a share. With its market cap down to about
$674 billion, those
losses are larger than individual value of 496 members of the S&P 500 —
including Facebook and J.P. Morgan.
Ironically, the truth is that Apple is actually one of the
strongest companies on Wall Street financially. It is just that the
company was priced well beyond perfection, and so any hint of bad news was
likely to cause a decline of this magnitude.
The amount of paper wealth that stock market investors have just
lost is absolutely staggering. To put this in the proper perspective,
here are some more facts about the money that Apple investors have lost that
come from CNBC…
At this point U.S. financial markets are hypersensitive to any
piece of bad news, and the fact that Apple sales are way down in China is definitely bad news.
One analyst said that this was “Apple’s darkest day in the iPhone era” and
he expressed his opinion that “the magnitude of the miss with China demand …was jaw-dropping.”
Of course Apple is far from alone. Economic activity is
slowing down substantially all over the planet, and on Wednesday we learned
that U.S. factory activity just declined by the
most since the last recession…
Beyond Apple, investors were also rattled by the biggest one-month decline in US
factory activity since the Great Recession. The closely-watched
ISM manufacturing index tumbled to a two-year low, providing further evidence
of slowing growth and pain from the US-China trade war.
In addition, both of Bloomberg’s economic surprise indexes
have “turned negative for the first time since Trump was elected”.
The hits just keep on coming, and it is becoming quite clear
that this is going to be a very tough year.
As this crisis continues to escalate, keep an eye on our big
financial institutions. Italy’s tenth largest bank just imploded, and it
is likely that we will see more financial dominoes start to topple as the
losses mount.
Over the past decade, there have been other times when Wall
Street has been rattled, but those episodes only lasted for a few weeks at the
most.
It has now been three months, and this new crisis shows no signs
of abating any time soon.
What that means is that we are in a heap of trouble.
Because once this giant financial avalanche fully gets going, it is going to be
impossible to stop.
For the moment, I think that this current wave of panic selling
is subsiding and that Friday will be better for investors. Of course the
markets are so jittery at this point that a single piece of bad news could
instantly send them tumbling once again. But barring any bad news,
hopefully things will be calmer on Friday.
There will be good days and there will be bad days in 2019.
There will be ups and there will be downs.
But it has become exceedingly clear that the downturn that so
many have been anticipating has finally arrived, and the financial crisis of
2019 looks like it is going to be a doozy.
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