On the recent plunge in stock prices (in Europe, then Asia, & soon the US)

Yesterday, someone asked me about my thoughts on the recent plunge in US stock market prices. First, I know a few forecasting systems that anticipated a sharp sell-off (like through applying very simple correlations as well as “technical analysis” of price trends, volume trends, etc). That was not just for US stocks either- since the data for stock markets across Asia and Europe tend to correlate very highly with the data for US stocks.

Second, as for global markets, my sense is that most people focusing on mainstream news in the US are not aware of the global nature of many trends. In fact, if we look at the last 3 months of price trends for the US vs Europe vs Asia, we find that it was in Europe (the black line below) that the first peak and decline happened.


The blue line (which is a stock index covering many parts of Asia) peaked the following day in January. Then, a few days later was when stock prices in the US peaked.

In other words, prices in the US did not start a trend that was followed in other parts of the planet. In this case, it is very clear that US price trends shifted a few days AFTER the trend had already changed in other parts of the world.

 

So, before I go in to my comments on the “very big picture” of a few basics of global economic conditions, I also want to note that what will be much more valuable for most people (than reading what is below) is simply to find a safe, lucrative investment strategy. Fortunately, I have been writing about several in recent weeks and my latest publication (showing steady gains not just of over 100% per year, but MUCH higher than that) can be accessed here:

https://jrfibonacci.wordpress.com/2018/02/09/stable-investment-gains-not-of-2-digit-percentages-per-year-but-3-and-even-4/

 

Next, when I want to educate someone on the reality of global economic trends, there are a variety of approaches that I can take. I could talk about the simple demographics of aging baby boomers in places like the US, Europe, and Japan. As they retire and shift their assets from stocks to bonds (and then to cash), if the younger generations are not keeping pace by buying stocks as fast as the retirees are selling them, that produces declines in prices.

But when I do that, it is because I am using “kid gloves.” I am sticking with only the least controversial and simplest points. Frankly, I get bored of that within a few paragraphs. (Sure, my commentary might much more valuable to you than free TV news analysis or even very expensive college courses, but if that is your interest then you are welcome to offer me money for my time.)

Instead, what I wrote below is “not holding anything back.” Even though parts of it are uncontroversial, that is just me “setting up the good stuff.”

What do I mean by that? When people think very intelligently (like a detective, a lawyer, or a spy), they can avoid the unexamined presumptions and logical fallacies that confuse and distract “the mainstream herd” of uninformed investors.

For instance, lawyers are clear that when an accounting firm presents data, there could be errors in that data or even outright fraud. The reality of intentional systematic fraud is very familiar to certain lawyers. There is an automatic skepticism of all CLAIMS.

Legal cases are all about presenting claims and advancing them. The best lawyers recognize that all verbal claims are inherently just assertions or projections.

Lawyers know that there are published standards for accounting and in contrast there are the wide variety of practices actually used by accounting professionals worldwide. Some companies are widely known to frequently break accounting rules that result in million dollar fines but billion dollar profits. Some accounting firms (or law firms) are even known as the best ones for “navigating” such strategies.

For instance, it is widely known by historical scholars that the HSBC bank (HongKong-Shanghai Banking Corporation) was set up for the specific purpose of laundering the drug money of the British Crown. In the late 1700s and early 1800s, the UK repeatedly invaded China to keep the Chinese from effectively criminalizing the importation of British opium (which was trafficked from the British possession of India). HSBC emerged from all that.

So, if a branch of that bank (or a bank of another name that HSBC buys out and controls) is accused of being involved with laundering money for CIA drug trafficking (or selling black-market uranium or illegal weapons), some lawyers would know that every claim or denial made by anyone is literally just a claim. Maybe any particular claim is generally accurate, maybe sincere, maybe wildly deceptive, etc…..

Even if an HSBC official admits to one isolated case of “misconduct” (and then presents a specific scapegoat), some legal minds would ask “is that confession designed as a distraction from something else?” Some lawyers have read the court papers for a variety of class-action suits for widespread fraud by many major banks.

So, let’s back off of that kind of complexity for now. Let’s focus instead on a very basic issue of accounting: lenders have limits to the amount of loans that they can extend (or else they could approve every application for an unlimited credit line).

 

To me, when considering the present state of global economics, it is relevant to understand that there is a global “credit bubble.” Also, that bubble is more extreme in the US than in most places (with massive borrowing here by barely-solvent individuals, corporations, and of course the US government).

In other words, we can compare different regions in regard to debt levels, income levels (or GDP), and net worth approximations. Since massive amounts of transactions in the US are financed with borrowed funds (especially with real estate loans and car loans), the vast majority of people regularly dumping money in to mutual funds (or bitcoin) have negative net worths. There are contrasting historical periods when most investors were not borrowing to invest (and had positive net worths). Further, the extent to which any particular country’s stock market or real estate market is based on a bubble of credit will vary from place to place.

Modern credit markets are an unprecedented “experiment.” Things like “zero down mortgages” (or “cash back at closing”) simply are not available in much of the world- and they are a temporary phenomenon here in the US that can come and go.

When lenders face a cash crunch, they will not even be offering “ridiculous” financing terms to people with great credit and collateral. Just like I cannot lend you a million dollars that I do not have, the same basic issue applies to institutional lenders. They monitor creditworthiness because they want to prioritize their loans toward borrowers that they assess to be “the best risks.”

While the global banking system has many layers, a lot of the lending ultimately is at the discretion of very big players, like the Jesuit-controlled Vatican, the Rothschilds, and so on.  As long as they control lending markets and as long as most governments are operating on the edge of insolvency, then governments are “stuck” meeting the demands of the lenders in order to continue borrowing to cover prior debts.

That means that if the big lenders want the US military to invade Israel or Iran (etc), that is very likely to happen. When the European bankers wanted the US to invade Europe, what can they do? They could make it clear that the only way for the US government to borrow anything from them is if they also borrow money to mount an invasion of Europe.

The first time that happened was called the Great War, which was later called “World War One.” Why does the US keep invading places that seem to fit the interests of the UK, Israel, and the Vatican? Because the debtor is being directed or “employed” by the lender.

Sometimes there are “warning shots fired” to give a “slap on the wrist” to “disloyal governments.” However, the implicit bribery conducted by those big lenders still does have limits.

Whatever resources they use to bribe and influence the politicies of one nation, those finite resources can not be used at any other nation. Every time that the IMF bankrupts another country, then that country cannot make their installment payments and that can be very bad for the lender… or perhaps very good.

For instance, the US government has gone bankrupt a few times. One time was in 1933 when the possession of gold by US Citizens was criminalized. (That law was modified several times and then totally rescinded in the 1970s).

Why was gold criminalized and confiscated? Because the US had been borrowing from the Federal Reserve Bank using “the cumulative assets of all US Citizens” as part of the collateral of the lending contracts. Soon, the gold was collected and then a portion of what the US owed to The Fed was paid back in gold.

The Fed did not get back their entire investment, BUT that was probably never their plan anyway. They negotiated a major transfer of political sovereignty away from the US congress (and public) towards them. Within a few years, the US finally adopted the socialist programs that had been conceived by the rockefellers and other mega-capitalists who wanted to shift power and wealth away from the public (their competition) to their puppets/agents (central government bureaucracies).

Eventually, not only did the lenders “own” governments, but their governments also began lending programs like FHA and HUD that involved the US government lending out money that they had borrowed (or at least underwriting / “co-signing” ALL those loans). That transferred more control away from the general public to the central rulers.

When the mortgages do not get paid, then ownership goes to the US (as in the court system), who then can use those assets to pay some of their debts to the Fed. The board game “monopoly” includes a “total” concentration of wealth by the end.

So, if I borrow $300k from chase bank, what if they got all of those funds by borrowing it from “the real ruler?” What if it is the same at every other bank too?

Every bank in the US operates under the terms set by the Fed, which is a private institution. It is owned largely “by proxy” for the Vatican, the British Crown, the Rothschild Zionist “cartel,” etc etc etc…..

Anyway, when I started publishing forecasts in 2003 of the global downturn that developed a few years later, I also anticipated the kind of responses that politicians in the US and elsewhere eventually implemented. What if governments in many places basically transferred risk away from private banks toward taxpayers? What if they bailed out the banks by buying junk debt at face value (and billing the taxpayers)?

 

Court systems are operations for systematically extracting wealth from a population, whether by taxes or a direct confiscation like of gold in the US in 1933. Court systems generally have the coercive capacity to effectively dictate to the masses what form of payment can be used to cover the debts that governments invent and then impose on their populations.

In other words, courts inspire “demand” for particular currencies by inventing debts and then collecting them. A “pseudo-currency” like bitcoin can never displace a currency backed by the military power of a court system.

(Note that when a court system adopts something like silver or gold as a “standard” that can be used to pay the debts that they invent and impose, that does not change the fundamental nature of the coercive enterprise. With each nation that adds or removes gold as an accepted form of payment to cover debts, that increases or decreases demand for gold, “artificially” influencing market pricing.)

As for forecasting dips and long-term collapses like the last 28 years of stock market weakness in Japan, credit bubbles are a big part of that. There are also stats labeled as “leading indicators” (like “price to earnings ratio”).

Not only do those ratios indicate how “thin or solid” market prices are, but that is assuming that all the corporate accounting is accurate. Recently, GE’s systematic fraud for many years has been exposed as similar in severity to Enron.

Of course, some people can blame a particular politician for prosecuting corporate fraud “too harshly” (or too loosely), but an underlying issue is the almost total lack of “literacy” by the investing public. I could propose that they do not care if GE or Enron is conducting large-scale fraud because if they did care, then they would have explored that topic prior to investing- instead of being surprised at the latest indictment or bankruptcy filing.

Why did GE and Enron commit fraud so well for so long? Because those in control (including the global lenders) either did not care or encouraged it- directly or indirectly.

How many major banks and corporations across the world routinely commit fraud? Maybe 1%. Maybe 99%. Not 0% though.

However, we do expect that typically when they commit accounting fraud, they do it in a way that makes their finances look better than they are. In fact, I am not aware of any cases in which a corporation attempted to reduce their apparent creditworthiness. In the global competition to attract huge loans, the lenders are functionally in charge of how they assess credit of prospective borrowers and how they attempt to discourage or identify fraudulent accounting.

So, recent ratios show historic extremes of “weakness” in credit markets worldwide (an inflated bubble that is about to deflate and cause the purchasing powers of currencies to SOAR- similar to what has happened in Japan in the last 30 years or so). In other words, people that perceive that they will be able to borrow huge amounts of money for years or decades tend to “discount” how conservative they are with their cash reserves. The trend is that they hysterically discount cash further and further (while overvaluing credit/ borrowing), and then that trend reverses, sometimes suddenly.

Recent ratios also show historic extremes of stock valuation (clear evidence of an extreme “bubble”). Relative to historical norms, people are dismissing the value of saving cash (discounting the practical value of cash in order to pour it in to stocks, bitcoin, or real estate down payments).

When borrowers find that they can no longer obtain a bigger credit line, then suddenly they shift their focus from trying to get as much as credit possible to focusing exclusively on gathering cash- as in selling their time and assets to acquire cash. When enough borrowers are all “in a cash crunch,” then none of them are buying speculative assets (like all stocks and most real estate).

Suddenly there are more orders to sell than orders to buy. So, prices fall- sometimes sharply.

What exactly will they sell most aggressively? If there is recent publicity about a new court case against GE for ongoing systematic accounting fraud, plus GE is already down a few percent recently, then that may be the first asset that everyone all at once is trying to dump.

Below is a chart of nearly 2 decades of prices for GE. Note that for all of 2017, GE stock prices were falling. In fact, the only year shown above that GE’s stock price fell more than in 2017 was 2008.

Now, I do not expect many people to read this far. I expect most people to experience various levels of anxiety or terror or “kneejerk denial” as they read some of the content above. They may say in frustration “that idea just does not make sense to me!”

Maybe the actual realities are quite simple. Maybe their conceptual framework is flawed. Maybe it is a very big business to skew the conceptual frameworks of the masses of mainstream investors so as to deceive them in to presuming things like “it is safe to invest in AIG because they are an insurance company and insurance companies always keep their risks low (by legal decree).”

Dare to look at AIG’s prices for the last 10 years? They did recover a bit from the lowest price levels (which were after their “idiotic business practices” came in to public attention about 10 years ago), but the recovery has been rather modest.

So, not only are certain stock market ratios “screaming” that prices are far too high to indefinitely remain anywhere near current levels. Further, to me, we can assume that the reality is actually much worse than what is suggested in many of those ratios.

Why? Because I presume (consciously) that cases of corporate accounting fraud tend to exaggerate the financial stability (net worth) of the company. The fraud is not to make the company look less stable than it is.

Further, I am clear that the current ratios, even if never “enhanced” by fraud, still are based on “grossly-inflated assessments” of the market value of assets like real estate, “junk-grade” bonds, and of course stock market holdings. To me, if you can understand simple math, then the main issue with someone understanding the basics of current global economic conditions is their emotional resilience.

Those who are emotionally resilient VALUE directly facing relevant, simple truths. They will quickly be able to recognize favorable alternatives because they are not busy hiding from certain realities. For everyone else, they can argue over which politician should have done what (and congratulate each other for bravely condemning the  awful practices of those evil accountants at Enron… or GE… or HSBC… or AIG… or the IMF etc etc etc).

 

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