Tag Archives: the Fed

Unemployment? Recession? Home Sales Down? No Problem.

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They Know That They Are Killing The Economy, But They Are Doing It Anyway…

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They know exactly what they are doing.  The “experts” that run the Federal Reserve know that if they dramatically hike interest rates it will cause countless American workers to lose their jobs and it will absolutely crush the housing market.  And even though those two things are already starting to happen, they just announced another massive rate hike.  If there was a school for central bankers, one of the very first things that they would teach you is that you should never, ever raise rates as an economy is plunging into a recession.  Every Fed official knows what has happened in the past when rates have been hiked at the beginning of an economic slowdown, but they are doing it anyway.  To call this “economic malpractice” would be a major understatement, and the American people should be deeply alarmed about what they are doing to us.

After everything that has already happened, it is hard to believe that Fed officials would continue to be so reckless.  On Wednesday, it was announced that rates would be raised by another 75 basis points…

The Federal Reserve on Wednesday raised its benchmark interest rate by 75 basis points for the third straight month as it struggles to bring scorching-hot inflation under control, a move that threatens to slow U.S. economic growth and exacerbate financial pain for millions of households and businesses.

The three-quarter percentage point hikes in June, July and September — the most aggressive series of increases since 1994 — underscore just how serious Fed officials are about tackling the inflation crisis after a string of alarming economic reports. Policymakers voted unanimously to approve the latest super-sized hike.

It was a unanimous vote.

There wasn’t even one dissenting voice.

Have they gone completely mad?

Wall Street certainly did not like this decision.  The Dow plunged hundreds of points immediately after it was announced…

The Dow Jones Industrial Average slid 522.45 points, or 1.7%, to close at 30,183.78. The S&P 500 shed 1.71% to 3,789.93, and the Nasdaq Composite slumped 1.79% to 11,220.19.

The S&P ended Wednesday’s session down more than 10% in the past month and 21% off its 52-week high. Even before the rate decision, stocks were pricing in an aggressive tightening campaign by the Fed that could tip the economy into a recession.

For ages, the Fed coddled the financial markets, but now it is almost as if they don’t even care anymore.

Personally, I am far more concerned about what will happen to ordinary hard working Americans in the months ahead.  Even Jerome Powell is admitting that “an increase in unemployment” is likely because of what the Fed is doing…

“I think there’s a very high likelihood we will have a period of … much lower growth and it could give rise to an increase in unemployment,” he said.

Will that mean a recession?

“No one knows whether that process will lead to a recession or how significant a recession it will be,” Powell said. “I don’t know the odds.”

Actually, we are in a recession right now.

And Powell and his minions just made things a whole lot worse.

Even Democrats understand this.  After the rate hike was announced, Senator Elizabeth Warren went on Twitter and warned that “millions of Americans” could soon lose their jobs…

.@federalreserve’s Chair Powell just announced another extreme interest rate hike while forecasting higher unemployment. I’ve been warning that Chair Powell’s Fed would throw millions of Americans out of work — and I fear he’s already on the path to doing so.

This is one of the rare occasions when Elizabeth Warren is right on target.

As I have been documenting on my website for weeks, large numbers of Americans have already been getting laid off.

In fact, things are already so bad that even Facebook is trimming their numbers…

As growth stalls and competition intensifies, Facebook parent Meta has begun quietly cutting staff by reorganizing departments, while giving ‘reorganized’ employees a narrow window to apply for other roles within the company, according to the Wall Street Journal, citing current and former managers familiar with the matter.

By shuffling people around, the company achieves staffing cuts “while forestalling the mass issuance of pink slips.”

So why would the Fed choose to raise rates when layoffs are already beginning to spike?

Higher rates are also having a devastating impact on the housing market.

This week, we learned that sales of existing homes have now fallen for seven months in a row…

Home sales declined for the seventh month in a row in August as higher mortgage rates and stubbornly high prices pushed prospective buyers out of the market.

Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — were down 19.9% from a year ago and down 0.4% from July, according to a report from the National Association of Realtors.

Someone should start putting “Jerome Powell did this” stickers on for sale signs all over the nation.

Because this didn’t have to happen.

Now the housing market is already in a “deep recession”, and the Fed just keeps making things even worse…

The prolonged downturn in confidence shows the housing market has been “in a tailspin for the whole of this year,” according to Pantheon Macroeconomics chief economist Ian Shepherdson.

“Activity tracks mortgage applications with a lag, and the early September numbers are grim, even before the full hit from the rebound in mortgage rates in recent weeks works through,” Shepherdson said in a note to clients on Monday.

“In short, the housing market is in a deep recession, which is already hammering homebuilders and will soon depress housing-related retail sales,” he added.

The Fed seems determined to kill the economy.

But why?

Why would they do this?

One analyst that was just quoted by Fox Business is warning that “times are going to get tougher from here”…

“With the new rate projections, the Fed is engineering a hard landing — a soft landing is almost out of the question,” said Seema Shah, chief global strategist of Principal Global Investors. “Powell’s admission that there will be below-trend growth for a period should be translated as central bank speak for ‘recession.’ Times are going to get tougher from here.”

Yes, times are definitely going to get tougher from here.

In fact, we are eventually headed for a meltdown of epic proportions.

But instead of working to prevent a historic crisis, the Federal Reserve is actually encouraging one.

The American people deserve some answers, because there is something about all of this that really stinks.

They Know That They Are Killing The Economy, But They Are Doing It Anyway…

Following The Plan

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The “Scariest Paper Of 2022” Reveals The Terrifying Fate Of Biden’s Economy: Millions Are About To Lose Their Job

BY TYLER DURDEN
SATURDAY, SEP 10, 2022 – 12:11 PM

For much of the past year (and certainly at the time, more than a year ago, when the so-called experts, central bankers and macrotourists were still yapping about “transitory inflation” and other things they were wrong about and do not understand), we were warning that at some point the Fed will realize that it is simply impossible to contain supply-driven inflation through stubborn rate hikes which instead would lead to a dire alternative – millions in mass layoffs and newly unemployed workers …

… and will revise its 2% inflation target higher, a move which will send every risk asset – from high-beta trash and meme stonks, to blue-chip icons, to bitcoin and cryptos limit up.

To remind readers of this coming phase shift, we most recently warned in June that “at some point Fed will concede it has no control over supply. That’s when we will start getting leaks of raising the inflation target“…

Well, it turns out that we were right, and not just about the coming mass layoffs, but also about the inflation target leaks. But first, lets back up a bit.

A little over one year after nobody expected the Fed would be hiking rates like a drunken sailor until some time in late 2023 or 2024, it has now become fashionable to not only predict that the Fed will keep hiking rates at every FOMC meeting and at the fastest pace since the near-hyperinflation of the 1980s, but that the central bank will somehow manage to avoid a hard landing (i.e., the hiking cycle won’t end in a recession or depression), even though every single Fed tightening cycle since 1913 has ended in disaster.

An example of this was the statement by former Fed vice chair (and PIMCO’s “twice-revolving door”) Rich Clarida, who told CNBC that “failure is not an option for Jay Powell,” adding that “I think they’re going to 4% hell or high water. Until inflation comes down a lot, the Fed is really a single mandate central bank.”

Of course, if one could hike rates in a vacuum that could work – after all, Clarida himself, who admits he got this year’s soaring inflation dead wrong when he was still a daytrading god and part oft he Fed in 2021, said that the Fed may as well have just one mandate, namely to tame inflation. But what so few seem to recall is that the Fed is “hiking to spark a recession“, or as CNBC’s Steve Liesman put it, there is no such thing as “immaculate rate hikes” meaning that rate hikes have dire tradeoffs in other sectors of the economy. In other words, if the Fed’s intention is to spark a recession, it will spark a recession… leading to millions of Americans losing their jobs, something which even Elizabeth Warren appears to have grasped.

Yet due to the recency bias of Biden’s trillions in stimmies, and a world where workers – whether working form home or the office – have virtually all the leverage, few today can conceive of a world where inflation is zero or negative and is instead replaced with millions in unemployed workers, an outcome which one could (or rather should) say is even worse for the ruling democrats than roaring inflation. At least, with runaway prices, most people have a job and their wages are rising (at least nominally, if not in real terms).

However, the higher rates rise, the closer we get to that inevitable moment when the BLS – unable to kick the can any longer – admits what has been obvious to so many for months: the US is facing a labor crisis of epic proportions with millions and millions of mass layoffs. And for those to whom it is not yet obvious, we urge to read a WSJ op-ed published by none other than Jason Furman, who is not some crackpot republican but Obama’s own top Economic Adviser from 2013-2017 and currently economic policy professor at Harvard.

In “Inflation and the Scariest Economics Paper of 2022“, Furman summarizes a paper written by Johns Hopkins macroeconomist Larry Ball with co-authors Daniel Leigh and Prachi Mishra of the International Monetary Fund released by the Brookings Papers on Economic Activity, whose conclusion is as follows: “To bring price increases down to 2%, we may need to tolerate unemployment of 6.5% for two years.”

In other words, just as we said, inflation – much of which is supply-driven, which the Fed can do nothing about – will force the Fed to crush the economy by keeping rates for much longer, the result of which will be many millions in unemployed workers, or as Furman puts it, the paper “shows why the Federal Reserve will likely need to maintain its war on inflation, even if unemployment continues to rise.”

What is more remarkable about Furman’s read of the economist paper is that in addition to its primary theme (the lack of labor slack, or labor tightness, is responsible for some 3.4% of underlying inflation in July 2022), the paper admits precisely what we have been saying all along – that the Fed can’t control supply-side variables:

The paper also argues, convincingly in my view, for a different measure of underlying inflation. Fluctuations in energy and food prices are generally due to factors outside the control of macroeconomic policy makers. Geopolitics and weather have elevated the inflation rate in recent years. Plunging gasoline prices are temporarily lowering the inflation rate now. That’s why economists since the 1970s have focused on “core” inflation, which excludes food and energy.

But food and energy aren’t the only things people buy that are subject to supply-side volatility. Prices of new and used cars, for example, have gyrated over the past two years for reasons that are mostly unrelated to the strength of the overall economy. Both regular and core inflation are based on taking averages of price increases and can be distorted by large changes in outlier categories. The median inflation rate calculated by the Federal Reserve Bank of Cleveland drops outliers to remove these distortions.

According to Furman, median inflation – which is a statistically better measure of the underlying inflation that policy makers can actually control – is well above the Fed’s preferred headline inflation print (which fell to zero in July on a sequential basis and has stabilize) and shows no sign of moderating and has run at a 6.6% annual rate in the last three months.

But the “scariest” part of the new paper, Furman reveals, is when the authors use their model to forecast the unemployment rate that would be needed to bring inflation down to the Fed’s 2% target. He explains why this is so scary:

The authors present a range of scenarios, so I ran their model using my own assumptions…  Under these assumptions, which are more optimistic than the authors’ midpoint scenario, if the unemployment rate follows the Federal Open Market Committee’s median economic projection from June that the unemployment will rise to only 4.1%, then the inflation rate will still be about 4% at the end of 2025. To get the inflation rate to the Fed’s target of 2% by then would require an average unemployment rate of about 6.5% in 2023 and 2024.

Where is unemployment now: it’s 3.7% (6.014 million unemployed workers vs 164.746 million civilian labor force). This matters, because according to one of the most erudite economist Democrats, by the end of the Biden admin in 2024, the unemployment will have to soar to 6.5% for inflation to plunge to the Fed’s historical target of 2.0%

What does this mean in absolute numbers? Assuming a modest increase in the US labor force, a 6.5% unemployment rate in 2024 would translate into no less than 10.8 million unemployed workers, an 80% increase from the 6 million today!

Still think that politicians – and especially Democrats – will sit quietly and blindly ignore how high the Fed is hiking rates if it means that to normalize inflation back to 2% it means nearly doubling the number of unemployed Americans (and a crushing recession to boot). Spoiler alert: no, they won’t, and this may be one of the very rare occasions when Elizabeth Warren is actually right to worry about what the coming mass layoff wave means for Democrats… and the 2024 presidential election.

So what should the Fed do? Well, according to Furman, the Fed has four options:

  1. First, place more emphasis on the ratio of job openings to unemployment and median inflation as it assesses the tightness of labor markets and the underlying rate of inflation.
  2. Second, the new paper shows how much easier it will be to tackle inflation if expectations remain under control. The Fed should follow up on Chairman Jerome Powell’s tough talk at Jackson Hole with meaningful action such as a 75-basis-point increase at the next meeting.
  3. Third, be prepared to accept the unemployment rate rising above 5% if inflation is still out of control.

While we doubt #3 is actionable, what is more remarkable is Furman’s final proposal: it’s the one that, like the Dude’s proverbial rug, ties the room together and sets the stage for what is coming:

Finally, stabilizing at a 3% inflation rate is probably healthier for the economy than stabilizing at 2%—so while fighting inflation should be the central bank’s only focus today, at some point the Fed should reassess the meaning of victory in that struggle.

And just in case his WSJ proves too complicated for some mainstream experts and economists, here it is in truncated, twitter format:

And there you have it: remember what we said on June 21: “At some point Fed will concede it has no control over supply. That’s when we will start getting leaks of raising the inflation target.” Well… there it is.

And while mainstream economists and the market may require quite a few months to grasp what is coming, it is the only way out of a crisis of commodities – as Zoltan has repeatedly and correctly put it – and which central banks have no control over, and thus will have to move not only the goalposts but the entire football field to avoid a social revolt or something even scarier.

While we wait, we can’t help but snicker at what the 79-year-old figurehead in the White House tweeted today…

… because what Biden calls “the strongest economic recovery in recent history” is – even according to Democrats – about to be the biggest economic disaster in modern history.

from:    https://www.zerohedge.com/economics/scariest-paper-2022-reveals-terrifying-fate-bidens-economy-millions-are-about-lose-their?utm_source=&utm_medium=email&utm_campaign=914

Hello, Dallas! Here We Come!

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NASDAQ CONSIDERING MOVE TO TEXAS?
Babylon’s Banksters

NASDAQ CONSIDERING MOVE TO TEXAS?

November 18, 2020 By Joseph P. Farrell

So many people sent me versions of this story it would be impossible to thank each individually, but the numbers of people who did so clearly indicate that our “Gizars” are still on top of their game. Indeed, I am blogging about this story because it has my suspicion meter in the red zone. Here’s a version shared by M.G.:

https://www.ksat.com/news/texas/2020/11/10/wall-street-moving-to-big-d-nasdaq-other-stock-exchanges-consider-relocating-to-texas/

What’s the story? Basically the NASDAQ stock exchange is considering pulling up stakes, and leaving its New Jersey/New York home, and heading for Texas, Dallas to be specific. And NASDAQ isn’t the only exchange considering such a move. There are rumors that the NYSE itself might consider a move to Texas.

From the article:

Officials from Nasdaq and other major stock exchanges will meet with Gov. Greg Abbott on Nov. 20 in Austin to discuss a possible move from New Jersey to Texas, nbcdfw.com and the Dallas Morning News reported.

The meeting comes on the heels of the exchanges threatening to move their trading platforms out of New Jersey, the report said.

Abbott and other Texas officials plan to boast the state’s business-friendly environment during the meeting.

“Texas continues to be the premier economic destination in the country, attracting more leading businesses than any other state,” spokeswoman Renae Eze said in a statement to The Dallas Morning News. “The governor looks forward to meeting with Nasdaq and showcasing Texas’ business-friendly environment, skilled workforce, robust infrastructure, and low taxes, all of which foster greater economic growth in the Lone Star State.”

According to The Dallas Morning News, Abbott’s office has been talking with Nasdaq and other exchanges about moving their data centers to Dallas because of a potential tax on financial transactions in New Jersey. (Emphases added)

Now this article, one might have noted, is a bit peculiar in several respects. For one thing, it mentions – twice – “NASDAQ and other exchanges,” the clear implication being the NYSE itself. But that’s only one of what might be “other exchanges.” We’ll get back to that in a moment. Then there is a second peculiarity in that the article specially mentions that what is being moved are the “trading platforms” and “data centers”. I strongly suspect that the language here is meant to be reassuring to the low information news consumer, because the language implies that the actual exchange floors themselves – you know, that image we have in our minds of people on the floors of those exchanges shouting bids at each other and waving papers around. They’re just moving the data centers and not the actual exchanges themselves.

Except in the modern world of dark pools and algorithmic trading, to move the data center so far away from the actual trading floor is a big clue, because in the dark pool world of quants and algorithmic trading, moving the data center is moving the trading floor, at least, the virtual one. And whatever may be left of real humans on the real trading floor shouting buy and sell orders at each other won’t be far behind. THe reason? Because in the world of algorithmic trading, trading/data centers need to be as close to “the action” as possible, because trades are executed in nanoseconds. The farther the distance – even at the speed of light – the greater the risk that certain trades won’t go through in time.

Which brings me back to “the other exchanges.” The article, I suspect, has already given us the “public spin version” of the reasons for the move: higher taxes. But I suspect the deeper reason is the insanity of the political culture in the “blue states”, and their increasing fiscal unsoundness and lack of stability. It’s difficult – even in a dark pool – for traders manning the phone banks and computers to execute trades by following arrows on the floor, wearing masks, and “social distancing” (which Abbot will have to explain too). One needs sane environments in which to conduct market activities. So one wonders if “other exchanges” means that commodities exchanges – like in Chicago, another “blue” city with a mayor competing with DiBlasio for the nuttiest mayor of the year award – might be looking at Texas as well.

Which brings me to my high octane speculation of the day, for I do not for a moment think that this is just happenstance. All the mentioned “reasons” in the article seem to be to be a bit contrived. After all, New York and New Jersey have had high taxes for years if not decades. So what has changed? For one thing, the political and cultural climate. For another, the financial one. Texas is a producing state. It produces things: crops, cattle, horses, technologies, rockets, airplanes, cement… New York produces, hmmm… well, crops, horses, some technology, and things like that. But it’s biggest product is “financial paper”, or what I call “crapitalism.” And it’s produced a lot of that. And it also produces lots of taxes. So if one is entertaining the idea of a financial reset, or even a “coming split” in the country, one wants to be “where the action is,” and that’s not New York or California, it’s Texas.

And while we’re talking about splits and financial resets, Texas has something else New York doesn’t, and that thing makes me wonder if we’re looking at the public face of plans – detailed plans – that were set in motion some time ago…:

Texas has a state bullion depository. And isn’t it funny how they’re all of a sudden talking about crypto-“currencies” “backed” by gold…

All New York has is the Federal Reserve… which tends to lose massive amounts of gold on occasion. Just ask Hjalmar Schacht…

It’s much easier to re-hypothecate and otherwise lose gold if one is dealing in currencies that aren’t really currencies…

See you on the flip side…

from:    https://gizadeathstar.com/2020/11/nasdaq-considering-move-to-texas/

Some Articles, Some Considerations

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unknown
You Tell Me

TIDBITS: THIS WEEK’S HONORABLE MENTIONS (AND PLANSCAMDEMIC WRAP …

August 15, 2020 By Joseph P. Farrell

As I promised earlier this week, most(but not all)  of this week’s honorable mentions concern the planscamdemic. I’ve tried to gather the most informative, and in some cases most helpful, articles on how to fight the medical technocratic tyranny. My thanks to all the following:

https://www.washingtonexaminer.com/opinion/hydroxychloroquine-works-in-high-risk-patients-and-saying-otherwise-is-dangerous

https://www.newsweek.com/key-defeating-covid-19-already-exists-we-need-start-using-it-opinion-1519535

https://www.bloomberg.com/features/2020-moderna-biontech-covid-shot/?fbclid=IwAR3ZqCet1BF60ilUG96cv6leHVizrLakdflzhsFZlPInAXw358Pd00a1Q88

https://freebeacon.com/coronavirus/meet-the-mom-challenging-newsoms-school-shutdowns/

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7192087/

https://www.rt.com/russia/497671-putin-covid-19-vaccine-first/

https://www.deccanherald.com/science-and-environment/people-were-immune-to-covid-19-before-it-existed-study-871274.html

And if you still think there’s no financial aspect to the planscamdemic, think again:

https://www.zerohedge.com/political/bitcoin-hating-fed-president-urges-stricter-lockdown-save-lives-save-economy

https://www.theglobeandmail.com/opinion/article-its-time-for-a-massive-reset-of-capitalism/

https://www.christianpost.com/news/satanic-temple-abortion-religious-ritual-claims-it-provides-spiritual-comfort-to-women.html

https://www.zerohedge.com/geopolitical/germany-suffers-biggest-jump-covid-19-case-may-poland-imposes-new-restrictions-live?utm_campaign=&utm_content=ZeroHedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter

https://www.targetliberty.com/2020/08/mask-mandate-repealed-in-orange-county.html

https://www.bostonglobe.com/2020/07/25/nation/bipartisan-group-secretly-gathered-game-out-contested-trump-biden-election-it-wasnt-pretty/

from:    https://gizadeathstar.com/2020/08/tidbits-this-weeks-honorable-mentions-and-planscamdemic-wrap-up/

Mr. Fed, Where are You Going?

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David Stockman: The Biggest Threat To Your Prosperity And What You Can Do

Authored by David Stockman via Doug Casey’s International Man,

If you want to understand America’s dangerously deepening travails, you have to start at the Federal Reserve’s Eccles Building…

After a 30-year rolling coup d’etat, its occupants have imposed a regime of destructive falsification on America’s financial, economic, political, and social life.

It has become the heart of mushrooming darkness taking prosperity, liberty, and democracy down for the count.

How do we get 50 million unemployed… the stock market at record highs… companies trashing their balance sheets to buy back stock and do vastly overpriced M&A deals… doctors and politicians savaging the economy and the livelihoods of millions… and Washington going incontinent on the fiscal front?

The answer is simple:

the rapidly-spreading dysfunction is rooted in the giant financial fraud embedded in the Federal Reserve’s $7 trillion balance sheet.

The latter is blissfully taken for granted by the politicians and C-suites of corporate America and desperately insisted upon by the unhinged gamblers of Wall Street.

Even if you believe that a regular infusion of money is needed to catalyze the wheels of capitalist growth (we don’t), there is absolutely no economic logic that says the central bank’s balance sheet should grow by orders of magnitude faster than GDP over an extended period of time.

If the robustly growing GDP of 1987 needed $5 of central bank money per $100 of GDP, there is no reason why that ratio should have differed in 2008 or 2020.

But it did and does.

In June 1987, the nominal GDP was $4.8 trillion, and by all current estimates, it clocked in at $19.4 trillion in June 2020. That’s a 4.1X expansion over 33 years.

In contrast, the Federal Reserve’s balance sheet stood at about $240 billion on the eve of Greenspan’s arrival at the Eccles Building in August 1987 and clocked in at $7.2 trillion at the end of Q2 2020. That’s a 30X gain.

Since the early 2000s and the dotcom crash, it has only gotten far worse. The chart below of the Fed’s balance sheet and GDP is indexed to 100 as of January 2003. It tells you all you need to know.

During the past 17 years, the Fed’s balance sheet (purple line) has risen to 983% of its starting value, even as GDP (red line) has risen to only 192%.

What was fostered in the vast area between the two lines above was excess liquidity, debt, speculation, and malinvestment. This was accompanied by a complete breakdown of financial discipline in all sectors of American society.

These long-term growth factors are not even in the same zip code or planet—and the massive excess of the Federal Reserve’s balance sheet versus GDP did not happen like a tree falling silently in an empty forest.

On the contrary, it turned the financial and economic world upside down. That’s because the effect was to systematically suppress the cost of debt and speculation and drastically inflate the value of financial assets. As a result, everyone got false price signals and changed their behavior accordingly:

  • Wall Street investors became leveraged speculators;
  • Corporate business builders become financial engineers;
  • Middle-class households became debt slaves living hand-to-mouth on borrowed money; and
  • Washington’s politicians became free lunch spendthrifts piling on public debt like there was no tomorrow.

The Fed is now a rogue institution that comprises a clear and present danger to the future of prosperity and liberty in America.

The tragedy is that the clueless speculators on Wall Street, and the politicians of Washington who are riding the most egregiously inflated financial bubble ever, don’t even get the joke.

So what happens next?

We’d say nothing very pleasant.

*  *  *

The truth is, we’re on the cusp of a economic crisis that could eclipse anything we’ve seen before. And most people won’t be prepared for what’s coming. That’s exactly why bestselling author Doug Casey and his team just released a free report with all the details on how to survive an economic collapse. Click here to download the PDF now.

from:    https://www.zerohedge.com/markets/david-stockman-biggest-threat-your-prosperity-and-what-you-can-do?utm_campaign=&utm_content=ZeroHedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter

Nasdaq — Going Down….

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What In The World Is Happening To The Nasdaq?

Michael Snyder
Activist Post

All of a sudden, the Nasdaq is absolutely tanking. On Monday, it fell more than 1 percent after dropping 3.6 percent on Thursday and Friday combined. At this point, the Nasdaq is off to the worst start to a year that we have seen since 2008, and we all remember what happened back then. So why is this happening? In recent years, the Nasdaq has been ground zero for “dotcom bubble 2.0”. The hottest stocks in the entire world are on the Nasdaq – we are talking about stocks like Yahoo, Netflix, Apple, Tesla, Google and Facebook.

Those stocks have gone to absolutely incredible heights, but now they are starting to fall. Some are blaming insider selling, and without a doubt the “smart money” is starting to flee the stock market. Just check out this chart. Others are blaming low expectations for first-quarter earnings or the tapering of quantitative easing by the Federal Reserve. But whatever is causing this decline, it is starting to get alarming. The Nasdaq just experienced its largest three day fall since November 2011.

No stock can resist gravity forever. What goes up must eventually come down. This is especially true for stock prices that become grotesquely distorted.
On Wall Street, a price to earnings ratio of 20 to 25 is usually considered fairly normal. In recent years, the price to earnings ratios for many of these “hot tech stocks” have gone way, way beyond that. For example, posted below is a screen capture from Bloomberg TV that was featured in a recent Zero Hedge article…

There is no way in the world that such valuations are justified.

We have been living in another dotcom bubble, and it was inevitable that it was going to burst at some point.

The following is how one financial industry insider described the carnage that we have seen on the Nasdaq over the past few days…

Gary Kaltbaum, president of money-management firm Kaltbaum Capital Management, describes the carnage of once high-flying “growth” names in the Nasdaq composite, that have come crashing down to earth: “The best we can describe what we have been recently seeing in ‘growth-land’ is a 50-car pileup,” Kaltbaum told clients in a morning research note. “Call them what you want … risk areas, growth stocks, froth areas … they are melting away.”

And of course it isn’t just the Nasdaq that has been seeing declines over the past few days. On Monday, some of the biggest names on the Dow also fell precipitiously…

Visa, Goldman Sachs and Boeing are among the biggest drags on the Dow Monday, falling 2.1%, 2.9% and 1.4% respectively. Weakness in these stocks is especially problematic since the Dow gives greatest weight to the stocks with the highest per-share prices. And at $203.41, $158.56 and $125.59 respectively, Visa, Goldman and Boeing are the stocks that really matter to the measure.

And the trouble in these stocks isn’t just today. So far this year, Visa is down 8.7%, Goldman is off 10.5% and Boeing is down 8.0%.

This recent decline has many analysts groping for answers.

Some believe that it is simply a “rotation” as investors leave growth stocks that have become overvalued and move into safer, more traditional stocks.

Others are pointing their fingers at the Federal Reserve…

Peter Boockvar, chief market strategist at Lindsey Group, believes it’s all about the Fed. “I’m still amazed at the complacency with the Fed taper, and a lot of people still don’t think it’s a big deal,” he said. “I just don’t think it’s a coincidence that the high-fliers are getting popped when the Fed is half way done with QE. We’ve got tightening smack in front of your face with the taper.”

In fact, some believe that the really big stock market decline will happen later this year when the Fed starts to wrap up quantitative easing completely…

Once the Fed begins to truly reduce its massive bond buying program later this year, markets could see a quarter of their value wiped off the books, a private equity pro told CNBC on Friday.

Jay Jordan, founder of the Jordan Company, issued the dire warning during an interview on CNBC’s “Squawk Box,” saying a 25 percent drop could extend to all asset classes. He blames the monetary policies of former Fed chair Ben Bernanke for artificially inflating asset prices through super-low interest rates.

Yet others point to the fact that we are now moving into earnings season, and it is being projected that corporate earnings will come in at very poor levels. In fact, it is being estimated that overall earnings for companies in the S&P 500 for the first quarter will be down 1.2 percent.

So what should we expect to see next?

Whether it happens this month or not, at some point a massive stock market correction is coming. In recent years, the financial markets have become completely and totally divorced from economic reality, and that is a state of affairs that cannot last indefinitely.

Many have compared the current state of affairs to 2008, but to me what is happening right now is eerily reminiscent of 2007. The Dow soared to record heights quite a few times that year, but there were constant rumblings of economic trouble in the background. Stocks began to drop steadily late in the year, and 2008 ultimately turned out to be an utter bloodbath.

I believe that what is happening right now is setting the stage for another financial bloodbath. I truly believe that we will look back on this two-year time period and regard it as a major “turning point” for America.

And as I have written about previously, we are in far worse shape as a nation than we were back in 2008. We have far more debt, the “too big to fail banks” have a much larger share of the banking industry, the derivatives bubble has gotten completely and totally out of control, and our overall economy is far weaker than it was back then.

In other words, we are now even more vulnerable. When the next great financial crisis strikes us, it is going to be absolutely crippling.

Now is not the time to get complacent.

Now is the time to get prepared, because time is running out.

This article first appeared here at the Economic Collapse Blog. Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog.

from:    http://www.activistpost.com/2014/04/what-in-world-is-happening-to-nasdaq.html