Author of ‘The Lazy Person’s Guide to Investing’ Says Get Out of the Stock Market Before December!
Hey, I tend to side with a good chunk of Paul B. Farrell’s analysis. However, with the unrest in the Mideast and Libya causing crude oil to go through the roof, I’d get out much sooner; like today. After all, we all saw the dramatic impact high oil prices had on the economy when oil peaked at around $145 per barrel back in July 2008. Remember that? And what happened a couple of months later? That’s right, the stock market went on Mr. Toad’s wild ride—right down the crapper.
Of course, the bigger picture is the horrendous impact another stock market crash will have on us all as the shock waves ripple through an already enervated economy:
Market Crash 2011: It will hit by Christmas
Commentary: The S&P 500 is worth only 910. Get out or lose big
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — Politicians lie. Bankers lie. Yes, they’re liars. But they’re not bad, it’s in their genes, inherited. Their brains are wired that way, warn scientists. Like addicts, they can’t help themselves. They want to sell stuff, get rich.
We want to believe they’re telling us the truth. Silly, huh? Both trapped in this eternal “dance of death” controlled by programs hidden deep in our brains, telling us what to do, telling us to ignore facts to the contrary — till it’s too late, till a new crisis crushes all of us.
Psychology offers us a powerful lesson: Our collective brain is destined to trigger a crash before Christmas 2011. Why? We’re gullible, keep searching for a truth-teller in a world of liars. And they’re so clever, we let them manipulate us into acting against our best interests.
In fact, behavioral science tells us that bankers and politicians are lying to us 93% of the time. It’s 13 times more likely Wall Street is telling you a lie than the truth. That’s why they win. Why we lose. Because our brains are preprogrammed to cooperate in their con game. Yes, we believe most of their lies.
Worse, there’s no cure.
Your brain needs to believe lies; Wall Street loves telling lies
Examples: USA Today headline: “Average Bull is 3.8 years: We’re not at 2 yet.” More upside. Wall Street loves it. The Wall Street Journal: “Stock recovery in high gear … S&P500 now speeding toward its next landmark,” double its March 2009 bottom.
Other lies: Inflation and rate rises won’t push China and America over the edge into a new bear recession. That one’s real popular in Wall Street’s echo chamber. Wall Street also cheers every time cable pundits and journalists repeat their favorite statistic: That stocks rally in the third year of a presidency, often more than 20%. Yes, Wall Street loves those 93% lies.
Biggest lie? Wharton’s perennial bull, Jeremy Siegel, of “Stocks for the Long Run” fame, recently told a TD Ameritrade Institutional Conference, “There’s nothing but upside to come …the next several years are going to be good for stocks.”
Yes, one of Wall Street’s favorite co-conspirators is hypnotizing thousands of our best money managers and advisers into believing the lie that this bull market will roar indefinitely. Worse, they’ll use that message to sell naive investors on buying whatever junk Wall Street is selling.
Get the picture? A little conspiracy begins in your head, a conspiracy between your gullible brain and Wall Street’s con men selling hype, hoopla and happy-talk. Listen and you’ll lose.
Warning: This little conspiracy is a retirement killer. Remember: It’s odds-on you’re being lied to. So for a few moments, listen to some highly respected contrarians. They’re short-selling this conspiracy, betting that 2011 will hit headwinds before Christmas, turn a cyclical bull rally into a cyclical bear market.
Our brains never learned 2008’s lessons, will fail again in 2011
Remember, we can’t help it. Our brains are defective, biased, manipulated by unseen forces 93% of the time. So blame all the lies, lying and liars on our brain wiring. A perfect excuse. Sure, political dogma and insatiable greed factor into our bizarre mental equations. But your brain is as susceptible to the “great con” as Ben Bernanke, Henry Paulson, Bernie Madoff.
Go back a few years: The subprime credit meltdown was widely predicted years in advance. For example, back in 2007, the IMF’s Chief Economist, Raghuram Rajan, “delivered a stark warning to the world’s top bankers: Financial markets were headed for doom. They laughed it off,” said the Toronto Star. Both Alan Greenspan and Larry Summers were there.
In April 2007, Jeremy Grantham, whose firm manages $107 billion, also warned investors: “The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … Everyone, everywhere is reinforcing one another. … Bursting of the bubble will be across all countries and all assets … no similar global event has occurred before.”
We knew a crash was coming, Wall Street laughed.
Call it denial, or lying, or just a brain defect, late that summer as the meltdown spread like wildfire, shutting down the economy, our manipulative Treasury Secretary Hank Paulson, a former Goldman Sachs CEO, told Fortune “this is far and away the strongest global economy I’ve seen in my business lifetime.” And Fed boss Bernanke was telling us the subprime crisis was “contained.” Alan Greenspan agreed. He was on tour, making millions hustling his new book of excuses, delusions and lies, “The Age of Turbulence.”
Today, just three years later, the market’s just a shade above its 2000 peak. Adjusted for inflation, Wall Street stocks have lost roughly 20% of your retirement money the past decade. Get it? Wall Street’s a big loser the past decade. And they’ll lose another 20% by 2020. Why? Because 93% of what comes from Wall Street is suspect, can’t be trusted.
Warning: Cyclical bull ends in 2011, new cyclical bear roars back
At the beginning of 2011 USA Today reported a contrarian forecast. Ned Davis Research says the S&P 500 will make a run at the 2007 high of 1,565, but hit a “midyear peak.” Then it will crash as interest rates rise. Davis concludes: “The midyear peak could mark the end of the cyclical bull market that began in March 2009 and the start of a new cyclical bear market.”
Warning, even though your brain doesn’t want to hear it, there is a high probability a new cyclical bear market will begin this summer … and overshadow the 2012 elections.
The Journal’s also warning: “Inflation jitters spread through emerging markets, prompting China’s central bank to raise interest rate for the third time in four months amid worries that a drought threatening the country’s wheat crop will put further pressure on global food prices.”
Wake up America: With commodity prices rising rapidly, all the bizarre rationalizations Wall Street uses to keep Bernanke’s interest rates low are rapidly vaporizing. Yes, Ned Davis’ prediction of a bear will soon be a painful reality.
S&P 500 inflated, worth just 910, get out before it tops 1,500
Grantham also sees inflation and rising interest rates killing the lies, popping the bubble and ending the rally: “As a simple rule, the market will tend to rise as long as short rates are kept low. This seems likely to be the case for eight more months and, therefore, we have to be prepared for the market to rise and to have a risky bias.”
With $107 billion at stake Grantham better be concerned. He predicted the 2008 meltdown, now sees a repeat dead ahead: “Be prepared for a strong market and continued outperformance of everything risky, but be aware that you are living on borrowed time as a bull.”
Yes, the bubble will pop this year says Grantham: “If the S&P rises to 1,500, it would officially be the latest in the series of true bubbles. All of the famous bubbles broke, but only after short rates had started to rise.”
So keep a close watch on those two tipping points in your planning, interest rates breaking to the upside and the S&P closing near 1,500. When inflation pushes interest rates up they’ll choke off this bull market. If you’re active, better stop chasing higher returns, especially emerging markets.
Bottom line: In what sounds like a direct shot at super-bull Jeremy Siegel, Grantham says that GMO’s research warns that “the market is worth about 910 on the S&P 500, substantially less than current levels” just above 1,300.
Then Grantham throws his fast ball right down the middle: “The speed with which you should pull back from the market as it advances into dangerously overpriced territory this year is more of an art than a science, but by October 1 you should probably be thinking much more conservatively.”
Translation: Get the heck out of Wall Street’s stock market casino soon, maybe as early as July 4th, and definitely get out by Christmas, because soon all the lies, lying and liars will stop working.Explore posts in the same categories: Economics