Stocks Are In For A Very Rough Ride, Disaster Ahead
$AAPL, $FB, $AMZN, $GOOGL, $GILD, $NFLX
“It is a huge disaster waiting to happen,” David Stockman said Friday
“I think it’s pretty obvious that the top is in,” the Reagan administration’s OMB director said in a TV interview. “It’s just waiting for the knee-jerk Bulls, robo traders and dip buyers to finally capitulate.” And then the panic selling will begin, disaster in the making.
And upon closer inspection, Mr. Stockman’s theory has a point.
The S&P 500 is just off its recent record high, and has not seen a 10% correction since October 2011. Since Y 1946, the average period between corrections has been about 18 months.
Notably, more than 50% of the NAS 100’s 6.4%% gainer in Y 2015 comes from just 6 stocks: Amazon.com (NASDAQ:AMZN), Google (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Netflix (NASDAQ:NFLX), and Gilead Sciences (NASDAQ:GILD), according to the data.
And for the S&P 500: Amazon, Google, Apple, Facebook, Gilead and (NYSE:DIS) Walt Disney have provided all of its 0.9% rise.
This could presage a sharp drop for the market as occurred after the peaks of Y’s 2000 and 2007, periods that also saw the late gains sparked by only a few stocks.
That said, it is pointless for participants to keep worrying about monthly employment data and losing sleep over when, and if, the Fed will start hiking interest rates. “The larger picture has nothing to do with the jobs report or even the September decision by the Fed,” he said.
“It has to do with the fact that the world economy, including the US., is heading into what is clearly going to be an epochal deflation to the likes of what we have never experienced in modern time.”
“The whole global economy since 2008 has been driven forward by this massive investment and construction and borrowing spree in China,” said Mr. Stockman
Mr. Stockman also said the artificially inflated stock and real estate bubbles created by the Fed’s QE measures have helped created this disaster scenario.
“I think what we are seeing is the beginning evidence that the central bank-driven credit economy is over and we are in a new era,” said Mr. Stockman. “It’s a huge disaster waiting to happen.”
Bill Gross of Janus Capital Group Inc said Friday that the global economy is “dangerously close to deflationary growth.”
Once there is a “whiff of deflation, things tend to reverse and go badly,” Mr. Gross said.
Mr. Gross pointed to how the CRB Commodity Index is not just at a cyclical low, but lower than in Y 2008 when Lehman Brothers Holdings Inc. went bankrupt.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
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