From The Economic Collapse Blog:
Ever since I started The Economic Collapse Blog in late 2009, I have never issued any kind of “red alert” for any specific period of time. As an attorney, I was trained to be level-headed and to only come to conclusions that were warranted by the evidence. So this is not something that I am doing lightly. Based on information that I have received, things that I have been told, and thousands of hours of research that have gone into the publication of more than 1,300 articles about our ongoing economic collapse, I have come to the conclusion that a major financial collapse is imminent.
Therefore, I am issuing a RED ALERT for the last six months of 2015.
To clarify, when I say “imminent” I do not mean that it will happen within the next 48 hours. And I am not saying that our problems will be “over” once we get to the end of 2015. In fact, I believe that the truth is that our problems will only be just beginning as we enter 2016.
What I am attempting to communicate is that we are right at the door of a major turning point. About this time of the year back in 2008, my wife and I went to visit her parents. As we sat in their living room, I explained to them that we were on the verge of a major financial crisis, and of course the events that happened a few months later showed that I was right on the money.
This time around, I wish that I could visit the living rooms of all of my readers and explain to them why we are on the verge of another major financial crisis. Unfortunately, that is not possible, but hopefully this article will suffice. Please share it with your friends, your family and anyone else that you want to warn about what is coming.
Let’s start with a little discussion about the U.S. economy. Most of the time, when I use the term “economic collapse” what most people are actually thinking of is a “financial collapse”. And we will talk about the imminent “financial collapse” later on in this article. But just because stocks have recently been hitting all-time record highs does not mean that the overall economy has been doing well. This is a theme that I have hammered on over and over again. It is my contention that we are in the midst of a long-term economic collapse that has been happening for many years, that is happening as you read this article, and that will greatly accelerate over the coming months.
Let me give you just one quick example. When an economy is healthy, money tends to circulate fairly rapidly. I buy something from you, then you take that money and buy something from someone else, etc. In a stable and growing economy, people generally feel good about things and they are not afraid to spend. But during hard times, the exact opposite happens. That is why the velocity of money almost always slows down during a recession. As you can see from the chart below, the velocity of money has indeed gone down during every recession since 1960. Once a recession is over, the velocity of money is supposed to go back up. But a funny thing happened after the last recession ended. The velocity of money continued to go down, and it has now hit an all-time record low…
This is the kind of chart that you would expect from a very sick economy. And without a doubt, our economy is sick. Even the official government numbers paint a picture of an economy that is deeply troubled. Corporate profits have declined for two quarters in a row, U.S. exports plunged by 7.6 percent during the first quarter of 2015, U.S. GDP contracted by 0.7 percent during the first quarter, and factory orders have declined year over year for six months in a row.
If the stock market was connected to reality, it would be going down. But instead, it has just kept going up. As I discussed yesterday, this is a classic case of an irrational financial bubble. If I was writing an economic textbook and I wanted to include an example of what a run up to a major financial crash looks like, it would be hard to come up with anything more ideal than what we have watched unfold over the last six months. Just about every pattern that has popped up prior to previous stock markets crashes is happening again, and this is something that I have written about so much that many of my readers are sick of it.
And without a doubt, our financial markets are primed for a crash.
Only two times before has the S&P 500 been up by more than 200 percent over a six year time frame.
The first was in 1929, and the stock market subsequently crashed.
The second was in 2000, right before the dotcom bubble burst.
And by just about any measure that you can possibly imagine, stocks are massively overvalued right now.
For instance, just check out the chart posted below. It comes from Doug Short, and it shows that the ratio of corporate equity prices to GDP has only been higher one time since 1950. That was in 2000 just before the dotcom bubble burst…
Let’s take a look at another chart. This one comes from Phoenix Capital Research, and it shows that the CAPE ratio (cyclically adjusted price-to-earnings ratio) has rarely been higher. In fact, the only times that it has been higher we have seen stock market crashes immediately afterwards…
Yale economics professor Robert Shiller is also deeply concerned about the CAPE ratio…
I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007—all moments before market crashes.
But the CAPE ratio is not the only metric I watch. In my bookIrrational Exuberance (3rd Ed., Princeton 2015) I discuss several metrics that help judge what’s going on in the market. These include my stock market confidence indices. One of the indicators in that series is based on a single question that I have asked individual and institutional investors over the years along the lines of, “Do you think the stock market is overvalued, undervalued, or about right?” Lately, what I call “valuation confidence” captured by this question has been on a downward trend, and for individual investors recently reached its lowest point since the stock market peak in 2000.
Other valuation indicators produce similar results. This next chart is another one from Doug Short, and it shows the average of four of his favorite valuation indicators. As you can see, there is only one other time when stocks have been more overvalued than they are today according to the average of his four favorite indicators, and that was just before the stock market crashed when the dotcom bubble burst…
Another one of the things that indicates that a financial bubble is happening is the level of margin debt. Whenever margin debt has gone over 2.25% of GDP a stock market crash has always followed, and today it is far above that level. As you can see from the chart below, there have been three major peaks in margin debt in modern U.S. history. One was just before the dotcom bubble burst, one was just before the financial crisis of 2008, and the third is happening right now…
Something else that we would expect to see prior to a major financial crisis is a decoupling of high yield debt and stocks. This is something that happened just prior to the stock market crash of 2008, and it is happening again right now. The following chart comes from Zero Hedge, and it demonstrates this brilliantly…
Are you starting to get the picture?
And as I discussed yesterday, the smart money is beginning to pull their money out of stocks while they still can. According to USA Today, mutual fund investors have pulled more money out of stocks than they have put into stocks for 16 weeks in a row…
In a sign of stock market nervousness on Main Street, mutual fund investors have yanked more money out of U.S. stock funds than they put in for 16 straight weeks.
The last time domestic stock funds had positive net cash inflows was in the week ending Feb. 25, according to data from the Investment Company Institute, a mutual fund trade group.
In the week ended June 17, the most recent data available, mutual funds that invest in U.S. stocks suffered net outflows of $3.45 billion, according to the ICI.
Since late February, U.S. stock funds have suffered estimated outflows of nearly $55 billion. Those net withdrawals come despite the fact the benchmark Standard & Poor’s 500 hit a fresh record high of 2130.82 on May 21 and the Dow Jones industrial average notched a fresh record on May 19.
But it isn’t just stocks that are going to crash during the next financial crisis. Bondsare going to crash as well, but what I am concerned about most of all arederivatives.
Derivatives are going to play a starring role in the next major financial crisis. I cannot emphasize this enough. In fact, if you want to listen for just one word on the news that will let you know that things have started to really unravel, just listen for the word “derivatives”. This form of legalized gambling is going to crush “too big to fail” banks all over the planet during the next major financial downturn. The “too big to fail” banks in the U.S. alone have 278 trillion dollars of total exposure to derivatives, but they only have 9.8 trillion dollars in total assets. To say that they are being “reckless” is a massive understatement.
For much more on the coming derivatives crisis, please see my previous article entitled “Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’“.
Of course I am not the only one that is sounding the alarm about what is coming. Just consider what some very prominent individuals have been saying recently…
Ron Paul has just released a new video in which he warned all of us to “prepare for a bear market in bonds“.
Carl Icahn says that financial markets are “extremely overheated—especially high-yield bonds“.
Max Keiser recently told Alex Jones that a great financial collapse is coming.
Martin Armstrong says that his Economic Confidence Model predicts that the “Big Bang” is coming in “2015.75“.
Jeff Berwick of the Dollar Vigilante says that “we’re getting very, very close to the next crisis collapse” and he has specifically pointed to the month of September.
James Howard Kunstler has predicted that stocks are going to “crater in Q3 as faith in paper and pixels erodes“.
Lindsey Williams recently sent out an email alert in which he warned that his elite friend has told him that “they have a World Wide Financial Collapse scheduled between September and the end of December 2015“.
Gerald Celente has warned about “the Great Panic of 2015“.
Bill Fleckenstein has said that 2015 could be the year of the “big accident“.
Ray Gano has stated that we will see a financial collapse “probably starting in the third quarter of 2015″.
Legendary investor Jim Rogers recently said that he believes that “we will see some kind of major, major problems in the world financial markets” within the next year or two.
Alex Jones recently released a video in which he explained that he recently received “two different calls” from “extremely prominent wealthy people” warning him about what is coming by the end of this year and asking him why he isn’t leaving the United States “before October”.
Bible prophecy expert Joel C. Rosenberg has posted an ominous message on his personal blog in which he warned that “something is coming” and that “we must be ready”…
I feel a tremendous sense of urgency about this column.
The United States is hurtling towards severe trouble, and the events of the past few months — and what may be coming over the next few months — grieves me a great deal.
Something is coming. I don’t know what. But we all must be ready in every possible way.
When I read what Rosenberg wrote, it struck me that it was precisely how I have been feeling too.
In my entire life, I have never had such an ominous feeling about any period of time as I have about the last six months of 2015. Like Rosenberg, I feel a “tremendous sense of urgency”, and I feel a great need to warn as many people as I can.
And it isn’t just a financial collapse that I am concerned about. In a previous article, I detailed seven key events that we are going to witness before the end of this September…
Late June/Early July – It is expected that this is when the U.S. Supreme Court will reveal their gay marriage decision. Most believe that the court will rule that gay marriage is a constitutional right in all 50 states. There are some that believe that this will be a major turning point for our nation.
July 15th to September 15th – A “realistic military training exercise” known as “Jade Helm” will be conducted by the U.S. Army. More than 1,000 members of the U.S. military will take part in this exercise. The list of states slated to be involved in these drills includes Texas, Colorado, New Mexico, Arizona, Nevada, Utah, California, Mississippi and Florida.
July 28th – On May 28th, Reuters reported that countries in the European Union were being given a two month deadline to enact “bail-in” legislation. Any nation that does not have “bail-in” legislation in place by that time will face legal action from the European Commission. So why is the European Union in such a rush to get this done? Are the top dogs in the EU anticipating that another great financial crisis is about to erupt?
September 13th – This is Elul 29 on the Biblical calendar – the last day of the Shemitah year. Many are concerned about this date because we have seen giant stock market crashes on the last day of the previous two Shemitah cycles.
On September 17th, 2001 (which was Elul 29 on the Biblical calendar), we witnessed the greatest one day stock market crash in U.S. history up until that time. The Dow plummeted 684 points, and it was a record that held for exactly seven years until the end of the next Shemitah cycle.
On September 29th, 2008 (which was also Elul 29 on the Biblical calendar), the Dow fell by an astounding 777 points, which still today remains the greatest one day stock market crash of all time.
Now we are approaching the end of another Shemitah year. So will the stock market crash on September 13th, 2015? Well, no, because that day is a Sunday. So I guarantee that the stock market will not crash on that particular day. But as Jonathan Cahn has pointed out in his book on the Shemitah, sometimes stock market crashes happen just before the end of the Shemitah year and sometimes they happen within just a few weeks after the end of the Shemitah. So we are not just looking at one particular date.
September 15th – The 70th session of the UN General Assembly begins on this date. It is being reported that France plans to introduce a resolution which would give formal UN Security Council recognition to a Palestinian state. Up until now, the United States has always been the one blocking such a resolution, but Barack Obama is indicating that things may be much different this time around.
September 25th to September 27th – The United Nations is going to launch a brand new sustainable development agenda for the entire planet. Some have called this “Agenda 21 on steroids”. But this new agenda is not just about the environment. It also includes provisions regarding economics, agriculture, education and gender equality. On September 25th, the Pope will travel to New York to give a major speech kicking off the UN conference where this new agenda will be unveiled.
September 28th – This is the date for the last of the four blood moons that fall on Biblical festival dates during 2014 and 2015. This blood moon falls on the very first day of the Feast of Tabernacles, it will be a “supermoon”, and it will actually be visible in the city of Jerusalem. There are many that dismiss the blood moon phenomenon, but we have seen similar patterns before. For example, a similar pattern of eclipses happened just before and just after the destruction of the Jewish temple by the Romans in 70 AD.
In addition to everything above, quite a number of economic cycle theories that were developed by secular economists all point to big trouble for America between the years of 2015 and 2020. For more on this, please see my previous article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.
Earlier today, I publicly announced that I was issuing a RED ALERT for the last six months of 2015 on the Alex Jones radio show. You can watch video of that interviewright here. In this article (which is about three times as long as one of my normal articles) I have only shared a small fraction of the information that has led me to issue this red alert. But if you want to know more, and you are not afraid to really go down the rabbit hole, I would encourage you to check out a full two hour presentation that I did down in Dallas, Texas on the nightmarish years that are coming.
The period of relative stability that we have been enjoying is ending. What comes next is going to lead us into the worst period of time in modern American history. I wish that I was wrong about this.
But the goal is not to scare you. My wife and I live our lives with absolutely no fear, and that is my desire for all of my readers. There is hope in understanding what is happening and there is hope in getting prepared. Personally, my wife and I believe that the greatest chapters of our lives are ahead of us, and I hope that you have a similar outlook.
We need a generation of people that are willing to rise up and do great things even in the midst of all the chaos and darkness that is coming. It is when times are the darkest that the greatest heroes are needed.
So what will you choose to do when the next crisis comes?
Will you cower in fear, or will you rise up to meet the challenge?