Is September 2015 going to be one of the
most important months in modern American history? When I issued my first
ever “red alert” for the last six months of 2015 back in June, I was
particularly concerned with the months of September through December, and not
just for economic reasons. All of the Intel that I have received is
absolutely screaming that big trouble is ahead. So enjoy these last few
days of relative peace and quiet. I mean that sincerely. In fact,
that is exactly what I have been doing – over the past week I have not posted
many articles because I was spending time with family, friends and preparing
for the
national call to prayer on September 18th and 19th. But now as
we enter the chaotic month of September 2015 I have a feeling that there is
going to be plenty for me to write about.
At this time last month, I declared that
we were entering “the
pivotal month of August 2015“, and that is exactly what it turned out to
be. August was the worst month overall for stocks in three years, and it
was the worst month of August for U.S. financial markets in 17 years.
Throughout history, there have only been
11 times when the S&P 500 has declined by more than five percent during the
month of August. When that has happened, the stock market has
almost always fallen in September as well…
September is the only month in which the
S&P 500 fell more frequently than it rose. What’s more, in the 11 times
that the S&P 500 fell by more than 5 percent in August, it declined in 80
percent of the subsequent Septembers, and fell an average of nearly 4 percent.
Last week, there was a rally after the
initial crash. I warned that this would happen in
advance, and we have seen a similar pattern play out during almost every
market collapse throughout history. The following comes from John
Hussman…
As I noted early this year (see A Better
Lesson than “This Time Is Different”), market crashes “have tended to unfold
after the market has already lost 10-14% and the recovery from that low fails.”
Prior pre-crash bounces have generally been in the 6-7% range, which is what we
observed last week, so I certainly don’t see that bounce as having removed any
of our concerns. We remain extremely alert to the prospect for much more
extended market losses.
So how far could stocks eventually fall?
Hussmann is projecting that we could ultimately see the market decline by more
than 50 percent…
We fully expect a 40-55% market loss
over the completion of the present market cycle. Such a loss would only bring
valuations to levels that have been historically run-of-the-mill.
One thing that could accelerate stock
market losses this time around is the fact that people have been borrowing lots
and lots of money to buy stocks. That works when the stock market just
keeps going up, but once the market turns the margin calls can lead to panic
selling on a massive scale. The following comes from a recent piece by
Wolf Richter in which he describes some of the chaos that we have already
been witnessing…
Energy stocks and bonds crashed, even
those of some large
companies like Chesapeake. Some have reached zero. All kinds of other
stocks and bonds have gotten eviscerated over the past few months, even tech
darlings like Twitter or biotech giant Biogen. Portfolios with a focus on the
wrong momentum stocks took a very serious hit. And margin calls went out. The
Journal: Some lenders, including Bank of America Corp., are issuing margin calls
to clients after the global market drubbing of the past week, forcing investors
to choose between either putting up more money or selling some of the
securities underlying the loans. Other banks too sent out margin calls,
including U.S. Trust, Morgan Stanley, and Wells Fargo, according to the
Journal. With margin calls mucking up the scenario, spooked investors are
trying to lower their leverage before they’re forced to, and the boom in
securities-based lending appears to be over. And the wealth units of the banks
that gorged on these loans are likely to see their profits dented. If that
continues, a much crummier thing happens: margin balances reverse. And the last
two times they did after a majestic record-breaking spike, the stock market
crashed.
For some more technical reasons why
another wave to the downside is coming, see an excellent article entitled “RED
ALERT for 2nd CRASH DOWNWAVE…” by Clive P. Maund that you can find right here. Full Report
