By Dominique de Kevelioc de Bailleul
Harkening back to the Charles Nenner’s interview on Fox’s Bulls and Bears of early May 2011, his prediction of Dow 5,000 by the close of 2012 stood back then and stands today as a bold call.
But, here’s why stocks are very vulnerable to a Nenner crash scenario and why, even in the absence of a false move by the Fed, stock will most likely decline hard anyway.
A look at the Baltic Dry Index (BDI) suggests either the global economy is about to soar, or Nenner’s Dow 5,000 call could be on the money, or close to the money.
As of Sept. 12, the BDI stopped short of one point of its all-time low of 661, a level not seen since the S&P 500 crash low of 666 points, during the height of the Lehman crisis of Mar. 9 2009 [see graph, below]. But as the S&P closed on Sept. 12 at 1,463, a 130 points, or so, off its all-time high set during the second half of 2007, Bernanke manipulation of stock prices has set equity investors up for a fall—a very big fall.
Stock prices, which many regard as a leading economic indicator, need to explain, then, first: why have there been so many stock market crashes? Did, suddenly, everyone change their minds about the economy and its health to deliver corporate profits? And second: if the gold and silver markets, bond market, currencies markets and commodities markets are obviously ‘manhandled’ quite frequently by the Fed, why not stocks? Why are stocks sacred cows of the Fed’s deception racket?
Economic, export and labor data, which show the U.S., European and Chinese economies either collapsing, in the case of the U.S. and Europe, or rapidly slowing, in the case of China and its Eastern satellites, serve as an underscore to the BDI’s low levels.
Just as the Fed used Morgan Stanley to prop up credit through the credit default swaps (CDSs) market as well as enlisting JP Morgan to suppress the price of PMs, it’s most likely that the Fed has buoyed stocks through the purchase of S&P futures via the NY Fed’s Exchange Stability Fund (ESF).
And here’s where it gets interesting. The U.S. dollar broke through 80USD support rather easily this week, adding yet another negative for owning stocks.
At some point there will be an evaporation of the multi-year nonsensical mantra: that there is a ‘risk on’ trade and it means, buy stocks. Instead, it’s more likely that a falling dollar against its rivals will turn out to be the foreshadowing of a crashing stock market and a soaring gold price.
The gold price did take a hit leading up to the Lehman bankruptcy of 2008, but at that time investors had not been prepared for the initial shock of the prospect of a global meltdown. Gold had since recovered long before the crash low of 666 in the S&P was set on Mar. 9, 2009. At the nadir of the S&P crash, gold was trading back up near its all-time high above $1,000 per ounce.
Today, however, there’s too much talk, evidence and time passed since the fall of Lehman to catch alleged ‘smart money’ much off-guard again.
From the looks of the gold chart, today, the buying on the dips to snag a better gold purchase before Armageddon arrives suggests that gold will not sell off during a crash in stocks; it will, instead soar in price, taking the number of ounces to buy the S&P to new post-1981 lows.
Many predictions of an October Surprise swirl the Internet, a stock market crash may well be that surprise, but the catalyst for the crash may come from anywhere—maybe war, as Nenner had predicted in May 2011.