For several years, I've written The Great Recession Blog, and I have recently bet my blog that the economy will take a nose-dive in the fall. As fall neared, I doubled down on that bet and stated more specifically that the stock market would crash in the fall.
I'm not the typical doom and gloomer who is eventually right because he constantly predicts the economy is going to fail. For 2013 and most of 2014, I predicted the economy would not fall but would muddle along with the same unimpressive appearance of recovering it has shown since the Great Recession began in 2008. March 17th of 2014 is when I first made my bet: "What I am certain of and willing to bet this blog on is that the economy will not do better this year -- so certain, that I will quit writing this blog if I'm wrong on that prediction." I don't think I'll be losing that bet.
"Nothing the Fed does," I explained, "will keep [the economy] upright. Nothing Europe does will supplant the problems that are brewing in Europe in large part because of Russia but also because Europe has not fixed its banking problems that came out the Great Recession. I have read many pundits who are saying the economy will improve in 2014, but there is absolutely nothing going to lift this economy up any longer."
I based my prediction largely on the Federal Reserve ending its quantitative easing in the fall. That, I said, would be the removal of artificial life support for the economy. We'd find out that the so-called "recovery" was nothing but the artificially propped-up belly of the Great Recession. Once the props were removed, we'd start to see what the belly really looked like. The Fed's stimulus had created huge inflation in the stock market, which would have to deflate when all the free money ended.
I also based my prediction of global economic deterioration this fall on 1) problems with Russia and Ukraine, which I said last spring would turn into a sanctions war that would damage Europe and to a lesser extent the U.S. because Russia would not back down on Crimea; 2) problems with China and Japan, where I said China's economy would continue to settle, creating a dead weight on the global economy, while Abenomics in Japan would fail entirely, undermining long-term hopes for quantitative easing anywhere; and 3) that so many strong headwinds against the economy would create such economic instability that it would be easy for a single factor unknown at that time (such as Ebola now?) to arise out of the blue and knock the rickety economy over. So, while I have no crystal ball or prophetic words from on high, the likelihood of economic failure would become almost inevitable by fall. Good enough odds to bet on. If I was wrong on so many significant statements, there would be no reason to continue to write about the economy.
While most economists and market analysts were talking about economic recovery last spring, I concluded, "It certainly looks like a stormy fall ahead of us as these pressures start to build against the global economy." Against such forces, " minutia like job statistics and corporate profits will have little sway."
Naturally, the recovery song birds didn't listen to me, as I make a very small peep. They continued singing last spring and summer about the minutia of job statistics and corporate profits in the U.S. I ignored their happy songs and predicted that Russia and China would continue to back out of U.S. bonds, having been the primary funder of U.S. government debt for many years and would take the ultimate step they've been threatening to establish an international currency that would compete agains the U.S. dollar in oil purchases and other trade. I stated that Iran would get another extension on its already extended summer deadline in its nuclear talks with the West. And I continued along my line of thought that all of the major worries that dampen the economic mood would grow worse by fall, coming to outweigh the superficial statistics that most economists and market analysts were chirping about.
On September 3rd, while the stock market was soaring to new heights, I began pointing out concerns that we may be in for more than a troubled looking economy in the fall. A stock market crash in the fall, I said, was looking quite probable. Tech stocks in particular were looking like they could take the first and worst tumble similar to the dot-com crash in 2001. Currently the Dow and the S&P 500 are both tumbling; but the NASDAQ, which is weighted with high-tech stocks, is falling the worst.
I noted that the worst stock market crashes in history have happened in the fall, and this market was looking like it was loaded for bear. "With so many volatile forces growing to such magnitude and so much instability in the market's own positioning, the likelihood of a crash being triggered by a single unpredictable event is also greatly increased. It's like standing on a pop can where the forces trying to crush the can are so great that a mere touch to the sides of the can will cause it to crush.
"I maintain that bet while nearly everyone else is saying the economy has improved this year, and superficially it appears it has; but I am looking at the teetering state of the market and the growing forces of the winds that whirl around us and saying that those who think, based on statistics, that the economy is recovering are all looking in the wrong direction. They are not paying attention to the foundations of this structure, and they are not looking at the sheer forces that are ready to knock it off its wobbly foundation. The economy is, in fact, precariously weak, and the forces that could knock it over have grown increasingly strong."
I've noted that investment banks are the biggest players in the market; so, if the market crashes, it could also take down some banks, turning into something much worse than just a bear market. On October 1st, I effectively doubled down on my bet by stating that a full-on stock market crash would be "near and severe."
I said that the numerous forces that were now at odds with the economy presented "a picture of the perfect storm on steroids." The only thing the second dip of the Great Recession for the U.S. was now waiting for was a sufficient trigger to make all of this slide. While it was not, at that point, a part of economic discussions to any degree, I suggested that the ebola epidemic could prove to be that trigger. It would not have to be that Ebola became a world pandemic, but simply that fears about it would rise to become the tipping point in fear for the stock markets of this world.
"The point is that vulnerability is extremely high, and the number of potential triggers is growing as fast as the number of serious fractures in the global economy, making the economic collapse more imminent."
My approach, which led to my predicting to friends and family the crash of 2008, is to look at crumbling fundaments and rapidly growing external pressures that mean the probability of a collapse is rising quickly... My bet is not based on certainty, but based on probabilities that are ganging up against the global economy.
Prior to the start of this so-called "Great Recession," my ex-wife had a family home that was an inheritance from her mother. I worked as a property manger at the time, and near the end of 2007, I could tell from rumblings in the industry that (more...)