Legendary Investor: Market Crashes in Months

Never an Exception Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Legendary Investor: Market Crashes in Months - A grim warning from a legendary investor… - Why wait to prepare until it’s too late?… - Then Dan Amoss shows you the one catalyst that could pop the bubble, or at least “depressurize” it… Recommended Link [Every American should pay attention to this]( [Read more here...]( Government insider Jim Rickards has just issued a MASSIVE prediction. A prediction that could dramatically change your financial life for the better IF you know exactly what to do. He’s revealing all of the details and how you can position yourself for exploding profits in the video above. [Click Here To Watch]( Annapolis, Maryland January 26, 2021 [Brian Maher] Dear Reader, Months, he claims. Not years… As we noted recently, Citi’s “Panic/Euphoria” index has attained record heights. That is, market euphoria has attained record heights. Present euphoria far exceeds the technology delirium of 2000… by Citi’s reckoning. It is a thing for the ages, argues legendary money man Jeremy Grantham. Today’s bubble will go alongside the South Sea Bubble… 1929… and 2000: The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases... and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000. And so? Whenever market sentiment streaks to such ecstatic heights as today’s — warns this Cassandra — collapse is months off. No exceptions exist: When you have reached this level of obvious super-enthusiasm, the bubble has always, without exception, broken in the next few months, not a few years. “A few” is defined as greater than two — but less than many. Thus the evil day may break in April… or “not many” months after. But when? We offer no specific answer. “You know neither the day nor the hour,” as Matthew instructs us. We merely post a crash watch, as the weatherman might post a storm watch. The equipment detects a disturbance in the distant tropics, for example. The ocean temperature is unusually high. The winds are converging in ominous conspiracy. The barometer is plunging. All conditions indicate the formation of an abominable hurricane. But it is early… and the variables are many. How severe will it be? Will it strike land eventually? Where? Or will it veer harmlessly off into the ocean wastes? It is not yet possible to determine the answer. But the indications are worrisome. Now consider today’s stock market… Stock valuations run to record highs, investors have never been as euphoric, most experts forecast clear skies for the duration. That is, a storm is likely abrew. The conditions favor it. Yet we cannot set it down as an immediate menace. And so we post our storm watch. Not an advisory. Not a warning — a watch. We wish merely to alert you to developments. But a forecast of “a few months” is no forecast at all, you say. Who would run for shelter at the weatherman’s warning of a storm... sometime within the next few months? Here is our counter: Is it not better to prepare in advance regardless, to beat the crowd? Do you have your batteries on hand? Your water? Your canned goods? Why wait until the fatal hour… when the shelves are bare of goods... and the pumps at the filling station are dry? Yet you remain dissatisfied with the ambiguity — and with Matthew. You demand to know the precise day, the precise hour. Thus we have been searching for signs in the heavens… poring over the entrails of birds… consulting our oracle… and gazing into our crystal ball. Alas, our findings to date are ambiguous. The crystal ball and the bird entrails, in particular, are four months apart. Should these esoteric sciences fail to divine a precise date, we will be forced to consult less reliable forecasters — CNBC, for example. Perhaps Business Week. And if these resources fail to yield our exact date? There is always Paul Krugman. Should he disappoint… we will simply have to guess. But this we can report with soaring confidence: The market will collapse within months… If not three months, then six months. If not six months, then 12 months. If not 12 months, then 24 months. And if not 24 months… Certainly within the next 108... Below, Jim Rickards’s chief investment strategist, Dan Amoss, shows you the specific “pin” that could burst the bubble — or at least shrink it. Read on. Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: With all the spending and money creation coming down the pike, gold should really blast off. But Jim Rickards says there’s something happening in the gold market right now that you need to be aware of. He reveals it [here.]( While mainstream media headlines are focused on the pandemic and Trump’s second impeachment, shocking details about this rare occurrence happening right now in the gold market are being ignored. You’ll understand why this is so urgent once you [click here]( and see what Jim’s sharing on camera. He urges you NOT to invest in anything before viewing this briefing. Including gold itself. With Jim’s background as a financial analyst and being one of the world’s leading experts on gold, he knows the difference between hype and real opportunities in the gold sector. And Jim thinks every American deserves to see what he reveals in this briefing because this information could potentially be a true game-changer for millions of Americans. [Click here now]( to learn more about this rare opportunity. Recommended Link [Legend Who Bought Amazon In 1998 Says: Now Is The Time]( [Read more here...]( Wall street legend Chris Rowe says there’s a huge stock market event looming - and he’s revealing his #1 pick for free. [See This ASAP]( The Daily Reckoning Presents: The little recognized catalyst that could ultimately prick today’s bubble, or at least depressurize the bubble… ****************************** Here’s What Could Deflate the Bubble By Dan Amoss [Dan Amoss]Many investors think that nothing can stop today’s stock market bubble. Throughout history, tighter central bank policy or tighter private sector financing terms are typically what pop bubbles. Today’s bulls rest easy with the notion that central banks “have their back.” Central bankers have promised not to raise interest rates for years, so there’s no perceived threat of tighter financial conditions. Euphoria in last year’s market exceeded that of the dot com mania. Most expect that good times will continue in 2021. However, they shouldn’t rest easy. Many trends – including the rapidly shrinking risk appetite of the wealthiest cohort of retired Baby Boomer investors – suggest that we will see lower demand to hold the riskiest stocks in the years ahead. Yet, most people are acting as though demand for the riskiest stocks will remain at 2020 levels for years to come. Right now, a slow-moving threat to the bubble environment is emerging: an influx of new stock shares. As long as demand for stocks trading at ludicrous valuations remains high, more and more supply of stocks will hit the market. How is that a threat to the bubble? A rapidly growing supply of new shares can impact pricing for the entire market (even companies that are shrinking supply through stock buybacks). If enough supply of new shares arrives, it can put downward pressure on the prices of existing shares. Think of it as depressurizing a bubble slowly, rather than popping it quickly. The mainstream financial press often mentions the image of “cash on the sidelines.” Here’s why this image is misleading: At any given point, every security that has been issued – whether it’s a stock, bond, option, or ETF – must be held by someone until it is retired. Stocks and bonds can be retired in mergers, acquisitions, buybacks, refinancings, tender offers, or bankruptcies. Options must be held by someone and can be actively traded until they are exercised or expire and become worthless. Since every security that exists in the market must be held by someone, there is no “cash on the sidelines'' in the aggregate. If money market fund balances rise (which appear to be a rising tide of “cash on the sidelines”), they do so because corporations and governments chose to issue more short-term debt, and some entity was willing to buy it. If one’s assets are 100% in stocks, one might perceive that other people who currently hold cash are on the sidelines. This perception has a bullish, hopeful slant. It presupposes that it’s only a matter of time before the folks holding cash will enter the market and buy stocks (maybe your stocks) with their cash. Yet, if these potential buyers enter the market, they will simply exchange their cash for shares when the trade settles. The seller of the stock will then hold the cash that the previous cash holder had in his account. Before a trade, one person held cash, the other shares. After a trade, they switch holdings. So the “cash on the sidelines” mantra can be very misleading. And there’s no guarantee that cash will come “off” the sidelines into stocks. If it doesn’t buy up the new supply of stock, the price of the stock should come down. If an imagined future wall of cash does not necessarily determine pricing changes in the stock market, what does? The eagerness of buyers and sellers to transact is the key factor. If buyers are very eager to own the shares that are offered in the market, then they’ll bid up the price. If sellers are eager enough to dump their shares, they may accept a bid far below the last quoted price. My key point is that the relentless supply of new securities (stocks, corporate bonds and more) could ultimately be the pin that pricks today’s bubble. Or if it fails to prick the bubble, the new supply of shares will, at least, depressurize the bubble. Recommended Link [Prepare for America’s Trojan Horse…]( [Read more here...]( The left’s plan to push America into a socialist nation is finally coming to fruition right before our eyes… But what could happen “next” will have a tremendous impact on your everlasting wealth. [Click Here To See Why]( There is one more thing to consider. It could cause the new supply of stocks and corporate bonds to be bountiful in the future… Thanks to repeated interventions and bailouts, the global economy has become steadily less efficient at allocating capital to its best uses. Instead, capital gets trapped in companies that should have gone bankrupt long ago and in capital goods that will ultimately deliver a deeply negative return. For example, there was overbuilding of fiber optic communication lines in the last dot com mania. A parallel today could be online fulfillment centers or electric vehicle factories. Few investors are imagining a future in which the most popular stocks and companies have vastly overestimated demand for their products and underestimated competitive supply. But history shows that these mistakes happen all the time. It’s an open question whether public market demand will remain strong enough to absorb all the supply at high prices. The critical difference between historical examples and today is that the astonishing flood of capital, plus easy corporate bond and stock financing conditions along with aggressive central banks and governments, suggests that the reckoning for the most popular stocks will be big. Maybe investor demand for speculative stocks will remain high or even intensify in 2021. However, data and history both suggest that demand rarely gets more intense than it was in 2020. Unlike reasonably valued stocks, which are priced in fairly close relation to the free cash flow that they can deliver to shareholders, bubble stocks are driven by faith in narratives about the future. When narratives break down, and money flows reverse, there’s no support from the underlying businesses to cushion the fall until prices crash 80%, 90% or more. The longer today’s bubble environment persists, the more damage it’s going to inflict on the future economy. Many companies, both large and small, are venturing far from their core specialties to participate in bubble activities. This phenomenon happens in any financial system which penalizes saving and promotes speculation. Here is an example, which reflects how extreme risk-taking is spreading from day traders to corporate boardrooms… In the U.S., just a few years out from the last Bitcoin bubble burst, we see corporate treasurers speculating on Bitcoin with scarce shareholder capital. Bitcoin has a devoted following. But Bitcoin’s key weakness is that if the monetary and fiscal authorities ultimately decide it’s a threat, they could crush it. Is it wise to speculate on Bitcoin with scarce capital that could otherwise strengthen its business? What if Bitcoin crashes? Bitcoin proponents reply that such action would drive usage to more hospitable jurisdictions that are more forward-looking. However, if U.S. authorities penalize or block the connections between Bitcoin and the dollar-based payments system, it would significantly reduce demand to hold this popular cryptocurrency, which would crash its price. And the higher the Bitcoin price rises, the larger the threat it poses to the dollar-based payment system. Gold is a different case; not only because it has been a universally recognized store of value for thousands of years, but also because gold is a bedrock reserve asset of the world’s major central banks. In a worst-case scenario collapse in confidence in fiat currencies, central banks can try to rebuild confidence by re-pegging their currencies to the gold that they hold in reserve. However, gold standards are unlikely to be attempted in the near future, because central banks and governments wouldn’t want to preemptively handcuff their flexibility to print and spend unless confidence in their paper money and their bonds collapses. Gold prices in the private market would need to first rise substantially as confidence in currencies falls, and then paper would be re-pegged to gold. It’s very difficult to imagine Bitcoin taking the place of gold in this scenario. Gold is a form of insurance that’s stood the test of time. Regards, Dan Amoss for The Daily Reckoning Ed. note: With all the spending and money creation coming down the pike, gold should really blast off. But Jim Rickards says there’s something happening in the gold market right now that you need to be aware of. He reveals it [here.]( While mainstream media headlines are focused on the pandemic and Trump’s second impeachment, shocking details about this rare occurrence happening right now in the gold market are being ignored. You’ll understand why this is so urgent once you [click here]( and see what Jim’s sharing on camera. He urges you NOT to invest in anything before viewing this briefing. Including gold itself. With Jim’s background as a financial analyst and being one of the world’s leading experts on gold, he knows the difference between hype and real opportunities in the gold sector. And Jim thinks every American deserves to see what he reveals in this briefing because this information could potentially be a true game-changer for millions of Americans. [Click here now]( to learn more about this rare opportunity. --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Dan Amoss]Previously the investment adviser to one of the top small-cap mutual funds in the country, Dan Amoss is a senior investment analyst and CFA at Agora Financial. Dan tracks aggressive accounting and other red flags that markets miss as he exposes frauds and promotions that suck in unsuspecting investors. 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