DELRAY BEACH, Florida – It’s hot in Florida. Steamy hot. Hair curls and bodies go limp.

The “relief rally” continued yesterday. All over the world, stocks gained. So did oil and commodities. (More on that below in today’s Market Insight.)

The Dow was up 369 points – a 2.3% move. Chinese stocks were up by about 5%.


U.S. GDP numbers for the second quarter came out higher than expected. The economy grew by an annual rate of 3.7%.

And influential New York Fed chief William Dudley said the argument for a rate increase in September was “less compelling.”

A Decline in Excess of 50%

Oh, ye of little faith… fear not! Things are happening just as they should.

It is the end of summer. Markets are giving strong hints of things to come in the fall.

Like Vesuvius, a plume of smoke rises… and a cloud of dust hangs over the markets. The economic earth rumbles… and animals take flight.

But in come the cronies to tell us not to worry about it.

And who knows what happens next?

Your editor is a fairly good plumber. He can put the pipes together and unclog the toilet. Alas, his record as a market soothsayer is spotty. He is rarely wrong, but often so early that by the time the event occurs even he has forgotten he ever predicted it.

But today we are encouraged and emboldened. We swagger ahead, like a reedy poet into a rough bar, confident in the knowledge that there are giants behind us.

Yes, economist and money manager John Hussman’s forecast is similar to our own. From his most recent note for Hussman Fund clients:

If you roll a wheelbarrow of dynamite into a crowd of fire jugglers, there’s not much chance things will end well. The cause of the inevitable wreckage is not the dynamite, but the trigger is the guy who drops his torch.Likewise, once extreme valuations are established as a result of yield-seeking speculation that is enabled (1997-2000), encouraged (2004-2007), or actively promoted (2010-2014) by the Federal Reserve, an eventual collapse is inevitable.

By starving investors of safe return, activist Fed policy has promoted repeated valuation bubbles, and inevitable collapses, in risky assets.

On the basis of valuation measures having the strongest correlation with actual subsequent market returns, we fully expect the S&P 500 to decline by 40% to 55% over the completion of the current market cycle. The only uncertainty has been the triggers.

A $12 Trillion Wealth Wipeout

A “decline in excess of 50%” within “less than three years” is our forecast.

We will stick with it, hoping to live long enough to see it proven correct, or in any case hoping to live long enough to see how it turns out.

But this forecast is for real (adjusted for inflation) prices, not nominal prices. Because we have a feeling that the feds will not stay in their seats as the government loses revenues, zombies rise in rebellion, and cronies and campaign contributors lose much of their net worth.

As of this May, the combined market cap of the companies listed on the New York Stock Exchange was $19.7 trillion. A 50% plunge would wipe out about $10 trillion in investor wealth, give or take a few billion dollars.

More “reflationary” monetary policies are no doubt in the pipeline…

Real estate would most likely go down, too – especially at the upper end.

The house in Florida on the market for $139 million that wereported on last week, for example, would have to be sold at auction.

How much would it bring?

$10 million? $50 million? Who knows?

Debt in Distress

The junkiest, riskiest part of the bond market would also be destroyed.

When the going gets tough, the “spread” (or gap between yields) on junk bonds over U.S. Treasury bonds widens, as bond investors bail out of their riskier positions.

Whole sectors could go broke. Here’s Bloomberg with a report on debt in the oil patch:

At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it.The number of oil and gas company bonds with yields of 10% or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe, and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades.

If oil stays at about $40 a barrel, the shakeout could be profound.

Easy come. Easy go. It doesn’t take too much imagination to see the EZ money of the last seven years going back where it came from – to nowhere.

Forward – to Disaster

And then, what would Saint Janet do?

Even now, under less stressful conditions (let us assume that markets stay calm), will she raise rates next month as expected?

Probably not…

Consumer prices, as officially measured, are stable, not rising. And inflation expectations have dropped to a five-year low. Unemployment and GDP numbers make it look as though the economy is running okay. But don’t look under the hood!

And with the stock market so fragile, would Saint Janet risk being the one to cause a worldwide panic?

Nah… No rate increase in September.

Instead, when the crash resumes, we will see even EZ-ier money, not tighter money. We are on course for a “hormegeddon”-style outcome. (Hormegeddon is the term I coined in my latest book for “disaster by public policy.”)

Backing up is not an option. We must go forward – to disaster.




Further Reading: Bill recently issued a warning about a different kind of crisis… one that could have an even bigger impact on your life than a 50% plunge in stock prices.

It’s a story so disturbing you may not believe it at first. But when it hits, your bank, your grocery store, your gas station… even the federal government… could shut down. That’s hard to imagine. But Bill is simply following 40 years of research to its logical conclusion.

To find out what’s really going on… and learn what you can do to protect yourself and your family… read on here.


Is the worst over for commodities?

Commodity prices rose almost in lockstep with global stocks during the relief rally of the past couple of days.

Today’s chart tracks the price of a barrel of U.S. crude oil.

082815 DRE WTI

As you can see, the recent rally has broken the bearish trend line in place since late June.

Featured Reads

Is a “New and Improved” QE Headed Our Way?
This two-page article on MarketWatch not only name-checks Bill and Bonner & Partners, it also predicts that a “new and improved” QE will soon be headed our way. Could the bull market last until 2017?

Why the U.S. Dollar Could Be Replaced as Early as This Fall
Currencies expert Jim Rickards is just back from an “invitation only” meeting with officials from the Pentagon and the CIA. What he learned may be shocking to most Americans.

Dudley Puts the Kibosh on September Rate Hike
Powerful New York Fed president William Dudley has ended the debate on whether there will be a September rate hike. After six years of zero rates, looks like the can will be kicked once again.



Today… another personal account from a Diary reader refused cash by his bank.

It’s started…

Taking your advice, I went to the bank an hour ago to withdraw cash sufficient to hold me over for a year.

I have done business with this bank since I moved to San Francisco in 1985. In fact, coincidentally I opened the account almost 30 years ago to the day.

That longevity of business relationship did not get me my money.

Upon arrival at the branch, I presented my bank-card, my state-of-the-art California driver’s license, and entered my PIN. There was no issue as to who I was or my account. There were no checks waiting to clear. The account has been stagnant with my money for years.

I told the teller the amount I wished to withdraw. It was in the five figures, but not even close to six figures. And this was no small bank – it’s too-big-to-fail Wells Fargo.

The teller told me that she would need to speak to the manager. She came back and told me that they could not give me the cash requested.

And then the stories started to flow: “This branch has low security and doesn’t carry that amount of cash.” “You can try another branch.”

But I could not get a straight answer as to where I could get my money. The branch manager got on the phone for about 10 minutes but still wasn’t able to tell me. I was told the best they would do was $10k.

They would not provide a phone number for the district manager. I collected the cards of the teller and the manager. I requested that they get back to me and tell me where I can get my money. I gave them two phone numbers where I could be reached. They said they would call within the hour. I have not heard from them.

If my small request cannot be met, Wells Fargo must be operating on fumes.

– Dave B.

Chris comment: As Bill has been warning, there may be as little as $250 billion in cold, hard cash circulating in the roughly $17 trillion U.S. economy.

As Bill puts it, the “terrifying source” of the rest of our money is nothing more than electronic bank deposits. And these amount to nothing more than IOUs from your bank. (A deposit is your asset and your bank’s liability.)

If there is another credit collapse, like the one we saw in 2008, it could mean the destruction of all that credit money… including your deposits. That’s why Bill and the team have put together a guide on the types of money you want to have readily available when the next crisis strikes.

You can find Bill’s warning… plus details on how to get your “Crisis Money Guide”… here.

In Case You Missed It…

Gold has been on a wild ride this month.

And it’s prompted our friends at Casey Research – one of the top precious metals advisories – to put together a brief presentation for Bonner & Partners readers.

It explains everything you need to know about what’s next for gold… and how you can profit in the next bull run.

Go here now to view the short presentation, before it is taken offline.