Why I think Stocks Won’t Crash Spectacularly but May Zigzag Lower in Agonizing Ups-and-Downs, Possibly for Decades

Worst-case scenario ahead.

The S&P 500 has more than tripled over the past eight years; the Nasdaq has more than quadrupled. Practically everyone knows – even the Fed has gingerly admitted it – that the stock market is way overvalued, that price-earnings ratios for companies that have earnings have reached dizzying heights, and that the market is primed to unravel either on Tuesday or next year or whenever.

And there are lots of people who have pointed at the triggers, such as Trump’s inability to deliver on his tax-cut and infrastructure promises or the moment when the market finally gets it that the Fed is watering down the punch bowl.

Given the inflated levels of the market, and the amounts of liquidity that would suddenly evaporate, it would be an epic crash. That’s the theory. And it would make an equally epic buying opportunity for those with the liquidity to do so.

So the smart money is preparing for it. Among them are hedge fund manager Paul Singer and his clients. In his recent letter to investors, cited by MarketWatch, he explained how “all hell will break loose” and how he wants “to take advantage of it”:

Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like …), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.

Elliot’s hedge fund, Elliott Management Corp, had raised “more than $5 billion in about 24 hours” for just that event, Reuters reported on May 5. The firm has $33 billion under management not counting the $5 billion. That it took him only 24 hours to raise this much money shows how eager investors are to capitalize on the next crash. The money is set up to be drawn from investors over the next few years. They see it coming; they just don’t know when, and they want to be ready to benefit from it when it comes.

The market is like a “coiled spring” after eight years of QE and interest rate repression, Singer said in the email announcing the $5-billion offering. His firm wants to have the liquidity to capitalize on a “possibly large opportunity set that could emerge when investor confidence is impaired, recent correlations and assumptions don’t work, and prices are changing rapidly.” He added:

“The nature of modern markets is that rich opportunity sets seem to be ephemeral, providing surprising volatility, bargains and dislocations for only brief periods of time before governments, aware of the politically destructive effects of extreme volatility, rally to take stern actions to keep the balls up in the air.”

So they’d have to act fast to front-run the Fed.

Others too are preparing for this obvious opportunity. It will be an event that could produce extraordinary returns by picking up the pieces before central banks jump in and once again bail out stockholders and bondholders. That’s the theory.

But here’s the thing: the more investors prepare for this by putting large amounts of money aside to plow into a crashing market to pick up the pieces, the more likely they will be to stop the crash in its tracks.

As a sharp sell-off unfolds and after regular dip-buyers are crushed, the nervous crash buyers that don’t want to miss this opportunity will start buying. They’re nervous because the Fed could jump in and reverse the crash, and they want to pick up the pieces before that happens. So they’ll jump in early and the intense buying will stop the crash.

This includes short-sellers who want to take profits and cover their positions during a crash. They’re the most nervous bunch of them all.

Under this buying pressure, asset prices would begin to bounce before the Fed steps in, and given the bouncing prices, it might not step in, though prices might not reach prior highs. Then, after a period of calm which the smart money will use to unload these positions and take profits, the sell-off would start all over again until crash-buyers pile in again to front-run the Fed.

This can go on for many years – a brutal zigzagging lower that never quite offers the buying opportunities because too much money jumps in too soon to turn selloffs into rallies that then fail. Japanese stocks have gone through this since 1989 despite the Bank of Japan’s umpteen rounds of QE and endless interest rate repression. And they’re still going through it, with the Nikkei down nearly 50% from its peak almost three decades ago.

Given the smart money’s fervent intentions to capitalize on these crashes and given investors’ eagerness to put a lot of money behind this strategy in advance, I think a long drawn-out Japan-like downtrend in asset prices with dizzying ups and even bigger downs is a likely if terrible scenario that may well crush how investors feel about buying and holding these assets, as it did in Japan.

A stock or bond market tantrum might stop the Fed in its tracks. But the opposite is happening. Read…  Are Markets Blowing off the Fed?

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  120 comments for “Why I think Stocks Won’t Crash Spectacularly but May Zigzag Lower in Agonizing Ups-and-Downs, Possibly for Decades

  1. andy says:

    Wolf, interestingly enough Shiller, Grantham, and even Hussman had recently “adjusted” their views as to immediacy of market outcomes from these insane levels. Grantham sees “new normal”, Shiller the possibility of another 50% advance. Hussman is pretty stable in his views but hedging the timing. I also observed that many of my colleagues are expressing the fear of “missing out”, while few have cash to last 12 months. Curious if we can interpret this as good time to buy some puts?

    On a separate note, I was unable to find better rent in last 6 months, while my landlord on Battery is asking another $700 more for a place like mine. I thought I was getting this apartment on top of the market two years ago, but now see that the rent control have now kicked in. Unbelivable.

    • David says:


      You are totally misrepresenting Hussman’s views. He has NEVER put a time line on when the crash would occur. He speaks about a changing viewpoint based on market internals and recently went from a hard negative to neutral and back again to a hard neutral. AT NO TIME HAS HE STATED A DATE TO EXPECT THE CRASH.
      For those of you who want to follow Hussnan,Google John Hussman and click on his weekly commentary.

      • memento mori says:

        Hussman has been so wrong for so long that he has credibility in my book. Stocks will go down, eventually but wha kind of prediction is that if there is no timeframe attached to it. Time if of the essence, as always.

        • cdr says:

          Agree about Hussman. He understands the elephant’s trunk quite well, but is oblivious to the head, body, and tail. To him, the trunk is just a floating thing that’s attached to something invisible. It’s all he’s interested in.

          Re the point of the original post: Runaway monetary policy will allow the equity markets to look Japanese, Chinese, and European. Elevated zombies. If the Fed normalizes (possibly, when the north pole melts unless forced to do it sooner), the markets will react more like the text books say they should act.

          If Trump puts and/or keeps pressure on the Fed, we will see normal financial markets sooner than later. Plus an expanding economy — your interest expense will be my interest income and I will spend it. You will invest your borrowed capital, rather than flip paper, and create jobs along the way. Plus lots of public personalities screaming bloody murder due to the end of their free lunch.

          If Hillary had won or if a stock Republican won, we would be on our way to negative interest rates, globalization, and endless monetization of public debt worldwide (negative rates would pay for it – they are a tax on savings). Endless expansive war would be the distraction. The markets would remain high but be rather meaningless except to the paper flippers.

          Trump saved the world. The fast money paper flippers and globalists and neocons hate him for it.

      • akiddy111 says:

        “and recently went fron hard negative to neutral and back again to hard neutral”.

        I hope Hussman has not been managing your money for the last 17
        years. His fund has lost money since march 6 2009.

        As far as i know he is the only manager on the planet still running
        money while underperforming cash over the last 17 years…. and
        collecting millions in fees for doing so. Nice work if you can get it.

        I did not think that was possible but apparently he accomplished it.

        To think that this guy has a cult following

      • Richard says:

        Who the hell cares about Hussman? He’s been so excruciatingly WRONG about everything since 2009, anybody who followed him has been ruined. Why do you give this guy the time of day?

      • JZ says:

        The more see these comments about Hussman, the more I am feeling nervous.
        The FED is pushing everybody into the mode of “speculating” where people only care about gains through wealth transfer while ignoring the fundamental decay in the “wealth creation” economy.

        Hussman has been wrong about the transfer part for a long time, so he should be ignored. But if you stay away from the “wealth transfer” view point and pay a little more attention to the underlying, you may sense something that makes you nervous.
        Right, I forgot, when there is a way to “transfer wealth” quick, who gives a shit about “wealth creation”? Until the day of reckoning.

    • akiddy111 says:

      Ah, yes. Shiller, Grantham and Hussman. The multi millionaire Ivy league brigade.

      Dont forget to mention Stockman and Jeremy Siegel next time. I’m sure they’ll have the answers.

      • David says:

        Try and focus people. I made one comment. It is simple. Hussman has NEVER put a time frame on the collapse that is coming. I got seven replies that had nothing to do with my statement. My reply to Andy was to correct the error he made implying that Hussman had put a time frame for the crash. If you think I am wrong with my assertion, then point to the article.
        Most of you are avid readers of our host. Doesn’t his continuous array of the sky is falling articles imply the same thing as Hussman. Commercial real estate falling in Houston, real property in SF imploding, auto sales collapsing, junk bonds imploding yet the market keeps going up–and you keep reading.
        Double standard or you found you niche?

        • JZ says:

          My understanding of Hussman is that he has been saying since 2014 that 12 year return is zero. He did NOT know whether it will drop half and recover or double and drop half. But 2026 will be no different than 2014. Is this a time frame you are looking for?

        • Chris Wagner says:

          While I wasn’t even aware of Mr. H., I’d like to point out that Wolf’s blog is based on FACTS (not wishful thinking).
          – Tax receipts down? Mmm, those are harder to manipulate ;)
          – Inflation in Mexico up? – Carmakers suffering from a clogged distribution pipeline? Now, what is i. wrong with that statement and ii. what is good about that for the market?

          We are all entitled to our opinions. It’s a pluralist society

    • mikey says:

      We have not had negative nominal interest rates yet so another doubling is possible. The valuations of almost every stock seem insanely high to me already but I have been thinking that for years and been completely wrong.

  2. Willy2 says:

    – Here one Wolf Richter is – IMO – making a mistake. Japan’s economy deflated in the 1990s but it still could rely on (very) strong/increasing demand from Canada, the US , Australia & Europe. It meant that japanese companies that exported to those regions could compensate the falling japanese demand. But now that “strong” demand from those regions is missing.

    (If readers want to know why Japan’s economy weakened in the 1990s then read Harry S. Dent’s work on the socalled “Family Spending Cycle”.)

    • HIHO says:

      “If you want to know why Japan’s economy weakened in the 90’s…”

      1) Plaza accord 1985.

      2) Bank deregulation.

      That’s it.

      • Lee says:

        What happened to Japan’s economy in the 90’s was the Bank of Japan.


        • d says:

          What happen to Japan in the 90’s was something that started in the early 60’s.

          They could have prevented it in the 80’s by allowing immigration but that would only have prolonged the bubble and left them with unhealthy immigrant problem’s. like England has.
          The main factor that has dragged this out for japan has been the 97, 2000, and 2008 external financial shocks.

          I may not live to see the end of this exerciser but in the future it will be an economic study even more important than the. Versailles diktat, Wiemar, 1939 period in Germany..

    • TJ Martin says:

      Well IMO I’ll disagree with you .

      With all the ‘ Shell Games ‘ buybacks , self investing etc etc going on it what amounts to a ‘ Potemkin Village ‘ who’s facades are being held up by strings unseen … etc – et al – ad nauseam …

      I’ll place odds that Wolf has nailed it . Upsy Downsy round and roundsy .. and where it ends … nobody knows .. but all bets are it’ll take its damn good time getting there as the ” PuppetMaster’s ” continuing to manipulate the market ultimately in their favor

      Our [ working , middle , upper middle and merely wealthy class ] only hope ? First and foremost that consumers become Responsible … to themselves … their families and their communities .. and then ..That someone on the top takes notice that in the long run that the ‘ PuppetMasters ‘ are shooting themselves in the foot and starts doing something about it !

  3. Rates says:

    One sentence: Plunge Protection Team. Their motto: “For the Greater Good”.

    It looks like we’ve truly reached “a permanently high plateau” where the PPT has things under control.

    • nick kelly says:

      ‘It looks as though stocks have reached a permanently high plateau’

      Yale Prof Irving Fisher, 1929.

      • Rates says:

        Yep I am aware of the context, but this time is truly different. The US has PPT, China has their “National Team”. Europe has the ECB.

    • John says:

      Yes, it has worked incredibly well for the PPT in Venezuela as well. Unfortunately, the massive gains in the Venezuelan stock market still don’t match the depreciation in their currency due to massive money printing and they are on the verge of national default. Same will occur in US.

      • Gershon says:


        The Fed’s QE-to-Infinity financial crack cocaine is keeping these Ponzi markets levitated to ludicrous valuations and further enriching the already super-wealthy, at the cost of destroying the purchasing power of the 99% and enabling the Fed’s globalist oligarch accomplices to pillage the real, productive economy and those who have to make their way therein.

    • Spanky Bernanke says:

      LMFAO!! These comments are the funniest sh$t I’ve read in years!! The Fed, the President’s Working Group on Markets, and the ESF are scared sh$tless of the pending disaster. Pension funds, the PBGC, and commercial banks are terrified of the financial implosion already underway. The Fed has absolutely NOTHING under control. If they did, they would have raised rates to keep CalPERS solvent. They would have stopped sending dollars to foreign banks that have been buying Apple equity. They would NEVER have thrown that ex-Goldman bankster, Kashkari, out to the MSM to calm the markets, when the markets didn’t even need it. BUT, the real evidence that shows we are now about to enter “gorge revelation” number 3 is the well known understanding that the reason why the markets are melting up is because the commercial banks haven’t had any new ideas to lend money for, and can’t make profits through normal business practices, so they are speculating in the equity markets (gorge revelation 2). “Gorge revelation” 3 is when the Congress makes a statement on a Sunday night that discusses a “temporary suspension” of the Fed charter that prevents them overtly from buying equities. The big funds are waiting…and so is the United States Postal Office. I suspect the passport desk will be overwhelmed with applications. This will send shivers down the spines of the 1% and you can bet your boots dollars will flood into alternative assets…

      • Enos says:

        “The Fed has absolutely NOTHING under control”…… You are absolutely correct Spanky Bernanke

      • John Ryskamp says:

        This is the most likely scenario. The “system” is highly unstable. We are preparing for a regime change. Too bad we have to go thru a catastrophe to get it. But you know how the petit bourgeoisie is.

  4. Kent says:

    What if the knowledge that the Fed can and will fix any credit events makes it impossible for them to happen, just due to that knowledge? If I know I don’t have to fear another Lehman, I’m not going to panic when I see another bank in trouble. I’ll just inform the Fed and let them handle it.

    The end of bank panics might mean the end of crashes. P/E ratios can be meaningless as Amazon shows.

    • gary says:

      Kent: Yes I think you’ve got it exactly right. I thought about such a thing years ago, yet so many “experts” continue to think the “market is bigger than the fed”. Yeah right.

      • andy says:

        The market is older than the Fed, that we know.

      • JZ says:

        The stawk is worth 1. Fed says, “NO”, it is worth 2 with a gun pointing at the heads of the sheeple in the market. So the sheeple agrees. 1 year later, the FED pulled out the gun and say “IT is worth 4”, while the stawk is still worth 1. So the sheeple agrees. This pattern continues for 8 years, what kind of conclusion can you draw?

        The regime change happens when the coercive force was the strongest. The 0% rate was a pretty strong coercive force to me.

    • Jim Graham says:

      Tho they MAY (someday) show they are worth the position, add Tesla.

  5. Sweet Kenny says:

    A crash will happen if it’s manufactured. What better way to undermine Trump than a crash far enough into his presidency that he can’t blame Obama…? They can make some money on the collapse then ride up the recovery. Trump is the scape goat and no worries of him enact any real change.

    • Gary says:

      Could you take this crap over to Zerohedge please? Thank you.

      • Sweet Kenny says:

        Haha Gary then tell me why the Fed started raising rates once Trump was in office but didn’t while Obama was in office? Trump put? Do you disagree with the existence of the Deep State?

  6. ElGaboGringo says:

    Wolf, that’s what the market did in the 70’s – zigged, zagged in nominal prices while eroded by inflation in real terms:


    The disco decade may be a good analogy for what’s to come!

  7. nick kelly says:

    I’m always amazed by these ‘The Fed is Omnipotent’ thoughts.
    But at least they’re not as rose- tinted as the: ‘you can’t go broke in your own currency’ group.

    I can still remember the announcement that Greenspan had tamed the economic cycle and thinking: ‘oh, oh’

    In the past the Fed has had to flounder wildly: from April 1979 to March 1980 it raised rates from 10.25 to 20 percent.

    Is it different this time? Sure. For one thing now there is a huge deflationary black hole. How do we know? Because the largest stimulus in US history has failed to push inflation past 2 %.

    If a doctor checks your blood pressure and finds it mildly low, that’s good.
    But if you are taking massive doses of a drug to raise BP- the reading is ominous.

    Given the stimulus of near zero rates and the bond buying program- inflation should be double digits.

    As anyone knows deflation is bad for debtors because the debt grows in real terms. And the Fed alone owes 4 trillion. It has tried to inflate its way out and failed, at least so far.

    I don’t know what is going to happen. No one does. We are in uncharted waters.

    • nick kelly says:

      PS: The Fed has said it has done all it can. Bernanke is on record saying there are limits to what monetary policy can do.

    • interesting says:

      “failed to push inflation past 2 %”

      my real world inflation rate has been past 2% for years and years and years.

  8. Patrick says:

    Been saying for a long time that there won’t be one big crash…there will be many crises that create corrections, so plan on buying the big dips and be willing to micro manage your stop losses.

    Those hoping for a nice convenient global crash to swoop in buy stocks dirt cheap will likely be waiting a very long time. CB’s will print, print and print to ensure markets rebound from every hiccup. Expect the amount & frequency of intervention to make the current intrusion into markets look like a warmup session. Every government on the planet is utterly dependent upon their stock/bond markets so they’ll happily sacrifice the currency and real economy to keep them heading ever higher. And those who think hyperinflation is around the corner will be sorely disappointed when they see how much the Dollar supply can be inflated before confidence is lost. I give it 7 to 10 years from here before the Dollar starts to experience any real level of devaluation.

    • Patrick says:

      And anyone who thinks several more rounds of QE can’t send markets far higher has had their head in the sand for the last 7 years

      • Spanky Bernanke says:

        Yes, the Fed stated recently they have a trillion useless, green, paper rectangles standing at the ready to save the U.S. economy in the next recession.
        These morons don’t have a trillion dollars sitting around just burning a hole in Dudley’s fanny pack!! Just like the Saudis don’t have $100 billion laying around to buy weapons. Their entire annual GDP is around $600 billion AND FALLING. You really think they are going to buy ANYTHING from US!!! If you believe they are buying crap from us, I have an avocado farm in Idaho to sell you. This is ALL BULLSH$T…and so is QE. If the dollar was losing purchasing power, nobody would sink a penny into ripple or litecoin. Quantitative easing WILL NOT WORK ANYMORE. The Fed must come up with some better bullcorn because Wall Street fully understands that revenue, earnings and dividends did not improve. The Fed MUST buy equities overtly during the next crisis, and I expect it is happening right now!

        • John Ryskamp says:

          Why expect? Everyone knows it is happening. And not just the Fed; also, the Fed through its proxy central banks

          The Fed also bets AGAINST the market, by the way, playing a constant sleight of hand. Sick, isn’t it? Well, we live in the Sick Society. Not exactly Lyndon’s Great Society, is it?

    • Sam says:

      I tend to agree. The eldest baby boomers in the US are now 71 years old and will become a significant drag on stocks and real estate as they sell off assets to finance retirement and escalating medical/long term care costs. These folks, along with pension funds and Federal and state coffers, are dependent on asset prices remaining stable into the foreseeable future – even more so now that they’ve been pushed way out into equities and junk bonds thanks to the Fed’s interest rate policy…

      A 20-30% correction cannot be allowed, and I don’t think we’ve even seen the heavy artillery come out yet with regard to price manipulation. ZIRP and QE are one thing, but wait until the Fed starts pumping billions into weekly SPY and QQQ purchases. This can go on as long as is necessary, and I don’t anticipate a loss of faith in the USD anytime soon.

      • John Ryskamp says:

        But then no one expects the black swan, either. This is why theory is inherently bourgeois.

    • Frederick says:

      Patrick that all depends on the outcome of the next proxy war which seems to be dead ahead of us

    • JZ says:

      If you have such faith in the coercive FED, I have to remind you the other forces you deem irrelevant.
      The value guys will NOT touch these “return free risk”, the higher the price goes, the more convicted they are.
      The speculative guys simply want to front run FED and each other. Their nature is to transfer the chips from each other’s hands. They have zero faith and a market full of these are NOT predicatible even the FED wants a LOW VOL environment.

      Previously, all central banks worked together. We just learnt that Merle and Trump pretty much middle finger red each other and North Korean is laugching missles.

  9. Jarhead John says:

    Wolf…sitting here tonight watching a rerun of “Titanic”.

  10. Kelly says:

    “They’re nervous because the Fed could jump in and reverse the crash, and they want to pick up the pieces before that happens.”

    As far as I know, the plunge protectioin team is a mythical beast. I can’t think of a single example when the FED was openly buying stocks.

    There can’t be a crash so long as money is continually pumped into the system.

    Society may fragment into a Venezuela like downward spiral, but stocks will be highly valued. This is why the vix is low and stocks grind higher.

    • Wolf Richter says:

      I wasn’t talking about the Fed buying stocks but about announcing a rerun of QE or similar.

      • d says:

        Logically what you state re a copy of japan should happen.

        Baring blackswans and the influences of the illogical like you orange protected specie.

        Japan still hasent exited that cycle and wont for some Decades.

        which pose me the question will we live to see the end of this cycle as it is getting considerably longer the further we progress into it.???

      • OutLookingIn says:

        Sublime Insanity

        Once more, now with feeling!

        Fabulous wealth created by conjuring money out of thin air, then blowing ultra high asset bubbles for the owners of these “riches”.

        Case in point:
        Tesla burns through billions of capital per year, yet only manages to “sell” 76,000 cars last year. By contrast, GM sold 10 million vehicles worldwide last year.
        So how do these two compare in valuation? Would you believe that Tesla is valued at $4 billion MORE than GM? Wha….? INSANE!

        • MaxDakota says:

          I’ve always found Tesla a challenge to value – kind of like Amazon, it’s not what is being sold as much as how it’s being sold.

          Amazon has found a way to monetize each component of what it does (e.g. delivery is a cost, which is offset by offering it as a service). Tesla sells cars, sure, but it mainly offsets its R&D costs with various government grants and subsidies. How much has the government spent on SpaceX, SolarCity and Tessa combined? I don’t think any of Elon Musk’s companies make money, but he seems to be more than staying afloat via the government!

        • andy says:

          On the positive, they pumped $60-70 Billions into Mark Zuckerman’s pocket, and Mark now promises ‘free money’ for us to find the sense of purpose.

        • fozzie says:

          “Amazon has found a way to monetize each component of what it does (e.g. delivery is a cost, which is offset by offering it as a service). Tesla sells cars, sure, but it mainly offsets its R&D costs with various government grants and subsidies. How much has the government spent on SpaceX, SolarCity and Tessa combined? I don’t think any of Elon Musk’s companies make money, but he seems to be more than staying afloat via the government!”

          Only once in its early days did Amazon go to the markets for a capital raise. Ever since they’ve been able to fund operations by cash flow. Tesla needs to continuously raise capital just to keep its lights on, even with the help of government incentives. They haven’t shown a reduction in costs ramping up production from ten thousand cars a year to a hundred thousand. And with the Model 3, a car that will sell for half as much as their previous two models, their margins will be even worse. $20B in current liabilities with no profits in sight, yet a market cap greater than GM.

      • John Ryskamp says:

        And what happens when they run out of bonds to buy? The Fed is best looked at as an unofficial bankruptcy court. What happens when it no longer has that role to play? That’s when the regime is at zero. Coming soon, I think.

    • Yancey Ward says:


      The BoJ, the ECB, and several other non Fed banks buy stocks either directly, or through the corporate bond issues they buy. It is only a matter of time before the Fed does the same.

  11. Raymond C. Rogers says:

    I’ve wondered about this, but does anyone think there is enough money sitting on the sidelines to stop some very harsh slides. The S&P is valued at over 22 trillion right now. You’d need 2.2 trillion just to cover a 10% correction. Now imagine a 25%-50% correction.

    I’d have a bit a fear even if I had 33 billion sitting around (well personally I wouldn’t be playing the game at that point, but if I had to). In terms of market valuation billions can become speedbumps to trillions at stake. But maybe just maybe, just maybe a quick jolt could temporarily taper the fear, but I suspect many will want to get right back out as soon as they go right back in.

    All depends on the strength of the fear. Let the games begin.

    • Haus-Targaryen says:

      You don’t need 2.2 Trillion to stop a 10% correction in its tracks, you need 2.2 trillion to spot and reverse a 10% correction back to its starting position.

      To simply stop it would take materially less cash. I don’t think 5 billion would do squat, but throw another zero on there and that thing is DOA.

      Whats 45 billion between friends?

  12. PrototypeGirl1 says:

    Limbaugh calls it the managed decline.

  13. Maximus Minimus says:

    In a laboratory artificial environment, experiments can go on as planned for a long time.
    The real world is not a laboratory with carefully controlled conditions.
    There is this thing called politics, a euphemism for all the things that can go wrong.
    Here are some examples in no particular order:
    A bad harvest of staple crops can send prices soaring, and way to many places are already teetering on the brink. See the swimming contest across the Mediterranean as a proof. Scarcity creates conflict, conflict creates migrants, migrants create conflict, and so on…

    The monetary policies of the central bandits, which encourage reckless behavior, and remove punishment for such is a ticking time bomb that has a fuse of it’s own. It also encourages lemming mentality; a silent contest of who can jump over the cliff farther.

    Military spending is on the rise ever since the Iraq war. The conflict zones are a plenty.
    The number of places that are under militant control is increasing, too. It is fed by the mushrooming number of third worlds unemployed who did not make it into the first world welfare states.

    There are things that are under nobody’s control, and chip may fall on any side.

  14. Clive says:

    I only thing I know for sure is I know nothing at all.

  15. IdahoPotato says:

    “Of all the dangers in the world of finance, the enduring low level of market volatility is the most significant. How quiet is quiet? Recently, the six-month realized volatility for the S&P 500 dipped to 6.7 percent, lower than even the period leading up to the financial crisis of 2008-09. During the mid-’90s, volatility was as low as it is now, but the size, complexity and interlinkages of financial market exposures were far less significant. Now, fluctuations are severely muted, and thus send a false signal of safety to both investors and policy makers who misread the calm as an “all clear” sign, dismissing the events above as insufficiently relevant. The result is an inability to appreciate how quickly market conditions can change, especially as trading strategies that capitalize on quiet markets become vulnerable to unwind, serving to amplify a risk-off event.”


    Watch the VIX.

    • RSDallas says:

      Agreed. To me, the driving reason for the low volitility is due to the increase in the quant trading platform coupled with the explosion of ETF purchases and lastly that the retail investor is still a fraction of the market that they once were and who knows how much Central Bank buying is going on. It is the retail class that provides volatility, in my humble opinion. The only time the market volitility rises is when the quants are triggered. Before, the quants were triggered, who then triggered the retail investor to bail and the loop began.

  16. Cali says:

    Perhaps crash money rescues the market in the short term, but who rescues the over leveraged consumer and subsequently the economy? This theory could exist if all the other variables in the economy remained relatively stable. However, We are already seeing homes, cars, retailers suffer from a stretched consumer. How does this play out as the economic situation deteriorates further? And with corporate debt at all time highs, What happens to over-levered companies when they can’t borrow more to buy back their own stock, prop up dividends, or worse roll over their existing debt. The zig zag theory may hold true initially but eventually this has to collapse.

    • Wolf Richter says:

      The stock market has long ago separated from the real economy and consumer woes. So in theory, the US economy could go into a depression and stocks might hover near all-time highs.

      • nick kelly says:

        I can almost imagine stuff like the Fangs circling over the carnage.
        Consumer discretionary and autos. not as easy.

        Related: a lady friend who works for a big marketing outfit (does all the ‘relines’ the displays and ads of cosmetics etc.) just joined a posse that traveled hundreds of miles and stayed overnite to move the entire aisle of a Superstore closer to the checkouts.
        The reason: an increase in shoplifting. Number one item, razor blades.

        • OutLookingIn says:

          “Number one item, razor blades”.

          You would never know it! Considering the current male craze of walking around all the time, looking like you have forgotten to shave for the last three days!

          Hard to shave everyday using an old dull blade, because blades have become very expensive. Considering they are made in China for pennies apiece. A real rip-off. Hence they are a target of theft.

      • RD Blakeslee says:

        “The stock market has long ago separated from the real economy…” – Wolf.

        Just another form of gambling.

        For example horse racing touts have their “systems” and stock speculators have their “analysts” (Another kind of analyst might do them more good …).

      • John Ryskamp says:


    • d says:

      The long Zizag down is infact the control of what would be a crash.

      The little guy is however going to suffer for much longer using this method.

      As you arr looking a decades of sluggish real Economy. As assets (Particularly paper ones) are held in controlled deflation.

      Look at Japan. Its property values have been dropping since the early ninety’s and still are. But not in any real way in the major centers.

    • Sweet Kenny says:

      This is the point. The Fed cant fixed a over extended consumer. Look at Canada – consumer debt increases every quarter – one small shakeup and a domino effect might occur.

  17. Coaster Noster says:

    Complexity in the stock markets has risen to levels incomprehensible to the “eyeball observer” and his recollections of Greenspan and 1980s Japan. In 2000, Goldman Sachs had over 600 equity traders working each trading day, buying and selling stocks. Now there are two. Otherwise, “Data Managers” and their algorithms trade stocks, and it is based on so many factors, a regular “human assessment and judgement” as to what is going on, is a total folly. Almost every equity has put and call option contracts, and the largest cap stocks dominate trading, because their $900-plus share prices mean small percentage moves in the share price translates into 50-100% price movements in certain options. Look at a company such as Micron Technology (MU). It makes products that are incomprehensible to the average person (or, shareholder) and it has thousands and thousands of puts and calls contracts outstanding, for every month. The share price drops a little, to $26, then up a little, to $29, and traders make tens of thousands of dollars a week on this one equity, on very little price movement. Some of this money is plowed back into shares, keeping the price from crashing, and some is held to buy (or sell short) to make certain that certain contracts are profitable or expire worthless. Meanwhile the television programs about equities and the stock market keep talking in terms of “percentage moves” and mask all hidden algorithm buying and selling and the role of option contracts. The low volatility (and, trading firms spectacular profits) is an indication that the algorithms are working, and the markets will continue a slow, ten percent build for years to come, until some force does something to option contracts…which won’t happen….the public doesn’t “get” what options are, so politically, options are on an “island” that cannot be affected.
    Back in 1990, “strike price” for options were in five-dollar increments (e.g. $40, $45, $50). Micron has a strike price at $26, $26.5, $27, and thousands of open contracts on those prices.
    Eyeball that, and tell me what it’s all about….

    • Petunia says:

      I don’t follow the options markets, but I do recognize pornography when I see it. The MU strike prices aren’t about MU, it is about how it tracks the sector. They are expecting some big moves out of tech and MU is a good place to stick your toe in the water, a safe tracker. BTW, I think the big move will be down.

  18. michael Engel says:

    Wolf, your articles are extremely focus, very clear to understand & right on time !! You are more talented than many other bloggers in collecting data, doing the proper mixer and transmitting it to your readers.
    1) Without being too technical, the Dow 2 tops in 2007 and
    the low in between them, send a projector into the future, blocking
    the 2015 advance and the current advance.
    We are inside of the projector, testing the top line twice already. A third test might happen later this year.
    2) Similarly, the DOW in Jan 2000 to May 2001 and the low in between, have created a projector,
    predicting the March 2007 low.
    3) The $NDX might be doing , – if you can accept some bending of rigid
    rules, – a fifth wave extension, with almost perfect ratios.
    We are not on Jacob ladder to the moon.

  19. pete says:

    Oooh for the days of less Fed transparency and less Fed accountability (u know, the days of Paul Volker), when the Fed was actually more accountable & more transparent…PJS

  20. wkevinw says:

    Economics and markets are subject to human emotions. That’s why you see “exaggerated” market cycles. Once a decline (or rise) of a certain magnitude starts you get the herding behavior that results in the market price valleys (and peaks). We will see a valley because of this emotional behavior even if the “financial fundamentals” should/would support a milder “zig-zag” lower.

    Review the 2000-2003 market, which was difficult to trade. It was a grind.

    Roughly (depends on the index used; S&P500~)
    Mar 2000-Mar 2001: -29%
    Mar 2001-Jun 2001 : +21%
    Jun 2001- Oct 2001: -28 %
    Oct 2001-Jan 2002: +24%
    Jan 2002- Mar 2003: -25%

    It was about 3 mini-bears and 2 mini-bulls = one big bear market.

  21. Gershon says:

    Right on cue, “former” Goldmanite and ECB head Draghi calls for – of course – showering more printing-press “stimulus” on his favored financiers and speculators.


    • Wolf Richter says:

      Your comment is somewhat misleading. As the article you linked points out, Draghi was EXPECTED to speak (at the time of article he hadn’t spoken yet) about the need to MAINTAIN the current policies while at the same time adding some clues about MORE TAPERING in the near future. The ECB has already tapered its QE this year by €20 billion a month.

      There will be nothing in his speech about “more” monetary stimulus beyond what they’re already doing.

      • Gershon says:

        While Draghi didn’t explicitly announce more QE, he made the point, as he always does, that even though the Eurozone is allegedly recovering it will still need substantial QE for the foreseeable future. Draghi knows full well that QE-to-Infinity is the only thing keeping global equity markets from cratering under the weight of their own mark-to-fantasy valuations. So more monetary stimulus is assured the instant true price discovery starts to assert itself. Europe and the US are going down the same dismal, failed Keynesian path as Japan.


  22. Jim Peterson says:

    Why all the consternation? The S &P is up huge but from a point so low – prices had gone lower in 2008-2009 than they were 10 years before that.

    Instead of consternation, you can buy leading companies on dips the happen within industries all the time. Buy Boeing at 118-now over 180, buy General Dynamics at 140, now over 200, buy Visa at 72, now over 95. Apple at 90 now over 150. You could have bought all these in 2016.

    And when the “crash” happens companies like these will still be doing what they do, and they will be first to come back.

    Look to Buffet. Not permabears like the three mentioned.

    • Wolf Richter says:

      Buffett got bailed out last time. His financial and insurance empire was collapsing. He was the single biggest beneficiary of the Fed’s policies. He didn’t see the crash coming either and didn’t prepare for it. So he’s not a great example either.

      • wkevinw says:

        Mr. Richter- thank you for this bit of truth. Indeed Buffett was bailed out as were basically all the banks, most insurance companies, etc. That’s part of the unfinished business called re-blowing the bubble we have now. I thought the Dem administration would put some of those crooks in jail or at least significantly increase enforcement. it didn’t happen, and Attorney General Holder testified to Congress that they didn’t know what to do about it!!

        That should concern people: regardless of party, there isn’t enough basic enforcement of the laws.

        So, we got Trump.

    • R2D2 says:

      If Buffet wanted to base his trades on chance and speculation, he wouldn’t be where he is now. These are the people who are the real owners of the casino, or at the least, the honorary guests, and in casinos, the house or the honorary guest never lose.

    • d says:

      Difference between buffet and the others. Buffet is actually and Investor who speculates some times.

      The other 3 are Speculators who only invest for themselves personally, outside their public vehicles.

  23. William says:

    When stocks soar 42% up, then drop 30%, it’s a wash and you’re back we’re you started. Planning for a 30% drop from today’s highs may seem impossible, yet that 30% drop may follow another 20% or 30% or 40% run-up first.

  24. Jb says:

    Wolf this sounds like bear capitulation on your end. Very few people are truly preparing for a crash in actuality and the fed is out of ammo. Watch out below!

  25. Michael Gorback says:

    You can’t defy arithmetic forever.

    No matter where you look the math doesn’t work. Witness how CA tried to float a bill that guaranteed universal health care. The projected cost was 2x the state’s total budget.

    It’s like that everywhere you look.

    • MaxDakota says:

      Ha! We were just joking last night we give Cali another 5 years before it implodes from its tax insanity. The solution to everything in CA seems to be “tax the 1%!” How about that Mental Health Tax, wonder how many politicians’ pocketbooks it has lined! As it is, California doesn’t make much sense if your income is $1M+, and as it gets worse, more of the 1% will leave.

      • alex in san jose says:

        Yep they’re all gonna leave here for the American Redoubt


        Why have decent weather, natural resources, good fishing and farming and crops, intelligent people, when they can move to Dakota and be smelly mountain men?

      • d says:

        “As it is, California doesn’t make much sense if your income is $1M+, and as it gets worse, more of the 1% will leave.”

        A lot of the people in California above that income level are not in California, for tax purposes.

        Wealthy people are highly mobile.

  26. ANON says:

    I respect Wolf’s reasoning, however, I fail to find a single example of a bubble soft-landing. Having lived in a country which had it’s own bubble and the lights started literally going out pretty fast after having the interest rates were raise (Volker), I know it first hand.
    Here are some interesting links:
    In general, the narrative is the commies did it, but there’s a more logical explanation for this by putting the facts together, because it never made any sense that the guys “in charge” would want to bring famine and poverty upon the people. Food for thought.

    It was a bubble, and it blew-up fast and hard.

    • ANON says:

      And let me add that “centrally planned” also does not make any sense, *everyone* was on board, since the standard of living was exploding both in urban and in rural areas. At the height, in the mid 70s, and considering what was happening in Europe at the time, it looked like paradise, all clean and sparky, abundant food, holidays at the seaside, in hiking/skying in mountains, housing for everyone, dreams of going to the stars and beyond…
      What’s keeping it from imploding at the moment?:
      # 6:

  27. michael says:

    The mere fact they (CA democrats) are advancing a bill for which no funding exists portends the level of hubris in Sacramento. They are doing it to appease the Nursing Union, which of course, stands to gain by such a bill. It is all for show or if you will bad theater.

    Between the recently approved “transportation tax” and this nonsense, I have to believe the establishment is quickly running out of runway. The quicker they raise taxes the quicker the end of the show comes.

    • Hiho says:

      Wasn’t this post about stock markets? So what’s the matter with CA Healthcare?

      It looks like random propaganda dumped in a random place.

  28. PrototypeGirl1 says:

    I did a girl on the street investigation today. The sears at 21st and Yale ( Tulsa ) is closed, empty, taken the logo off the outside of the building. The Sears auto repair in that same location is still open but no one was having cars worked on today. Big splash right across the street was full.

  29. mick says:

    Unusual call for Wolf. You usually shy away from predictions altogether, nevermind making them for decades long.

    I wouldn’t want to make a call beyond a few years and I’m pretty risk tolerant comparatively.

    • Wolf Richter says:

      Yes, very unusual for me. It’s just fascinating to me how the “smart money” is publicly lining up to capitalize on a crash. There is a lot of that going on… not just the regular short-sellers but investors with a longer-term view. I don’t think I have ever seen this before to this extent. And whatever happens in the future, this will impact it. This article expanded on my theory on how this “crash money” piling up might impact the markets. I’ve said similar things in the comment section before but I wanted to share these theories more broadly.

      • Petunia says:

        Back in the 90’s when I left Bear Stearns, I gave the firm at most 5 years before it imploded. This was before sub prime and I never anticipated they would go that crazy, but they did and they lasted a lot longer. By 2008, I was thinking I wasn’t as smart as I thought, when they imploded, supposedly overnight.

        These things can go on as long as there is money on the sidelines. And they will go anywhere and do anything to keep it going, but that doesn’t mean it will.

      • mick says:

        For sure, and I agree totally with the thesis, just not so sure about “decades.”
        I’d buy a year or two at most. as there’ll be loads of collateral damage such as insurance co.’s and pensions that get whacked hard.

        Fallout will go far beyond the markets.

      • d says:


        We have QE.

        So we have huge amounts of cash, with NO WORK.

        Is this crash reserve pile, another symptom of QE ?????

        My logic says it may be.

      • ERG says:

        I listened to a lengthy interview with Bernanke on Bloomberg yesterday. He must have said six or seven freakin’ times that the Fed is going to unwind its balance sheet and that should proceed smoothly. Maybe he thinks by saying it enough times the unicorn will make it so.

        If ever there was a warning sign that there’s a bumpy ride ahead…

  30. Yancey Ward says:

    As I watch the BoJ, the Swiss Central Bank, and the ECB now buying stocks and corporate bonds, I have to conclude that the Rubicon has been crossed- at any hint of a significant market break, the central banks will, together, buy stocks hand over fist to put a floor under any decline. Really, “emergency measures” that go on for nine years show this, don’t they?

    This, if you really read Hussman correctly, is why he has underperformed the last nine years. I suspect he will continue to underperform because nothing has changed in regards to the central banks except that they are deeper into the weeds and have decided they can only move forward by going deeper still.

    I think that as more and more of the productive economy comes under the “protection” of the central banks, that productive world will rot extensively since there is no benefit to optimizing business practices because not one is ever allowed to fail. At some point it will become widely apparent that even though the S&P 500 is at 10,000 (my projection for 20 years out), the value added by those companies is worthless- massive stagnation and decline in real value.

    • mick says:

      I don’t believe everything we’re told by CB’s and the financial media. CB’s have limits, but they hope nobody figures that out. Their limits are when the paper they print becomes worthless.

      Big corporations, who must accept that paper are well aware of just how much printing is going on and the true value of the paper, even tho the average guy, or even professional money manager, isn’t.

      When that paper is officially worthless, the game is over, but we will not be warned or told of that day.

      It will be the same day the bombs start falling.

  31. Ishkabibble says:

    The problem is that Janet can print an INFINITE number of fiat USDs to, LITERALLY, buy anything and everything on planet earth that has a price tag in USD or other currencies into which the USD can be converted.

    Ever since Nixon “temporarily” rescinded the US’s promise to other governments to redeem their USD in gold (if you want a real eye-opener from the past, watch Richard Nixon changing the future of the world in just a few words https://www.youtube.com/watch?v=iRzr1QU6K1o ), the Fed has had the power to, LITERALLY, buy the world, but up to 2008 never really exploited that power to its full, experimental effect.

    If you think the ongoing economic/financial experiment that shifted into full tilt boogie in ’08 has been wild, you ain’t seen nothin’ yet. We may yet witness the Fed and other TBTF banks and their controllers “just happen” to end up “owning” everything of any value in the world, especially the vital necessities required to keep people alive. I think this is called having the human race “over a barrel” or “by the throat”.

    • nick kelly says:

      Truly fantastic thinking. The 1980’s spike in the FED funds rate to 20 % was because of a run on the dollar- people didn’t want it. They wanted gold, silver, Deutsche Marks or Swiss Francs. If it’s already happened once it can happen again,
      This was the culmination of a trend begun by France, who noticed that the US was printing a lot of money to finance the war in Vietnam without raising taxes. So France started taking the US up on the 34 dollars an ounce and began presenting dollars and getting gold. (This window was never open to the public)
      This became a flood and in 1971 Nixon shut the window- the US$ was no longer gold backed.

      OF COURSE the rest of the world is not going to sell everything to the US for newly printed dollars. In the first weeks of such a program any of the Yen, Euro, Pound or Yuan would be preferred to the US$, including in the US itself.
      In fact if anything like this was seriously tried ( and it won’t be) people would prefer anything to the dollar, even lowly commodities like copper for the big guys- any object of VALUE for the rest of us.

      An old bicycle is worth more than a piece of paper. It is only the ‘full faith and credit’ of the US Govt and Treasury printed on that paper that makes a greenback worth more than an IOU from Wimpy.

      If it starts printing in the insane manner described above this faith could evaporate within weeks.

    • d says:

      So you would prefer this was done by the CCP in Beijing or The Putin mafia in Moscow??? Or perhaps you are in the india or tehran corner.

      Of the big bad five, that want to rule the world, the US is still the best deal.

    • R2D2 says:

      Actually Janet doesn’t bother to print anymore; she goes to the computer console and types a number she feels like, and the bigger, the better. A number with 11 even 12, may be 13 zeros, and bang she can buy anything she wants on the planet.

  32. Yancey Ward says:

    And to make it concrete- it is like playing poker against someone with an infinite stack who goes allin every time you play a hand- eventually he busts you.

  33. Alexander the Great says:

    There is no longer a market…,..nothing is real….it is rigged by the PPT and central banks and is monitored and overseen by the NSA. We live in a utopian dream and have to because the owners of this country, thank you George Carlie, know that if they let the market be free it would be in a free fall with no one to buy. That would lead to chaos and a shift in sentiment of the population to bring out the guillotines….and the powerful would loose their power…..there would. W blood in the streets. So the only solution is to prop up the markets and play the game for as long as is needed….and when the game is over they will pull back the curtain and show you the brick wall…..

  34. walter map says:

    The Fed has been able to levitate the asset markets for the last several years even while the real economy continues its decline, and can be expected to continue to do so until the real economy becomes sufficiently tattered and the debts become unserviceable. Given present trends that’s only a few years away at most, but the time horizon can certainly be shortened with wayward fiscal policies, and probably will.

  35. Bunter says:

    The fall of the USD will be the harbinger for the stock market crash. Already fallen from a high of 1.03 (TWI) to below .97 last week (since slightly recovered). Will seriously affect overseas interest in US equities and will create enormous inflationary pressure to consumer driven, import dependent economy. This one will be so big not even the Fed can stop it.

  36. Gershon says:

    Goldman’s man at the ECB reiterates that interest rates are going to remain “extraordinarily low” as the central bankers’ War on Savers continues apace.


  37. mushroom says:

    Over the years I have developed enormous respect for Michael Hudson and Paul Roberts.

    They both are anti-crash advocates!

  38. anti mushroomite says:

    why would they wreck their own rigged game? they wouldn’t. melt up could be worse then crashing down. kicking the can down the road in the hopes that everything will eventually change for the better. problem with hyperinflation is that it destroys any saved wealth, including industry and commerce. especially of small medium businesses that are not protected via bailouts and meltups on these ridiculous over valued stocks.

    How bad is it rigged? PE’s of 300 to 500 probably equate mathematically to values of production in the hundreds of years. in laymen terms, this means that you are valuing a company today based on 100’s of years of earning returns. Can you think of company that is 300 years old? Sure there are some out there probably in Europe or Asia. In summary – Total BS. but, don’t fret the markets will be up another 10% – until the creepers decide to sheer the sheep.

    Don’t know if we will ever see a return to capitalism in the stock market but I am hopeful that free markets will come back at some point. Even if free markets don’t come through the stock market – people will always trade and barter and value.

  39. Kevin Beck says:

    In other words, these nervous investors will act as circuit-breakers in a way that was dreamed up back in the 1980’s by the Treasury and the Fed to stop a market crash from happening again. Everyone will be convinced that the next day’s downward move in prices will be “The Big One.”

    I’ll always remain perplexed by those who will do the right thing the wrong way for the right reasons, and then lose in the end.

Comments are closed.