Submitted by David Haggith
The Great Recession

When I predicted the economic apocalypse would begin for the US this month, I said the stock market would rise euphorically after the Fed raised its interest target. Rise it did. Steeply, too. I also said it would fall shortly after. Fall it did. Quickly, too. Now I’m saying the Epocalypse is here.

From an epocalypse of another time By Dorothea Lange, Farm Security Administration / Office of War Information / Office of Emergency Management / Resettlement Administration [Public domain], via Wikimedia Commons
Just as I stated that “the rate at which the market goes up now is a measurement of pure euphoria,” by the same token, how quickly that euphoria falls off indicates just how far down the downside is. If you have ever floated in the ocean and felt yourself unexpectedly drop way down with the water, you know that means a huge wave is coming up right behind you.

“Particularly watch out,” I warned, “if the euphoria cools quickly because, after more than a year of concern over what would happen when stimulus ended, there is a lot of relief the bulls would like to celebrate. If the euphoria cools quickly, it’s likely to mean things are ready to go down hard and fast.”

While I said in my last article, “Their party could last for days or end tomorrow,” I actually anticipated the euphoric rise in the stock market would last several days, given how long investors feared what might happen when the Fed raised rates and how relieved they’d be that the sky didn’t fall that day … and how persistent they have been in taking bad news as good news.

That the market turned so quickly on itself is a strong indication of how different the Epocalypse will be compared to previous Fed tightenings following previous recessions where the revelry over recovery lasted longer. For such a long “recovery” out of such a deep hole, the celebration sure was short!

During many Fed tightenings, the stock market and overall economy improved for years afterward … because the Fed stimulus had actually brought a temporary form of economic recovery. Rarely if ever has the mood turned dark so fast after the Fed officially announced that the recovery is sound and the life support can be removed.

So, even while I knew the global economic news was bleak, I didn’t expect the market bulls to snuff out their own ecstasy the day after the ball began. I can only imagine how much the permabulls wanted to go on air that next morning to revel in their “We told you so’s” about how the economy would do just fine after a Fed rate hike. Only they could not. They woke up to face reality.

As the new week begins, everyone is nervously guessing which way the market will continue. That also tells you the market is starting to realize that bad news is only bad news from this point forward.

The party in the bull pen is over

Federal Reserve Chair, Janet Yellen, looked visibly happy when she was able to make the announcement of her lifetime — the claim that things looked optimistic enough for the Fed’s recovery that the Fed could finally end its economic aid. Never before has a Fed chairman looked less dour and more ready to crack open the champagne for the big Fed Christmas party.

Her market minions gleefully rewarded their queen with am immediate rise of 200 points in the Dow Jones Industrial Average during the remains of the day after she delivered her glad yule tidings.

The market, however, decided to crash the street party along Wall Street the next morning by dropping 253 points — farther than it had risen during the celebration. The real gravity of those numbers was proven when the fall picked up speed for a 367-point plunge the next day, bringing the stock market down over 600 points before it closed at the end of last week.

And, so, the Fed’s rate hike made this the most volatile December for the Dow since the economic crisis of 2008. Moreover, since 1990 Decembers have been the least volatile month of the year. So, something is different this time. Something is very deeply and disturbingly different if you compare this seventy-degree day of Winter Solstice in Washington to any other.

This isn’t your typical placid and merry December. Friday’s sell-off was the sharpest one-day plunge since September, and trading volume has been higher than usual in December as investors jockeyed to position themselves for the Fed’s anticipate rate rise. This is the feel of something big beginning to creep.

The sharp sell-off of in stocks across all sectors of the Dow in the heaviest trading of the year came because of news that oil prices were still falling and fear over what this means for banks that are heavily involved in financing highly leveraged oil companies. For the past several years, such news would have caused the stock market to rise because it would mean another year of struggle in which the Fed would be hard at work trying to re-inflate the economy by giving free money to its banksters.

All ten sectors of the S&P 500 also closed in negative territory Friday. For the Dow, it was the third weekly decline in four weeks. Reality, in other words, hit the face like a glass of ice water the morning after the party. For the market bulls, it was off to work with a hangover.

The sobering fact that bank stocks were the first to decline was a surprise to many (including myself). Common wisdom throughout the market expected bank stocks to rise the fastest when the Fed raised rates because the rise in interest would actually improve bank profits since so many of their adjustable-rate loans and credit cards are pegged to interest rates that are strongly affected by the Fed’s target.

Banks will be collecting more in interest but they will be slow to start paying more interest on deposits, so were expected to benefit. Yet, financials went down because banks ensnared in a commodities massacre look edgy.

Even high-tech stocks, which have been supporting the narrowly traded market fell last week with the King of Stocks, Apple, down 10% for the month! That means Apple, leader of the Dow, is already in correction territory.

It looks like there’ll be no Christmas rally for stocks this year because the Federal Reserve turned off the free money … just in time for Christmas.

The global market went into a similar slide two weeks ago when the European Central Bank did a little quantitative wheezing that didn’t satisfy the demands of its junkies. Likewise with the Quantitative Queen, Japan, where five rounds of QE have now failed to jack up the economy any longer than the QE lasted. QE is so unsuccessful that Japanese income and household spending are in decline again, even with the money pumps still running.

Santa Claws Offers Little Hope for a Christmas Rally

Some might say that stocks have only fallen because of a badly timed bout of bad news, which just happened to hit as the Fed raised rates; but that has been my point throughout this year of predicting the global economy and US stock market would both crash in the fall of 2015. This is the same bad news that has been happening all year — the same bad news that I said would only become more intense by the time the Fed finally did raise rates, so that it would be making its transition with the worst possible timing and be totally blind to that because the Fed doesn’t look at the right indicators.

The news trend all year has been tilting from moderately bad toward terrible. My predictions of the Epocalypse have been based on the loss of the loft effect from the Yellen put at a time when economic down pressures would become intense. We went back to reality on December 16. The market will now drop when bad economic news happens, and there is a lot of bad economic news happening all around the globe right now, so the kinds of drops in the market we saw last week will keep happening because there is little upside to bad news anymore and little chance of that trend changing anytime soon.

What market investors need to realize is that the critical importance of the Fed’s rate hike is not the meager quarter-of-a-percent rise in its interest target; it is the fact that the move off of the zero bound puts us back into the real world where bad news is now only bad news because bad news can no longer stave off the Fed’s first rate increase. That’s done.

So, gone are the drunken years of dissipation when bad news came to mean that speculators could anticipate a vault full of new free money from the Fed. No longer will the market get a rise rise out of the hope of more stimulus. This is an environment many market investors and advisors have never experienced in their neophyte careers. The market right now is hunting for news, looking for some clue of which way to go in this new environment, and it will go the direction the news takes it.

What everyone is — or at least should be — starting to understand is that when this stock market crashes the market has no airbags. There will be wounded.

There are plenty of skeletons in the closet for Christmas:

The commodities market has already crashed, and from all appearances it will go down further, as economic conditions are worsening in China.

The impact of the commodities crash has already started a junk-bond bloodbath, which has already leaked over into investment-grade funds, which saw record outflows last week.

More hedge funds have already failed in 2015 than in any year since the 2008 financial crisis.

Now that bad news is only bad news, stocks have finally begun to slide, including the high-tech stocks that were helping support the market when other stocks were falling. Now, every sector of the stock market is falling.

Banks are heavily involved in the failure of junk bonds and in the decline of their own stocks. As sub-prime housing loans, subprime auto loans, student loans fail, banks will experience more downward pressure. So, banks will fail; but this time banks will follow the cascade of events, rather than lead it.

Look at those events and ask yourself, “Aren’t those the conditions under which central banks normally begin stimulus, not bring it to a close?” That ought to tell you a lot about where the Fed’s tightening is going to go, and the Fed cannot simply reverse course if things go from bad to worse because to do so would clearly be to admit its recovery was an immediate failure.

To do so would also require overcoming huge inertia the Fed must feel toward starting back down a course that it had such a hard time getting out of and which it so rejoiced to bring to an end. To do so, will also require overcoming the Fed’s denial, which causes it to really believe its program was a big success. To do so would also require Yellen to lose face for having just pronounced the economy sound like Ben Bernanke stated in 2008 when he saw no recession in sight.

One thing after another will now unravel as the most massive asset bubble in history unwinds globally, and the heaviest mountain of debt ever known to humankind crushes down upon it. The market is only starting to realize that there will be no Fed support in the short term if things do go bad. They still have no idea that an economic apocalypse is dawning.

How bad will it be? One of the most reliable leading indicators of a market crash has historically been a sharp rise in the difference between the yields of reasonably safe investment-grade bonds and junk bonds. An article today in Bloomberg asks the same question about how bad a stock market crash right now might be:

How bad? In the three months before August 1929, the high-yield spread spiked by 47 basis points, and in the three months before May 1937, it shot up 85 basis points. In the past six weeks of 2015, it has spiked by about 120 basis points.

Investors are just starting to see in the meager light through their fuzzy hangovers, but still have little idea how bad this crash is going to be. So, there is a lot of fear to set in when denial breaks.

Denial and a nearly religious belief in political-economic ideas of both parties, however, are hard to break. So, many will think I’m foolish to name something like this the “Epocalypse” and to claim that it has now begun. And the stock market, of course, will attempt rallies, maybe even a brief one for Christmas, as it loves to rally then anyway. If it does, it is nothing but a spurt of optimism cheered on by holiday feelings, the hope of getting some of that party spirit back that was shorted after two hours, and the lack of much economic news to go on today, leaving the market scouting around for a sense of direction in this fuzzy new world they are unaccustomed to. It probably won’t even have enough holding power to last the week. If it doesn’t rally at this generally upbeat time of year, which is usually a great time for the stock market, it really is going down fast.

I am willing to take the chance of people saying such things because I am fully certain proof that the US stock market crash began the day after December 16 and was triggered by the Fed’s change of course on December 16 will quickly become a fact of history. I think the Epocalypse will even be big enough to break through nearly everyone’s denial, and critics of this claim will have to stuff their words back in their mouths in a hurry.

Even afterward, some will still argue foolishly for their own ideas about how and why it happened; but they will believe no more in the Fed’s phony recovery, and they will soon enough be forced to realize the Fed delivered a bear at Christmas.

David Haggith started writing about the economy after he predicted The Great Recession half a year before it hit and was puzzled as to why no economists or stocks analysts saw it coming. In the months after the crisis broke out, he started to write humorous editorials in a series called “Downtime“, which chided the U.S. government and banking people who should have seen the economic collapse coming but whose greed, cronyism, and ineptitude caused them to run all of us into this mess. These articles were published in The Hudson Valley Business Journal, The Valley City Times-Record (North Dakota), and The Daily Herald in Tennessee. He is dedicated to regularly criticizing the daily news — not just the content but the uncritical, unthinking nature of almost all of the reporting.

Haggish now writes his own blog, The Great Recession Blog to break down the same new from the point of view of an equal-opportunity critic toward both Republicans and Democrats / Conservatives and Liberals … since neither kind of politician has done well to see this coming nor done well in helping the nation plot a better course.

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19 thought on “Epocalypse Now: The Economic Apocalypse is Here”
    1. “Thankfully, law enforcement was able to intervene and thwart Lutchman’s deadly plans.” Haha..They created it.

      “Before Lutchman was arrested, the FBI says he recorded a video where he swore allegiance to ISIS and its leader, Abu Bakr al-Baghdadi,”

      Isn’t Abu Al- Bag-Daddy Obama’s Buddy he realeased from Gitmo his first year in office and is Now the Head of ISIS?

      Haha. Can’t make this stuff up

      Wordplay….Al Bag Daddy…

      1. Yeah, and isn’t Big Daddy actually a Mossad Oprrative in those pictures with John McCain ? Or am I confusing him with some other dirt bag ? The dumb USA citizens sure have been taken for one hell of a debt ride. Brainwashed to believe so many lies.

  1. The Epocalypse occured on Jan 1, 1965 when the 90% silver content was removed from dimes, quarters, halves and dollars. Back in the early 60s, my grandfather would go into the bank with a $20 bill and would come out with a mixed roll of Morgan and Peace Dollars minted between 1878 and 1935, some with beautiful rainbow toning. Good luck trying to do that today. If you invest in the stock market, well, let’s just say that it is paper/digital money. Someday it will be worth less than a 50 cent coupon off the cost of a box of GMO cereal.

    It has been a steady downhill ever since. A silver dime was basically worth the same, with the exception of numismatic value, between 1793 and 1964. That is a very long run (171 years) without severe inflation. It was great to be an American citizen between 1793 and 1964!

    1. Your confusing some of the various things that set us on a course toward the Epocalypse with the Epocalypse itself. Those are the days the first salvos were launched. These are the days they hit the earth. Not that there hasn’t been downhill since, but nothing compared to what is about to hit.

      1. Tangible assets will always be tangible, and useful, such as precious metals, real estate, tools, and knowledge. Intangible assets, such as paper, I O U S, stocks, bonds, derivatives, and digital money have a very short useful life.

        1. John,

          I agree with you. When they sucked all the Silver from our coins that was a moment.

          Can you imagine having a Silver dollar worth 5 Bucks? It’s only a Dollar, it’ says One Dollar on it.Thats why they did it. The dimes quarters and Even the Nickels are just TIN.

          1972 Brenton Woods solved this problem. Now its falling apart.

          Global Warming Taxes is one of the answers to solve this……….

        2. Recynd,
          Is Natural Gas Tangible or intangible?
          If It’s Tangible, I got a whole of it for you.
          When it gets really bad here it’s always Cold where it stays on the the ground and doesn’t expand and become lighter and blow away and my sinus feel really irritated and hurt.

          But yes, I think Energy is a Tangible as a product.

        3. In accounting we have tangible and intangible assets. IRS has come up with a gazillion rules and methods on how to depreciate and amortize these assets. The powers at that agency have the last word on what is what unless you want an audit. I know, this could thrill anyone to sleep.

          What about the still leaking gas in Porter Ranch? Is it a tangible asset blowing in the wind? Only IRS knows for sure.

        4. Electricity can’t be an asset in the sense John means the term. It is a product produced from assets like coal and gas and river water. But it is not the flowing stream, which will not go away in a financial crash, or a coal mine, or a gas well.

          The intangible assets he lists have a tangibility in the sense that they exist in time–but can cease to exist at any time, because they depend upon the financial matrix of the age we live in to exist.

          So you ask an interesting question. Electricity does not exist in time. You can buy its POTENTIAL existence. It’s not a real thing, like the coal that makes it possible, or the turbines chaining up the river. It’s not even a derivative of a real thing, like a bond fund, which represents real money someone invested once and is now being leveraged based upon who knows who’s credit worthiness.

          Electricity, once created, can’t be stored (well, very little of it can). Real resources are spent creating it, but then they’re gone, and so is the voltage.

          John can be proven wrong about paper assets: in the future they still may have value someone else might want to buy. But this minute’s electricity vanishes as quickly as it is created.

        5. I asked about electricity because, according to some (like Patrick Wood), we’re headed to a whole new economic system based upon energy. Maybe a new form of energy’s coming, but right now, electricity is king, and there’s a whole smart grid being set up (for water and natural gas, too), worldwide.

        6. Well, a solar panel can be considered an asset because it produces electricity, free and clear of the electric meter. The same can be said of a coal or wood stove, they can sure cook a meal and heat a house without being hooked up to the grid and the almighty meter, lol!

  2. What can we expect? A new carbon currency? Maybe a reset with a exo-cosmic alien market? We have to wait for the commercial real-estate bubble to explode, the derivative “flying economy” to land and the bank run. All of the quadrillion in toxic assets has to be monetized. So is Fannie and Freddie going to solve it with Connecticut Avenue Securities? Ha! Sounds like a Sandy Hook enterprise (LIBOR Round 2?). JP Morgan can’t find private risk investment for their exposure. Neither can the rest. The cream of the crop LTV aside. This is going to be the back breaker. Add the commodities freefall and the manipulations you have an unsustainable scheme. No duct tape left.
    Short of an economic boom due to war or global natural disaster I expect the collapse to take form before spring. You know they have something up their sleeves.

  3. The markets gyrations have much less to do with the feds puny rate bump and everything to do with the chaos and fall in europe and the euro. european investors are pouring their money into the us stock market as europe declines into oblivion, hastened by hoardes of immigrants. Even the german economic engine is faltering. The us apocalypse is coming, but still years away. One more thing, commodities are bottoming and will stage a resounding recovery in early 2016.

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