Getting Ready for the Next Big Crash

Wednesday, June 2, 2010
By Paul Martin

by Christopher Laird
June 2, 2010

Every time the markets rally, some surprise at the end of the day hammers US stocks, and then rest of the world follows down. The Dow tried to rally Friday and Monday, but Friday, news that Spain was downgraded caused a Friday sell off the last hour. Tuesday saw the same thing, with the Dow struggling to gain positive territory, but it closed down another 100 points after news of a deteriorating Mid East situation with Israel and the flotilla attack.

This is a danger area

Because US markets are hovering right around Dow 10,000 and S and P 1050 (just above) it is not clear a new US stock rally will stick. Rather, what seems more likely is markets accumulate negative sentiments each week with more bad news killing rallies.

Commodity index crashes, 2008 again?

They call that ‘headline risk’ IE bad news that kills any rallies at the end of the day. But, more important is that the dropping commodity indexes which foretell another big world economic slowdown:

“June 1 (Bloomberg) — The biggest slump in commodities since Lehman Brothers Holdings Inc. collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.

The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth…” My emphasis

Evidently the commodity markets think the economic slowing due to China popping its construction/property bubble, and the expected EU slowdown will be enough to counteract any tepid US economic recovery.

While anyone would cringe at a potential repeat of the Summer 2008 commodity sell off, the fact remains that indicators such as the CIPC smoothed price index mentioned in the Bloomberg piece are shouting a loud warning.

Even while the base commodities are yelling trouble, gold has held well and is near highs. Flight to safety is again appearing in all markets, with gold a main beneficiary as a currency risk haven.
We have been concerned for the last two months that another repeat of the 2008 commodity sell off was developing.

Right now, we have been warning subscribers of a continued USD rally, a fall in key commodity currencies such as the CAD and AUD (warned of their fall a little over a month ago) and we are particularly worried that another huge world stock crash is getting ready for Fall 2010.
Right now US stocks are trying to rally from that key Dow 10,000 level. The effort keeps stalling. Since we are still at near the lows following the Dow fall from 11,000 to the present 10,000 level, a rally better appear soon or else we are going to newer lows this present period (before any rally appears yet).

The biggest risk period is Fall 2010. Summer should see the US markets trying to fend off this coming crash. But frankly, with the EU situation still in dire condition, and China now going to be giving reports with economic news of its slowing, the markets have little reason to be cheerful going ahead.

Rather there is a huge overhanging of ‘headline risk’ for the Summer. That risk will alternate between the next crisis due (California has a new budget crisis starting July 1 with the new fiscal year) which will be US states having bond market trouble. Ongoing turmoil with Korea and Israel don’t help.

And I haven’t even mentioned the Gulf mess, where the US moratorium on deep wells will put 50,000 oil workers tied to those rigs out of work for 6 months. Between the oil sector in the gulf getting hammered, and the Gulf fishing industry being killed, all the US needed was another economic hit. And what about a hurricane there??? It’s a huge negative for Summer, that entire gulf disaster.

In fact, all the current event trends are negative going into Summer… and so a building negative consensus will be with us all Summer. We may even have this big crash from this point in a few weeks, and well before Fall 2010.

As we said in January:

“Again the correlation – and there are others – but the correlation is for a huge market decline starting around March of 09 or so. Much of the QE worldwide, not only from the US Fed and Treasury, but also a staple financial tool in Japan, and of course the UK now, and others are all adopting this tactic., China too.

But, the only question is how long QE will last. My expectation is that after the US let’s go of QE, the rest soon follow, the logic being why be the only man in a parade? A parade needs more than a few. So, no parade. The parade is cancelled.

And so, we are counseling people to prepare for what is coming around March – at least what we think is coming for commodity and the financial markets. .. But March or a month or two around that period is going to be fateful. There are other pressures of a great magnitude as well…” Second leg crash, what’s next in 2010

The US stock crash started right at end of April (we warned subscribers two weeks in advance of that) and commodities indeed have crashed as we suspected within two months of the end of March 2010.

It could be a dark time worldwide. There is a lot more to say here. Needless to say that will be in our future newsletters for paid subscribers. If you noticed, we have not been publishing as many public articles, and one reason is that our paid people get a great deal more of this analysis than the public articles offer. Obviously. And we have quite a batch of recent newsletters out that will most definitely intrigue you. They are my best stuff to date.

Lastly, I would like to point out that we have made some astounding predictions over the last two years about the USD and gold and other currencies. If you stop by our site, we’ll have a page showing you them. We do not make many predictions like that, maybe 2 or 3 a year. But our last batch was quite on the money… you’ll see when you take a look. The latest was the Dow 11000 peak call at the end of April 2010.

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