“Sell everything and run for your lives…”
That’s how Societe Generale strategist Albert Edwards describes the current situation in stocks right now. And as hyperbolic as it sounds, we’re actually starting to agree with him…
We’ve outlined the fears we’ve had about the growing market bubble for the past year: the end of quantitative easing, juked-up employment numbers, and tepid global growth. But the market kept on creeping to new highs. We know that it will eventually come back down to earth, but the million dollar question is when.
So what finally pushed Mr. Edwards into full-fledged panic mode?
A wicker basket…
You see, a Financial Times reader alerted Edwards to a rather whimsical, but very clear sign of a bubble top. Here’s what the reader wrote:
The next financial apocalypse is imminent. I know this to be true because the (Financial Times Weekend) House and Home section is now assuming the epic proportions last seen before the great crash. Twenty four pages chock full of adverts for mansions and wicker tea trays for $1,000. You’re all mad.
So it seems if we’re going to hell in a handbasket, at least it is of excellent quality…
Edwards goes on to explain why this whole market is a “basket case”…
“Volatilities are definitely on the rise. Institutional investors are also getting increasingly nervous that we have reached the end of the road and a major market top may be forming in equities. So maybe it’s time to stop dancing and sit this one out,” Edwards wrote.
“Am I calling a top? What’s the point? As an uber-bear I am used to being called a stopped clock.”
Of course, the joke with doom-and-gloomers is that even a stopped clock is right twice a day. But he’s far from the only “prophet of doom” coming out of the woodwork to warn us about the impending market collapse.
One is predicting a 20-30% correction coming soon.
Another says gold will hit $5,000 in a mere year or two.
But the third analyst we’ll cover today is the most shocking. Not only is he not an uber-bear, he was the Federal Reserve Chairman for close to two decades. A “Cassandra” he is not…
Yes, Alan Greenspan himself is warning of a market correction and is recommending investors start looking into buying gold. And that, my friends, scares me far more than the typical uber-bear.
So let’s dive into this bear den and see what we can find…
My favorite doom-and-gloom investor is Jim Rogers. He always delivers his bitter medicine with a touch of humor and a warm, avuncular style. But his recent comments are just as chilling as Edwards’.
“This is the end of the bull market. Stocks will fall 20%,” he told RT.
Twenty percent on top of recent pullbacks wouldn’t be a minor correction, that would be the prelude to a full-on crash. While most investors can agree that we’ll suffer some sort of a correction, what makes Rogers think we’re in for a full-scale crisis? He points to waning market breadth, a lower number of stocks hitting all-time highs and the 10% correction in small caps. He also warns that the Nasdaq dropped 20% and is already in a bear market.
Here’s how Rogers sums up the whole ordeal…
“They are doing this at the expense of people who save and invest. They are doing it to bail out the people who borrowed huge amounts of money. The consequences are already being felt.
I know that the bear market will come. When the people in Washington and New York tell you there will never be a bear market again…when you hear that you run for the hills. You run for your life…
You get out as fast as you can. The next bear market is going to be much worse than the last one because the debt has gone through the roof. The debt worldwide has skyrocketed and we’re going to have to pay a terrible price for all of this money printing.”
Fellow uber-bear Peter Schiff completely agrees, and thinks that this current crisis will finally prove him right on the price of gold.
Peter Schiff gave a presentation a day before me at the Toronto Money Show. He hit a lot of the major points I’ve been writing about in these pages for the past few years. He laid out the dangers of historical debt levels, the artificial construct of Fed-fueled markets, and the “phony” nature of our so-called recovery. He was given a very warm reception by the audience and got the biggest applause of the weekend.
He contends that this perfect storm will finally vindicate him and send gold soaring once again. But when he took his analysis to CNBC, he wasn’t greeted warmly. Here’s what he told a smirking and abrasive group of guests:
“$1,700 is still going to look cheap compared to where the market is going to go. Obviously, it’s going to take a little bit longer than what I believed at that time, because so many people are still fooled that what the Fed did worked…. I think it’ll go through $2,000 very quickly, and people will be upset that they didn’t buy gold at $1,700.”
At that point, one of the other guests got right in his face and shouted “Peter, I think that is actually just dangerous. This is dangerous.”
He also said that Schiff has been wrong for years…
Schiff didn’t take too kindly to that. He shouted right back that he’s been right far more often than the cheerleading bulls CNBC regularly trots out.
“First of all, I’ve been consistently telling people to buy gold since it was under $300, so people who have been following my advice for the past 13 years and have bought gold are actually doing better than the people who just bought stocks.”
And while it’s been a rollercoaster for gold prices, Schiff has indeed been right over the long-term. Now, he may have found a kindred spirit in the last place he would have thought to look: Famed Federal Reserve “Maestro” Alan Greenspan.
Yes, Alan Greenspan is advocating buying gold…
Now, I don’t often lump Greenspan into the prophets of doom. The former Fed chair has a long history of sticking to the establishment line, and has blood on his hands for the last major market bubble. But now he’s broken ranks and has actually said that the entire Fed QE program didn’t work…
In recent speeches, he has said that instead of engaging in a growing recovery we have just been “eating the seed corn.” He also flat out stated that there is “no way out”…
“The Fed’s balance sheet is a pile of tinder, but it hasn’t been lit … inflation will eventually have to rise.”
That sounds a lot more like these “crazed” uber-bears than it does a Fed Chair.
He turned even more heads when he told the Council on Foreign Relations that “gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.”
When asked exactly how high gold would go in the next five years he simply said “Higher.”
How much higher?
“Measurably.”
Even if you think these uber-bears are “broken clocks”, they are indeed still right twice a day. They were right in 2008 and this just may be that witching hour when they find themselves right once again. While I am no uber-bear myself, I do consider myself a reluctant optimist. With all signs pointing to a major correction or an all-out crash, I am hoping for the best but preparing for the worst.
Make sure you are prepared for either outcome as well.
Godspeed,
Jimmy Mengel
Jimmy is a managing editor for Outsider Club and the Investment Director of the personal finance advisory The Crow’s Nest. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he’s brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor’s page.
