Summer's Bearish Views On The US Market

The Pattern of Every Market Collapse

The markets continue their dead cat bounce while the economic data worsens.

First quarter US GDP was revised down from an annual rate of 2.4% to 1.8%.  The drop was due to lower personal consumption expenditures than initially forecast.

This is the crux of the US’s current economic woes: consumer-spending accounts for roughly 70% of our GDP. And QE does nothing to help incomes, which drive consumption.

The US Federal Government has subsidized a weak economic recovery via food stamps and other social program, but the private sector is lagging with most of its hiring coming in the form of temporary or part-time jobs.

The Wall Street Journal ran this graphic yesterday. Anyone who is banking on consumers to continue spending as they have is out of their mind.

Regarding the stock market, it’s important to note that all market collapses follow a similar pattern of:

• The initial drop breaking support
• Bouncing to re-test support
• The larger drop

The S&P500 has completed #1 and is now in #2:

This move could take us as high as 1,625. However, if the market fails to reclaim its trendline we’re going down as far as 1,500 in short notice. And if we take out that level we’re in BIG TROUBLE.

Incomes are Collapsing at 2008 Rates

The biggest single most important item in the GDP report yesterday was the collapse in disposableincome for Americans.

Most investors will focus on the drop in GDP growth for 1Q13 and view it as opening the door for the Fed to continue with QE 3 and QE 4 without any tapering in sight.

After all, the markets have believed that bad economic news is good news for the markets for four years based on the belief that a weak economy will mean more money printing from the Fed.

However, the real issue in the BEA’s report on GDP growth was the collapse in real per capita disposable income which fell at a annualized rate of 9.21%.

That is a truly staggering collapse in incomes. The last time we say anything even close to this was in the third quarter of 2008.

That was right after Lehman failed and the entire economy and stock market were melting down. Buckle up, things are getting worse in the US at a truly alarming rate.

I’ve been warning subscribers of Private Wealth Advisory that the economy was going to turn sharply weaker this year. It’s already begun.

Indeed, while most investors will look at the GDP report as indicating more QE is coming, commodities certainly didn’t get that signal at all. The commodity index continues to plunge diverging wildly from the S&P 500.

One of these asset classes is completely mispricing the economy and the likelihood of more QE. Guess which one it is.

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For insights on how to prepare for a market collapse… including taking out portfolio “insurance” and which investments perform best during a crash…

http://gainspainscapital.com/protect-your-portfolio/

Graham Summers