Deflation Forces Rear Ugly Head…Market Crash Danger

Exports Fall

Last weekend some very unreported news reports stated that Japan's exports fell 10 pct. That is an astonishing number. Typically those numbers would be a big deal to the news if it was even 1 to 2%. As I said, mostly unreported in the financial news. Commodities have been taking a bath. We hear reports that China is growing again but I doubt their data. Asian exports to each other are key to the world exports to the west and lots of their trade and exports are parts and supplies in their local supply chain to each other. Japan being down that much is BAD.

And we had earnings surprises downward by Google, for example, not unexpected because in that space the advertising in the tech field is dropping due to the proliferation of the small pads and internet phones. So there is a sort of evolution of that space too, but the point is other tech companies are warning and or laying off several thousand each. Since Tech leads or has been leading the stock rally of late, it was a bad sign for leaders to roll over.

Since Friday and the Google debacle, stocks have dropped about 500 points plus (today being late Wed. Oil dropped and even with the endless chaos in the Mid-East, is under pressure. Gold dropped too (we had given subscribers a weeks' notice when gold rose from $1625 a few months ago and when it neared $1800 to watch for it to drop, again by a week's notice).

We issued a stock crash alert Tuesday at 2 am PST and the market had another roughly 250 point selloff.

Then it comes out Wednesday that Draghi stated deflation warnings in the EU, and gold fell as we stated. The point of all this data, and I think especially the Japan export data is that deflationary forces are rearing their heads.

Oh and I also wanted to mention that US oil inventories are growing. (Slowdown? Albeit US production is rising).

And in this context comments by Bernanke, but the scuttlebutt is that he is retiring and that if Romney wins the QE will fall back hard. The Fed states the US growth is 'Moderate' and status quo.

FedEx is laying off a lot of people. Less shipping.

US Deflation Forces

Then we can consider the US fiscal cliff, a huge rise in taxes and cuts in US budgets items like Defense. So by December, is it not true that there is a very large amount of selling pressure building, particularly given the fact that the US stocks are or were nearing their all-time highs again?

And then there is no doubt that markets are closely watching and waiting for the outcome of the US election which for example would determine if Obama care goes into full effect and thus causing employers to cut workers since they have to provide more health care which is already squeezing them.

So there is this wait and see mode, but also deflationary numbers are accumulating, and there have been lots of large multi thousand layoff notices by large US companies. Tension is building.

One wonders if the US stock market is finally going to correct since there are many reasons for it to start now, and the recent market topping, and 500 point Dow breakdown, could indicate we are on the cusp of the beginning of a large widespread world stock crash.

The only thing I am thinking is this whole thing wants to wait till the US election is over; however, another view I am beginning to take is the markets are already taking positions that are bearish, regardless of who wins the US presidential election. Makes some sense.

Not only this, but macro looks bad

At our newsletters we use lots of macro for long term trends. Especially PrudentSquirrel. Our macro indicators are really looking bearish. We look at various major market indicators such as the CRB which I think is a really important index. Let's take a look.

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Chris Laird

Editor and publisher

Disclaimer: Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter and Currencies and Markets newsletter, and alerts, are general market commentary only. They are not intended as specific advice. You should talk to your own investment professionals for specific advice. Information here is deemed reliable but should be verified by you if you think it's important.

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