Pictures of a stock market mania

This webpage was protected by HTMLProtector. Our next update will probably be published sometime durting the month of November This is our 85th report on the consequences of the stock market mania since we first published this website on January 15, Our readership spans countries. Our paid subscription stock market newsletter has only two rationales for its existence; Powerful Commentary and Unique Perspectives.

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Our first chart below illustrates a dramatic escalation in just the last two years. There were separate incidents of terror in and 30 in just the first four months of At the current pace, there will be 90 attacks for the full year.

Alan Newman and Pictures of a Stock Market Mania | Stock Market Advantage

In a word, harrowing. There were only three attacks in April.

The first on April 20th targeted a security team responsible for protecting government VIPs in Kabul, Afghanistan. The attack killed 64 people and wounded and was the Taliban's biggest attack on an urban area since Three days later, attackers hacked a university professor to death in the city of Rajshahi, Bangladesh.

ISIS claimed responsibility for the attack stating he was assassinated "for calling to atheism. Below, this is perhaps the scariest chart on this page; despite the large percentage of unfavorable opinions of ISIS, we are quite concerned with the percentage of those with favorable opinions. In Senegal, there are as many as 1. In Malaysia, another 3. Now consider that Pakistan is thought to have a nuclear arsenal of between weapons.

The Pew poll illustrates between 63 million and million ISIS supporters in just 11 countries. We believe the threats of future terrorist attacks have not even been remotely discounted by the financial markets, a solid reason for our great caution.

Frankly, the pictures are terrifying. The primary reason attacks have increased so substantially is that they have been effective in recruiting more terrorists. The objective seems simply to murder as many citizens as possible. In fact, the loss of life has been horrific. Immediately above, although the biggest bar includes the terror event, a closer examination clearly implies the specter of a rising trend in the number of victims killed.

Even more depressing, terrorism is clearly not confined to only the Islamist extremist terror attacks shown in these charts. There are more than terrorist groups designated by national governments and inter-governmental organizations.

The list shown at http: Several years ago, in our traditional year end look at the year ahead, we assigned odds to terror attacks as a possibility for driving stock prices. Prices will be impacted significantly if the financial markets are ever the target of terror. We are students of history and in , out of sheer curiosity, we took on the task of researching certain aspects of the madness of the Roaring Twenties. This left an indelible impression. There will never be another period like the years Since then, the highest margin debt has been relative to total market cap was last year at 2.

Our current analysis typically measures total margin debt versus GDP, which we believe gives us an even better picture of the dynamics at work. Obviously, the larger margin debt is versus GDP, the more speculation is concentrated in stocks.

"Market Manias: When You Feel You Missed Out": My Stock Market Warning in March

We repeat, there will never be another period like the years but there likely will also never be another year stretch that witnesses three separate stock manias. The situation for risk is as dire as we have seen in over five decades of observation. The chart below lays out the best case for a substantial price decline. Since the major indexes peaked a full year ago in May , we believe a bear market is already in progress.

All of the higher measurements have come in the period since December The last month in which liquidity was positive was May Given our chart data has a limited history, one might be excused for believing negative liquidity episodes such as those pictured were the rule rather than the exception. One would be wrong. The three instances of extreme negative liquidity shown here are the only instances we have found dating back over five decades.

The chart below contains some of the same basic information as our first chart but presents a different perspective, perhaps even more emphatic. What the picture tells us is simply this; when the mutual fund cash-to-assets ratio plunges and margin debt rises, the odds greatly favor a significant price reversal in the form of a bear market.

The first two occurrences resulted in bears that cut prices in half. Although we are not looking for a similar downside move at this time, we also cannot entirely rule it out. The obvious problem is that the gap between the cash ratio and margin debt is so much greater than it has ever been.

Also of concern is the fact that the cash-to-assets ratio has been so low for so long. ETFs carry very little cash, near zero in most cases. In rising markets, the only way equity mutual funds can compete is to keep their cash ratio as low as possible in order to have more invested.

However, this has been an awful strategy. The downside has been far greater exposure to risk and the results have been two horrific bear markets and another now likely in progress. Ironically, the perception that mutual funds could only compete with extremely low cash levels to perform well enough and secure new investment was quite flawed. Below, you can see just how awful the fund manager strategy of keeping cash ratios low has worked. The top tick monthly close of February was a mere 2.

Again, adjusted for inflation, the index is currently 1. Could there be a worse condemnation of fund manager strategy of retaining as little cash as possible? Worse yet, as the red bars clearly illustrate, risks in the form of margin debt have risen at a much faster pace, even when we adjust for inflation. At the peak last summer, margin debt was Below, we devised this indicator several years ago.

After tinkering with our spreadsheets for many weeks, it appeared that a month differential in total margin debt was a pretty good predictor of bad times ahead. At the very least, whether predictive or coincidental, it is a valuable perspective. The next monthly close was 2.

The third dip into negative was October and it proved uneventful, however it came near the tail end of a 9. In this case, margin debt had peaked and was falling along wih stock prices. We should not be surprised to see both margin debt and stock prices to drop like a rock from here.

The charts clearly imply a repeat performance. We have railed against program trading since and have commented at length in this newsletter regarding the many new mechanical approaches to trading now used for profit at the expense of individual investors. In fact, programs accounted for almost half of NYSE volume one week back in September ,. Media coverage of HFT and all other forms of program or mechanical trading has been conspicuously absent for years.

There has been some speculation from time to time that the Federal Reserve supports U. Two months ago, the Bank of Japan announced it may double its ETF holdings from 3. If the Fed is indeed buying, clearly they are utilizing programs. We are troubled that the NYSE has concluded that this information is now presumed to be unimportant. Our specific price forecasts are available only to subscribers. If interested, please click here.

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