The US economy has been slowing down and economists are predicting that a major economic collapse is coming. In a recent interview, Guggenheim’s Global CIO Scott Minerd said that the cognitive dissonance in the stock market is stunning as reflected by the ever rising prices and credit spreads. He expressed that this is not a buy the dip market but don’t try to catch a falling knife markets because prices have been plummeting for weeks. The stock market crash has already begun!
The global economy is already slowing down and investors have fear that this will culminate to the worse economic collapse since the Great Depression. The stock market has a potential for more downside movement and at the same time the bond market has the lowest returns in history. The 10 year treasury bonds return is now hovering at 1.3 percent level. Technical analysis shows that this decline will continue to a point where the 10 year bonds will have a 0.25 percent return while the 30 year bonds are expected to plummet to about 1 percent level.
It is now very clear that this bubble has begun bursting. The economy has already taken an unpredictable path and many indicators are showing that soon we might find ourselves in the middle of a horrific stock market crash. We have already reached the tipping point and if no immediate action is taken, the stock market will continue plummeting. At the moment, the S&P 500 has already shed more than 3000 points and the 10 year treasury yield is at the lowest point.
The Federal Reserve is still pumping more billions into the markets. This strategy will only help in the short term but when you look at the long term picture, the economy is headed in the wrong direction. Recently, we have also seen the central bank making interventions in the repo markets to ensure that the market remains liquid. They have pumped more than $62.5 billion and much more cash will be pumped by the end of the year. This intervention signals that things are not stable in the financial system and the Federal Reserve is afraid that a liquidity problem can bring the whole financial system down in a day. This will indeed cause the biggest financial collapse in history. This action by the government is just making the bubble in the American economy bigger every day and an economic collapse has just begun biting.
The stock market is now at record lows and all major stock indexes like S$P500, Dow and Nasdaq are dropping in value every day. In the process, billions of dollars are being lost. This might end up being a worse stock market crash compared to what we had in 1929. Gloomy economic data is been released every single day and the industrial production data is dropping at an alarming rate. This signals a big economic collapse.