U.S. Stocks Plunged 43% the Last Time This Happened

Justin Spittler



A key stock market indicator is flashing danger…

If you’ve been reading the Dispatch, you know U.S. stocks had a horrible start to the year. The S&P 500 fell 11% in the first six weeks, one of its worst starts on record.

However, stocks have come roaring back recently. The S&P 500 is up 7% in the last month, and only down 3% on the year. Many folks see this rally as proof that we’re back in a bull market.

• E.B. Tucker, editor of The Casey Report, disagrees...

Last September, E.B. boldly called the end of the bull market in U.S. stocks in an issue titled “R.I.P. 2009 – 2015 Bull Market.”

It was a lonely call at the time. U.S. stocks had rallied 215% in the previous six years, one of the strongest rallies on record. And the Dow and NASDAQ had hit all-time highs just two months earlier.

But E.B. was right. U.S. stocks have gone nowhere since he called the end of the bull market.

Today, E.B. has a bold new call…

• Stocks are likely on the cusp of a major decline…

The chart below is one of E.B.’s favorite tools for gauging the “big picture” in the stock market.

Here’s E.B.:

I use this tool to determine the long-term trend in the stock market. If you've traded stocks, you know they can gyrate around a lot in the short term. You could drive yourself nuts obsessing about the daily ups and downs.

I don’t care about daily stock market movements. I care about the dominant trend. This tool helps me determine that. It helps me take a step back and remove the day-to-day "noise."

The chart shows the S&P 500 and two moving averages. The blue line is the S&P 500’s nine-month moving average. The purple line is its 27-month moving average.

If you’ve never used moving averages, don’t worry. All you need to know is that it’s a bearish signal when the blue line crosses below the purple line. When the blue line crosses above the purple line, it’s a bullish signal.

E.B. continues:

You’ll see that this only generated two signals in the last 10 years. If you sold stocks at the bearish signal in 2008, you avoided a 43% drop. If you bought stocks at the bullish signal in 2010, you made 68% in a huge multiyear rally.

Today we’re closing in on a bearish signal. You can see the two lines coming together quickly. Unless stocks have a dramatic surge, they’ll cross. This would generate the first bearish signal since 2008.

There’s nothing magical about this tool. It simply filters out noise to objectively measure whether we’re in a bull or bear market. But I wouldn’t bet against it. And unfortunately, it suggests we’re rapidly approaching a bear market.




• Dispatch readers know the U.S. government used extreme measures the last time stocks crashed.

It borrowed trillions of dollars. It printed trillions more. It cut interest rates to effectively zero.

These extreme policies were supposed to stimulate the U.S economy. But the economy’s “recovery” from the 2008 crisis has been the slowest since World War II. The average Joe hasn’t recovered at all. The real median U.S. household income is lower today than it was in 2008.

Of course, the government’s extreme monetary policies did help asset prices recover. Stocks, bonds, and commercial properties have all hit record highs since the last financial crisis. Because asset prices have surged to crazy new highs while the “real” economy is barely growing, we call this the “Alice in Wonderland” economy.

Casey Research founder Doug Casey says the government has set up the economy for a huge crisis.

These reckless policies have produced not just billions, but trillions, in malinvestment that will inevitably be liquidated. This will lead us to an economic disaster that will, in many ways, dwarf the Great Depression of 1929–1946. Paper currencies will fall apart, as they have many times throughout history.

• The U.S. government will respond to the next stock market crash with even more extreme monetary policies...

It will borrow and print many more trillions of dollars. It could even introduce negative interest rates, like governments in Europe and Japan have already done. Negative interest rates are a bizarre concept that could only exist in a world with idiot politicians in control. When interest rates are negative, you don’t earn interest on your savings. You pay interest on your savings.

Doug says these desperate attempts by the government are a huge threat to your wealth.

As this unfolds, your biggest risk isn’t the crashing stock market or crashing bond market.

Your biggest problem, and also the one most people just don’t see, is political. Your government is by far the most serious threat to your money and wellbeing.

To protect yourself from reckless governments, we recommend owning a significant amount of physical gold. Gold has been used as money for thousands of years. Unlike paper currencies, the government cannot destroy gold’s value.

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