Stocks likely to crater from here

There's a reason why this kind of image is so iconic...

There’s a reason why this kind of image is so iconic…

While this site focuses primarily on climate change, the problem is so interwoven with the machinery of the global economy that I end up absorbing a lot of economic information as a byproduct. Lately this financial chatter has been particularly hair-raising, and as much as it pains me to be the constant alarmist, I’d be remiss if I saw danger on the horizon and didn’t warn people.

So here goes:

There’s a high likelihood we will experience a large market correction (read: crash) this year, to the tune of 50% or more. This forecast is based on a few rather grim articles that have come out recently from respected industry insiders. The first is from Chris Martenson, a biochemist and author whose work on exponential growth curves I already follow and respect for its tie-ins to climate change and the Limits to Growth. Chris’s warning is similar to the one he gave in the months preceding the crash of 2008, which turned out to be right and made him look pretty smart in the process. His article, for which this blog post is named, predicts a sizable crash in the May – September range of 2013.

Article link:  Stocks likely to crater from here

I admit I’m not savvy enough to understand everything in that article…I definitely still consider myself a layperson where economic issues are concerned. But the gist of the article is that stocks are overbought/overvalued and that coupled with the world’s crushing debt, rising energy costs, and willingness to print unlimited amounts of money to paper over our systemic problems, we’re living a lie that will soon blow up in our faces.

Supporting this prediction are articles from two other luminaries of the investment world, Jim Rogers and Jeremy Grantham. Both have histories of adeptly predicting bubbles and crashes, and both have likewise set their sites on 2013 as a year of financial collapse. Quotes/articles from this pair:

Jim Rogers

“I  don’t trust the data from any government, including the U.S. We know that governments lie to us. Everybody’s printing money, but it cannot go on. This is all artificial.” — Article link

Jeremy Grantham

The Fed’s negative real [interest] rates regime…[is] designed to badger us into riskier investments in order to push up equity prices and grab a short-term wealth effect (that must be given back one day when least comfortable and least expected). This strategy will be…followed eventually, at long and hard-to- predict intervals, by exciting crashes. — Article link

Since 1970, the International Monetary Fund (IMF) has identified – 145 banking crashes – 204 monetary collapses – 72 sovereign debt crises — 48 massive meltdowns from 1637 - 1929

Since 1970, the IMF
has identified

– 145 banking crashes
– 204 monetary collapses
– 72 sovereign debt crises

These grim outlooks don’t seem so crazy when you consider that bubbles and crashes are baked in to capitalism. That’s not alarmism, and that’s not speculation…that’s economic fact, and one that’s been uttered by prominent economists for decades. What’s more, over time crashes are coming faster and faster, which is exactly what you’d expect when dealing with a system of exponential growth that’s approaching its limits. If you’ve absorbed any of the other material on this site, you know by now that exponential growth cannot persist indefinitely on a finite planet…which means our economy will stop growing before long. The real question you should be asking is: what does an economic system built on infinite growth do when growth stops?

If you believe neither precedent nor the predictions of smart people who do this for a living, you need only look out at the world around you for evidence of what’s coming. Many countries around the world right now are embroiled in sovereign debt crises, bailouts, and austerity (including the U.S., because that’s essentially what the sequester is). The weakest and most exposed countries are the southern European nations, all of which need serious help from their rich northern neighbors just to keep their economies afloat. We all know about Greece by now, but did you know that Italy, Portugal, Spain, and even France aren’t far behind? Just last week, the the island nation of Cyprus experienced a run on its banks: citizens got scared when they learned that their accounts were being raided to pay off debts from the banking system. The deal was later rejected and is now being restructured, but further bank runs are feared.

Bank runs, you heard that right. Shadows of the Great Depression. Lest you think that this could never happen in the United States, I’d remind you that these are all first-world nations we’re talking about, ones operating our very same economic and banking model (and the U.S is holding just as much debt as some of them). Yet even if somehow the United States manages to hold it together in the near term, Europe is still going down…and when it goes, it’s going to have a major effect on the U.S. economy. Future crises now appear inevitable, and if the bungled bailouts and ham-fisted attempts at solving the Euro crises are any indication, I would not put a lot of faith in our elected leaders to find us an elegant solution.

(click to play)
If you’d like to understand more about the structural and systemic problems underlying the world’s economic crisis, I recommend the following videos. The first, above, is professor Bernard Lietaer doing a talk at TEDx Berlin…

The long and the short of it is: I wouldn’t trust markets for a while. If you’ve got investments tied up in stocks/bonds/mutual funds etc., it might be a good idea to move them to safer spots for the time being. Personally, I lost about 50% of my retirement when the market went sour in 2008, and many of you did too, I’d wager. Let’s learn the lessons of 2008 and get out ahead of this one…once bitten, twice shy.

For the record, I’d like to state that the impending crash is nobody’s fault. Neither the sleazy bankers, the corrupt politicians nor the greedy home-buyers bear the blame for what is ultimately a systemic problem. They and everyone else are just pursuing their rational interests inside a system that is fatally flawed. If someone sells us a car with no brakes and a faulty steering wheel, we’re going to crash before too long. It’s hard to predict where and when of course, but when it happens it’s natural to blame things like driver error or outdated maps. Of course we’ll try changing those elements, slapping on a new tire and soldiering on…yet crashes will keep happening because we haven’t identified the root problem. The economy, like this car, is a broken system…it was always doomed to fail.

(click to play)
…and the second is professor Richard Wolff, giving the introduction to his lecture series Capitalism Hits the Fan

What we need now is the humility to realize that we’re going down, and that finger pointing is useless. Once we wake up to that “hey, maybe something else is going on here” feeling, we can get busy redesigning our economic system to operate in a more sustainable way. Change on this scale is of course very scary, especially since the system we have now is all we’ve ever known…people don’t just give that up without a fight. Yet in times of great crisis we also become more willing to listen to new ideas. So here’s hoping we do, and that in the near future we can have an honest discussion about the shortcomings of capitalism and the growth economy.

4 thoughts on “Stocks likely to crater from here”

  1. Great article Eric!
    “What’s more, over time crashes are coming faster and faster” Hmm this sound vaguely familiar. i think similar statements have been made about severe storms and hurricane…. larger and more often. When you say move your investments to safer areas what do you mean? Should take the money and stuff it under my mattress? Cause those two pennies will become very uncomfortable. You remember the princess and the pea right… Please keep this information coming and by the way I would not call you an alarmist i would call you a realist!
    Stay tuned, this article has inspired the direct for my upcomming article (if I ever find the time) and how I think this country and the world can solve the ecinomic and climate crisis with one stone, in my purely uneducated opinion!

    1. Heya Jeff. I don’t pretend to know what to do with your money, or anyone
      else’s. Some people recommend gold/silver, but I don’t know how to feel
      about that yet (and the way Chris Martenson vigorously pimps it makes
      me feel a little icky). Bitcoin is another option that people are
      talking about these days, especially Cyprus people (because the
      government can’t touch it). Obviously money under your mattress is a
      thing. But honestly I’d do your own research, like I said I’m pretty
      much a layperson when it comes to financial matters.

      1. Thanks, I was kinda being tongue in cheek there but 1/2 curious too. Good advise i will look into these and see if my current provider can help with these. Keep the info coming.

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