There’s a chapter devoted to this in my up-coming book (Greedometer 2.0 The rats are jumping ship.).
Let’s take a brief look at what I believe will be the poster child for the 2013-2014 collapse: the 2011 collapse. The 2011 collapse saw the S&P500 flirt with a drop of 20% before more monetary candy had to be found.
Let me make this point very clear because it is important. In the first week of January 2011, the S&P500 rose to a point that was approximately 300 points below where it peaked in October 2007 (1270 vs 1570). The S&P500 would have needed to climb a further 23% to reach the previous secular peak level. And yet the Greedometer began redlining -in effect indicating that despite being nowhere near the previous secular stock market peak, things were going to begin to melt down again. It was proven correct. I make this point because someone is going to read this blog post and say something like “Big deal. Some guy is warning of a stock market collapse when the stock market is once again back near its all time highs.” Nope!
Mini Greedometer Sequence
The strategic Greedometer cracked 7000rpm in January 2011, then gradually ground its way up to 8000 (the highest reading ever) in late April. While this was happening, the mini Greedometer was beginning to form the baseline and top line.
That is pretty close to what I’m anticipating this year. Admittedly, I expect the collapse to be slower than the 2011 version because both QE3 & QE4 have already been deployed and will slow the collapse. This is substantially different than what occurred in 2011. That year QE2 was running at full steam in the first half of the year – providing fuel for the Greedometers. Things melted down when QE2 was removed. As of now, the Fed has no plans to stop QE3 & QE4. That’s the good news. The bad news is the Greedometers are still reflecting epic and growing risk levels in spite of the fact monetary goodies have already been launched. Translation: things are likely to melt down regardless of the fact the Fed is already “all-in”.
The period between now and April should provide data for the mini Greedometer to begin to establish a sequence baseline. April and May should begin to establish the sequence topline. Between them, the speed of the pending collapse may be estimated. The location of the top of U.S. risk assets (the stock market) will also begin to become estimate-able with a reasonable degree of accuracy (to within 2 weeks or so).
The initiation point of the 2013-2014 Greedometer sequences has already been identified as being 3 weeks ago. This point represents:
- confirmation that a stock market collapse is pending,
- an initiation point for a count-down to the launch of the collapse.
The count-down lasted 4 months in the 2011 Greedometer sequence. Perhaps that’s how long it will be this year too. We’ll be better able to determine this over the next few months.
It is possible the Greedometer climbs to similar levels in April (this year) as was seen in April 2011. In fact, there is potential for the gauge to break (exceed 8000rpm), necessitating a recalibration of the algorithm vis-a-vis previous sequences. That would be interesting. There is now in excess of 14 years of data. I’m not looking forward to a recalibration effort.
Greedometer Newsletter Subscribers see the currently unfolding Greedometer and mini Greedometer sequences (the current version of the graphs above).
If you found this interesting, please provide a comment below. And please forward a link to this blog posting to others. Yes, of course I am trying to grow my business. But I am also trying to warn as many people as possible that conditions are ideal for another stock market collapse to initiate in the coming months. A noble cause, I think.