Legend Warns Global Stock Market Rout To End In Full-Blown Panic!

On the heels of the Dow plunging more than 500 at one point in the trading day and global markets continuing to get pummeled, today a legend who warned just 8 days ago that the carnage in global markets would continue told King World News that investors should expect to see an acceleration of the global stock market rout that will end in panic.

Eric King:  “Bill, people are wondering if we could see a rebound next week?”

Bill Fleckenstein:  “Of course there can always be a rebound but I don’t think it will carry very far — in the same way that none of the little rally attempts have carried very far that we’ve had in the past eight or nine sessions…

Global Stock Market Rout To End In Panic

Fleckenstein continues:  “So I don’t think the market can rally very well at all and I think there is a much better chance that we will see an acceleration to the downside.

They managed to pull the market back over the August/September lows in the S&P but some of the other indices have already broken through those lows.  So I think there is a better chance of an acceleration of the selling.  And if there is any kind of a bounce I don’t think it will be very meaningful.  I don’t think that the stock market can have any kind of a meaningful bounce until we either get real panic and/or the Fed rides to the rescue.”

Fleckenstein had warned King World News just 8 days ago that there would be more carnage in global markets (see below).

Eric King:  “The fantasy is coming to an end but this day had to come, right?”

Bill Fleckenstein:  “You’re right, it had to come to an end.  One of the hardest things for people who aren’t investment professionals and even for many investment professionals to understand is how something (an investment strategy) that is so clearly destined to work can sort of lie there and not respond and not do what you think it ought to do for as long as this insanity has gone on.

What I’m particularly referring to there is how well and how long the stock market managed to levitate on the back of not much more than outright monetization.

The Gigantic Suspension Of Disbelief

The first couple of years after 2008 there was a snapback after they stopped the carnage with all the programs and government bailouts and money printing.  But from 2011 on, when QE3 started, that’s when we really had a gigantic suspension of disbelief.  That’s when the vast majority of people really concluded, ‘Gee, these guys really know what they are doing and it’s going to work this time.’  They didn’t stop to think that it was these very same policies that got us into this mess and all we do is keep pursuing the same strategy in a bigger and bolder fashion.

But nonetheless, it’s taken quite some time for the ultimate failure of this fantasy to start to unfold.  Now, it’s not the 25 basis points that is breaking the market.  They stopped QE 14 months ago and the market kind of went sideways.  So the top took about a year to produce on the major averages, but beneath the surface lots of stocks have been weak.

This Has Been A Long Time Coming…
The economic data has been pretty damn poor considering rates have been zero for 7 years and we monetized $3 trillion here in the United States and the same thing is going on in most of the G7 countries.  So the economic recovery has been nothing and this has been a long time coming.

But China Is Being Blamed For The Panic

You couldn’t predict when the market break was going to occur but we kind of got some hints of that last year and the way the market has broken in January.  Now, people here want to blame this market break on the North Korean hydrogen bomb or the Chinese devaluation and their stock market plunge.  But China’s got a misallocated capital and debt problem — that’s we have and that’s what the whole world has.  China has a different variation than we do and in some ways they are better than us — in some ways they are worse than us.

This isn’t about China.  China is getting blamed because it’s the spark, right?  But meanwhile you see that credit spreads are widening, junk bonds have collapsed, the oil patch is a wreck.  What do you think is happening to all these insurance companies and pension plans that reached for yield in different credits?  And what about the poor bastards from the public who felt they had no choice and felt they had to reach for yield and buy stocks?

The bottom line is that this misallocation of capital has gone on for so long that people look at individuals like Jim Grant, Fred Hickey, or even me, and people would laugh at us.  I’ve gotten quite a volume of hate mail where people say, ‘You’re an idiot.  Why do you keep saying this stuff?’  Well, you don’t know how long it will take for the chickens to come home to roost, you just know they are going to have to.

There Is No Saving This Market – QE4 Is Coming

So we’re at that moment now, and it’s liable to get quite a bit worse because there is no saving the market.  The numbers have been bad, the speculation has been high, and the world economy is getting worse, but the Fed can’t come to the rescue until global stock markets break and break hard.  Then we’ll have QE4 and in that phase we will have to see how well the Fed is believed, what they do, and what we think the ramifications will have to be at that time.

The Carnage Will Play Out Faster Than People Think

There’s no guarantee that people are going to believe the central banks because in 2008 they didn’t believe them all year, and in 2001 – 2002 they didn’t believe them.  Right now they still seem to have total confidence.  So the stock market has been an accident waiting to happen and now the accident is happening, and the carnage is going to play out much quicker than people think.

Having said that, this is going to be a two-step trade, right?  The first is going to be the big break in the stock market.  Then the Fed is going to do what it’s going to do, and then you’ve got to see what you want to do next.

As It Pertains To Gold And Silver…

As it pertains to the precious metals (phase two of the trade), they have been hated and avoided because nobody thinks they need them when the central banks are in control.  So they are basically the flip-side of the confidence trade that’s driven stocks to the moon.

It’s no coincidence that as the market has broken badly at a time of the year when it’s not supposed to, suddenly gold has started to move higher.  And what will happen is gold will start to go up and it will finally catch a bid and start behaving better.

Gold will start to trade higher once again on news that used to make it surge and people will come out of the woodwork and try to own it and there will be a gigantic scramble.  Has that process started?  Most likely it has.  It’s also worth noting that some of the miners are finally acting better.

So we are going to see both sides of the trade start to play out at the same time, but they are all different expressions of the same thing.  Gold is a way for people to say, ‘These policies are crazy.  I know what central banks are going to do and I can own this  in order to protect my capital and make money.  The stock market only went up because people believed in these idiots and that trade and that belief are now coming to an end.’

So people can express their doubt in what central banks can do by being short stocks or being long gold.  I’ve currently got both sides of that trade on.  Anyway, I think that’s the longest answer I’ve given to a short question in my career.”

Expect Shortages Of Gold As Soon As Next Month

Today John Embry stunned King World News when he warned, “We are moving toward a fundamental shortage of gold, and I believe it may start as soon as next month.” Embry also cautioned, “The problem now is that the global economy is contracting at a time when the debt levels are catastrophically high.”

Embry, who is Chief Investment Strategist of the $10 billion strong Sprott Asset Management, also discussed Europe, but first, here is what Embry had to say about the drought and inflation: “I am very concerned about this drought that is happening, particularly in the United States. You look at a weather map in the Midwestern United States, the temperatures are just staggeringly hot and there’s no moisture.”

“Already the corn crop has been reduced dramatically. Aside from the fact that it will have a big impact down the road in the economy, because food prices will move up sharply, on a basic level this is the difference between starvation and survival for people in certain parts of the world.

There are already food shortages in some of those areas, and now we are going to see the prices rising on top of that....

“This is a potential catastrophe and I’m very worried about it.”

Embry had this warning regarding Europe: “If you look at the news coming out of Europe, it’s almost like can it get much worse? And it gets worse. The Spanish stock market has been down 12% in a few days. That’s the equivalent of 1,500 points in the Dow.

The Spanish market is now at levels last seen in 2003. Their interest rates just surged to news highs over 7.50% on the 10-Year. I also see six Spanish regions are asking for bailouts, and where’s the money going to come from? The Spanish government hasn’t got any money. The European nations are trying to recapitalize Spain, but they don’t really have any money. So in the end it’s going to have to be created out of thin air.

I really appreciated the fact that an insider came out from the IMF, that resigned, and wrote this scathing public letter about all of the failures of the IMF. It’s all true. I mean to me the IMF has been a massive failure and they are part of this troika that’s attempting to deal with the Greek situation, which to me looks hopeless.

I see the Greek Prime Minister just said they are in a massive depression. The idea that they can take much more austerity to meet the terms which allows them to access more funds is a non-starter. In the meantime we are now being told the world is prepared for a Greek departure. I don’t believe that’s true. I think it would be incredibly traumatic if that were to happen.

The problem now is that the global economy is contracting at a time when the debt levels are catastrophically high. The only thing propping up the system, at this point, is the fact that there is still this move into the bonds of the perceived ‘safe’ countries.

There have been a number of times in history where investors have gone nuts and participated in ridiculous manias like the South Sea Bubble, the Dutch Tulip Mania, and Japanese real estate in the 80s. I think when the bond bubble is looked at in the fullness of time, sovereign debt trading at the levels it is right now as its proliferating everywhere, will be seen as ones of those bubbles.”

Embry also added: “Right now you are very hard-pressed to put your finger on any place in the world where the economy is improving. China is really weakening. They are essentially decelerating. The only way they can ramp things up in China is to jam more paper loans into the system, but I think the problem is that will have a very inflationary impact.

There’s no easy out on this thing and what was seen as the engine of the world is now sputtering.”

When asked about gold, Embry responded, “We are moving toward a fundamental shortage of gold, and I believe it may start as soon as next month. I think the bottom is being put in right now. You see once again with the stock market trading lower, they just turn the algorithms on and grind the price down.

But this action is all just building a massive base in gold. I think the big issue going forward is this growing shortage of available physical gold. I strongly believe one of the reasons for the shortage is a lot of it is headed East. The last four or five months of the year gold should challenge and easily take out its all-time high.

For what it’s worth, there is an enormous amount of interference in the gold and silver share market. I think that will end as soon as gold and silver break their highs. When that happens, I think it’s going to unleash a rally in these stocks that is absolutely going to stun people. People will be shocked that don’t understand the full extent of the manipulation and how cheap these stocks have become as a result of it.”

Marc Faber: 100% Chance of Global Recession

By: Lee Brodie

The stock market appears to be at a critical inflection point. That’s the takeaway from widely followed economist Marc Faber, author of the Boom, Gloom & Doom newsletter.

Faber’s bearish market calls have been followed closely since 1987 when he warned his clients to cash out before Black Monday.

And in a live interview on CNBC’s Fast Money Halftime Report, Faber again warned that economies of the world may be on the brink of a serious slowdown.

Faber indicated that while investors remain focused on Greece and Europe – other issues, bigger issues are looming. And they’re more threatening.

“As an observer of markets – whenever everyone focuses on one thing – like Greece and Europe – maybe they miss issues that are far more important – such as a meaningful slowdown in India and China.”

The latest reports from Beijing would support Faber's assertion. The HSBC Flash Purchasing Managers Index, slipped to 48.7 in May from 49.3 in April. That marks the seventh straight month that the index has been below 50, a level which indicates economic activity is contracting.

Faber also cited weakness in the high-end as another key catalyst that’s very negative.

“There are more and more stocks that are breaking down – economic sensitive stocks and companies that cater to the high-end,” he said. "That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.”

Earlier in the week Tiffanylowered forecasts citing slower sales. At that time, Fast Money trader Dan Nathan warned that results such as these were foreboding and suggested the high-end was starting to crack.

When taken in concert, Faber says all the economies of the world could take a hit from these negative developments.

“I think we could have a global recession either in Q4 or early 2013." When asked what were the odds, Faber replied, "100%."

However, in the near term Faber also sees potential for a market rally.

Faber said the bullish catalyst would be Greece exiting the EU.

“I think the market would be relieved if finally Greece exited the euro. There would be some clarity. Although it wouldn’t be good for banks and insurance (stocks) in general I think markets are oversold and with an exit – markets would rally.”

It’s worth noting that Faber is talking hypothetically; he does not think Greece exits the EU in the near future.

“What I think will happen is that Germany will show more flexibility and issue more euro bonds.”

Faber pointed to the recent decline in the euro as evidence that the currency markets share his view. “More bonds will challenge the quality of the euro. That’s why the euro has been very weak, lately."

For investors looking to navigate what could be a serious economic storm, Faber said the best thing to do is keep the portfolio in US dollars and own gold, “knowing that sentiment is negative and in the near-term it could trade down to the Dec 29 low of $1522.”