Why You Must Beware of Quicksilver Markets

4 | By Shah Gilani

“Quicksilver Markets” is the provocative title of an Office of Financial Research (OFR) report published March 17.

The report’s author, Ted Berg, in his conclusion warns that “Quicksilver markets can turn from tranquil to turbulent in short order.”

He believes the stock market could crash – again.

Of course, no one paid much attention to the report, least of all the markets last week.

But we should.

Here’s why…

Care Package

So what if Berg is a chartered financial analyst who previously worked at Freeport Investment Management and Lehman Brothers before that. So what if the Office of Financial Research is a research arm of the U.S. Department of the Treasury.

So what if the research peeps at the OFR provide their analysis to the Treasury’s Financial Stability Oversight Council (FSOC), whose own website says, “The Council is charged with identifying risks to the financial stability of the United States; promoting market discipline; and responding to emerging risks to the stability of the United States’ financial system.”

And who cares if Berg’s report starts, “One of the missions of the Office of Financial Research is to analyze asset market valuations and if there are excesses, explore the potential financial stability ramifications of a sharp correction. The author argues that U.S. stock prices today appear high by historical standards.”

The markets don’t care. Investors don’t care. Traders don’t care. The Treasury doesn’t care. The FSOC doesn’t care.

Even the OFR itself makes Berg include this little “we don’t care” heads-up to anyone bored enough to read the short brief: “Views and opinions are those of the author and do not necessarily represent official positions or policy of the OFR or Treasury.”

I’m not going to bore you with the facts the report lays out.

Like how the current market resembles a few periods in the past – like 1929, 2000 and 2007. Like how something called the CAPE ratio (cyclically adjusted price-to-earnings) is approaching two standard deviations above its long-term average, just as it did in September 1929, December 1999 and May 2007.

Here’s what Berg has to say about that: “each of these peaks was followed by a sharp decline in stock prices and adverse consequences for the real economy.”

I’m not going to bore you with the report’s fearmongering over the Q-ratio, which compares the value of nonfinancial equity value with net worth – and how that’s flashing red. Or how the “Buffet Indicator” (as if he knows anything), which compares corporate market values to gross national product, is jacked up to cloudy levels.

No, none of that stuff matters.

What matters is that when it comes to the stock market there are more buyers than sellers.

Until, of course, there comes a few days, weeks or months when there are more sellers than buyers.

Not that that ever happens – well, besides 1929, 2000 and 2008.

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4 Responses to Why You Must Beware of Quicksilver Markets

  1. wade says:

    Should we have a crash the size that you predict APPLE is the last thing I want, Cable and satellite TV and cell phone plans will be the first thing most cut to save expenses! With around 50 percent of all households on some kind of government assistance you can bet these things will go first! Auto insurance will be slashed and many will just drop it altogether! Boating and trailer licenses will SHRINK dramatically depriving the city/county/state much needed funds! Bankruptcy’s will be the norm and repo’s will be overwhelming.

    Invest in local mass transit in these times, people will also cut electricity costs by shutting off appliances and such! lawns will not be cared for and jobs will be lost everywhere. It will be bigger than the crash of 29! Blocks will have to form together to protect what they have. This crash will LAST A LONG TIME and you will see bread lines everywhere just to keep people from rioting!

    Those holding ( in their possession) gold or silver will make out ok for awhile or until it is gone. The very rich will not be hit too hard, it is the average working person and poor who will suffer the most and the longest! Keep as little as you can in the bank. PREPARE YOURSELVES! IT IS COMING!

    • Tom Stanley says:

      I like to (hope) that there are enough effective safeguards in place in the market to protect us to some degree, but maybe that is a false hope.

    • ElectroPig Von Fökkengrüüven says:

      Actually, “repos” won’t happen, for the most part. Fact is, when the majority of people are forced into bankruptcy (which I can easily see happening), the banks simply won’t want to have 1000 times the number of properties that WILL NOT SELL because nobody’s going to have any cash to buy them.

      Same with cars. There simply aren’t enough lots to park all of the cars that would be repossessed. It’d cost as much to buy land to store them on and let them rot for the next decade while people try to get their heads above water again, and by that time, they’d all be absolutely junk that nobody would want anyway.

      Add to this the idea that if the bankers actually did kick an estimated 50-70% of people out of their homes, that would mean that the homeless would become THE MAJORITY of the population, and that would mean that the bankers DELIBERATELY turned the once most prosperous country on the planet into a fourth-world failed state…all because of their own petty needs and personal greed.

      There’s also the idea that, once people realize what’s really going on, they will FINALLY (I hope) realize that they’ve been sitting idle for far too long already…and they can’t sit idly by for one more second.

      But we’ll see…probably within the next 6 months to two years. The most optimistic projections I’ve seen is that the crash will hit at the end of 2020, but I’ve been hearing a LOT more talk about September of this year being the swan song of the fiat empire…so just keep your eyes peeled!

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