The crash is no longer coming. It is here.
The Dow has been down since 6/14/18, when the Fed announced the first prime interest rate increase since at least 2008. That ended the unofficial Quantitative Easing (QE) which has been in place since that time.
It is no coincidence that this was followed shortly after by the Securities and Exchange Commission releasing a report stating that there has been massive insider trading occurring on a widespread basis by major CEO’s. That report seems to indicate they just learned of this, while many of us have been talking about it for a very long time. Corporations announce a stock buyback. This sparks a buying frenzy for that stock. Immediately after, CEO’s dump huge amounts of shares at extreme profits. In some cases, the buyback never even happened. Just the announcement.
GE will be delisted from the Dow on 6/26/18 because their stock has declined in value by 57% in 18 months. GE is a major defense contractor in addition to producing commercial electrical turbines and medical imaging equipment like MRI’s, CT’s and ultrasound. It’s not that GE is not making a profit. It’s that major stockholders (corporate executives) sold so much company stock that it devalued the stock.
Most people who know about this miss the implication. This is not an isolated incident, it is an indication of things to come. Other corporate executives with major corporations have done the same thing to a lesser degree. They will be dumping stock in the very near future, now that QE has ended.
I recently wrote that this crash will happen in a downward stairstep manner. So far today, the Dow is up slightly but the NASDAQ is down. That’s not a recovery, that is a mere shuffle. You can expect a back and forth like that with highs being lower than the previous highs and lows dropping ever lower.
The extended effect of this is that long-term share holders will still demand to make a profit on their investments. This will lead to more retail closings, layoffs and wage cuts. That’s how stock declines always play out. No exceptions.
One major event took place this week. CONgress announced cuts to food stamps, Social Security, Medicare and Medicaid. This was much larger news for the general economy than most people realize. Especially food stamps, which will have an immediate effect.
The combined effect of layoffs, wage cuts and decreased food stamp benefits means less money being spent in the economy. Which will mean less need for retail employees. That leads to less need for production, transportation, maintenance, vehicle sales, home sales, etc.
All of that is completely apart from the chilling effect of the trade wars being waged against.. Well, everyone.
This IS the downward spiral I have warned about. We’re there. We are off the cliff. From here, our downward velocity will only increase because nobody in our government in any party will even attempt to slow it, let alone stop it.
Where the bottom is is anyone’s guess. We will not see the bottom any time soon. The media remains silent on the subject. They will continue cheering for the stock market and portraying that as a reflection of the economy. When they cannot do that, they will obfuscate by focusing on other non-issues like Trump’s latest tweet. Expect to keep hearing more about Russia. When the bottom falls out, they will report on “thugs” and “violent protesters”. Or turn off the cameras and act like nothing is happening at all.
It’s time to take a deep breath, buckle up and brace for impact.