Is the Global Market Correction Underway?, by Al Martin

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by Al Martin

Is the Global Market Correction Underway?

(9-9-15) In a recent CNBC interview, Yale economics professor, Nobel laureate and author of the book “Irrational Exuberance” Robert Shiller warns -- “This is a dangerous time” -- adding that current P/E (Price/Earnings) ratios are misleading and that the Dow should actually be trading around 11,000 and the S&P; 500 should be trading around 1300. “There is a risk of substantial decline,” concludes Shiller.

Shiller also warns that the recent rebound in the markets is due to “maybe someone’s good will effort to stabilize the market.” This is a reference to the so-called Plunge Protection Team, which every central bank has -- even though they won’t admit it. The Chinese are the only ones who have admitted it. Central banks will come in to protect their own equity markets as the Chinese have done spending about USD 200 billion in the past month attempting to support their own markets. This will last as long as their reserves last. However their reserves are such that they could support their markets for a very long time.

China will undertake extraordinary measures that the other central banks won’t undertake when it comes to regulation. They will ban outright short-selling which nobody else would do. They will prevent insider selling. The Chinese financial regulators have the power of “gods.” And ultimately what they will do is close their markets if they can’t defend them as they’ve done last week. Chinese markets have been closed all last week for “holidays,” even though the only “holiday” was the military parade on Friday. Nevertheless they used it as an excuse to close their markets for the whole week. This is what the Chinese traditionally have done.

They lowered their Triple R Rate (RRR) which is the amount of money the banks have to hold against deposits. They lowered their benchmark rate last week. They’ve spent 200 billion supporting their market. They banned short selling and insider selling. And they managed to stop their markets from free fall.

What the Chinese did could not be done anywhere else on the planet because the planet’s economy would grind to a halt. In other words if the ECB, the Fed and the BoJ did what the Bank of China does, there would be no liquidity.

They get away with it because Chinese stocks are not widely held outside of China. The Chinese people own about 83% of Chinese equities. That’s how they get away with it because their markets have only so much impact on the rest of the world, even though their markets have been pressuring the rest of the world’s markets.

The Chinese have had to do this because of falling commodity prices and because their exports are falling. What their markets are doing is shining a light on the bigger global problem. That’s why the rest of the world reacts to what the Chinese markets do.

Chinese markets were declining at the same time that emerging markets were declining, which is a symptom of the crack in commodity prices and is also a symptom of growing deflationary pressure on the planet, while all the other western central banks like to deny that it even exists, particularly Fed Head Janet Yellen and the Fed. Meanwhile the markets are declining and they’re still technically overbought.

But to get back to Bob Shiller and his prognostications – he’s an academic and he deals with numbers. He’s not a trader. He’s right however that markets still have a long way to come down. Shiller says that the CAPE ratios, which refers to a 10 year Cyclically Adjusted Price/Earnings Ratios, which are above their 60 year historical averages. However if you break them up into 10 year cycles which he’s doing, he’s right to point out that the markets are overbought – if you look at them as a 10 year cycle. A lot of those who are academically oriented will break this up into these 10 year cycles because that’s how long these market cycles last.

Shiller’s right that if you adjust it on a 10-year cyclical basis the Price/Earnings Ratios are still too high. This is the end of a classic bull-market cycle. That’s what he’s talking about – the warnings signs of the end of a 10 year cycle are there.

The S&P; 500s are coming down and there have been tremendous short selling opportunities in the market – and Joe Six Pack is going to get hurt. As the stocks fall in price they’ll have to sell shares which then exerts more downward pressure on the market.

That’s why this is the time of the trader and how we take advantage of this is by shorting rallies because that’s what the markets keep telling you to do. Markets can’t sustain rallies and that’s not just equity markets. This also relates to bond markets and commodity markets which also can’t sustain rallies.

Boom, Doom and Gloom newsletter editor Marc Faber, who has also been interviewed on CNBC, claims that there is no asset that is actually “safe.” He says that the only thing that remains “safe” is 2-year corporate bonds or long term Treasuries. That’s the only place you can still get a 3% yield. The reason he’s saying that is because this is a guy who hasn’t been right in 4-5 years. He’s been wrong about the Gold (he said it was going to 5000) and that didn’t happen. Then you didn’t see him on CNBC for about 2 years since he lost a lot of his credibility. Now they’re trying to rehabilitate him because he’s still a name that the goldbugs and the Unwashed like.

When these so-called analysts are wrong – like Jimmy Rogers was wrong, they rehabilitate Jimmy Rogers. But they couldn’t because he kept being wrong. So it’s an easy thing to say that long term Treasury Bonds are “safe,” when you say something like that in a deflationary environment when the Dollar is rising.

But CNBC always tries to rehabilitate these guys because they’re brand names and they have name recognition value.

And so it goes…

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

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