Market Crash Dead Ahead
Market Crash Dead Ahead by Dennis Slothower – Outsider Club
Markets Sour On Senate Tax Bill
The stock market took a fall Thursday and Friday after the Senate released its version of a tax reform bill which scrapped just about everything the House’s bill had proposed.
The Senate drops the four tax brackets and replaces them with seven tax brackets at 7%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5% for individuals.
The Senate’s tax plan will seek to delay any corporate tax cuts until 2019!
The Senate plan scraps all state and local tax (SALT) deductions. Instead of eliminating estate tax altogether, as the President has called for, it doubles the estate tax deduction.
The one-year delay in the corporate rate cut and ditching the SALT deductions are measures the Senators believe will offset revenue losses that would result from sweeping tax cuts.
In the Senate’s tax bill, it revises the tax code but removes the tax CUTS from the bill and removes deductions.
The Senate’s bill did not touch the tax penalty in the Obamacare mandate for businesses.
Here again, the House or the Senate’s tax bill and whatever is agreed between them has a very low probability of being passed, especially with the repeal of the SALT deductions.
Investors are starting to wake up to the idea this Congress was never going to let people have what the President envisioned in a tax reform bill.
The herd, many for the first time, are about to experience what a stock market Ponzi scheme is all about. Investment banks are masters at creating illusions at the top of the economic cycle — and then, suddenly, the rug is pulled out from under them.
Investors have bought all year, on dreams of fiscal policy changes all while the Federal Reserve has been tightening the noose.
The U.S. yield curve continues to flatten with the two-year Treasury yield verses the 10-year Treasury yield spread difference dropping to just 0.68%, the lowest since 2007!
The CME gives a 96.7% probability of another rate hike in December, which means banks quit lending to small businesses and consumers because there is no profit in borrowing from the Fed window and lending it out longer term.
Market Crash Dead Ahead
I am afraid a lot of people are going to get wiped out, like in 1987 when the stock market crashed. In fact, the last time people were anywhere near this bullish on the stock market was in 1987.
Bulls now outnumber Bears by 50% in the investor’s intelligence sentiment poll, the highest spread since 1987, just before the market crashed.
I am just saying… it is crazy stupid to be ignoring these risks.
Focus on FAANG Stocks
The buying this year has largely focused on the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google). These stocks have dominated the major indexes to the point where they are distorting what is happening in the rest of the market.
What do all these companies have in common? They are related in providing social media, internet, or streaming services. They are also the most likely to survive the next recession as interest rates rise.
The financial powers have been driving up oil prices to help rig the economy and inflation and support for stock prices. First, it was talk of another OPEC oil cut, then the hurricanes, and now both Saudi Arabia and Iran appear to be threatening war. In the process, the price of oil has been steadily moving higher since the end of August.
Don’t forget that Saudi Arabia is preparing the public for its “Initial Public Offering”, or IPO, of Aramco, so it is cleaning house. It recognizes technology will announce a major breakthrough in the years ahead that will change our dependence on oil.
The rise in oil prices has helped to spike the stock market in the September/October time period and another missile over Saudi Arabia’s capital may keep the stock market up through year’s end.
However, a “day of reckoning” will come for the oil market when a bank liquidity crisis arrives following an inverted yield curve. When that day arrives, the economy will collapse and with it oil prices and equities.
The divergence between rising stock prices that totally ignore a collapsing U.S. Treasury yield curve that has never been this wide is a risk we should not minimize.
When the yield curve inverts, a bank liquidity crisis will follow as we saw happen in late 2007, leading to the 2008 financial crisis / Great Recession. It’s coming again!
To your wealth,