Reading the Tea Leaves: A Hard Rain and Trouble Seen Ahead (Possible Economic Collapse)

 

Richard Russell is a well respected publisher of an investment newsletter known as the Dow Theory Letters which cover domestic and foreign securities and commodities markets.  He’s one of these guys who everyone in the investment industry listens to and he let loose with some commentary today that has made a number of people stop and listen.  Anyone who follows the markets closely generally views them as a discounting mechanism in the sense that the consensus about future economic prospects are priced in or reflected in the values of various securities and commodities.  Stated more simply, the markets serve as tea leaves for some and are a harbinger of the future economic situation.  Here’s what Russell has to say about what he’s reading in the market:

The fact is that I’ve been seeing deterioration in the stock market ever since early-April, and this in the face of improving business news…. Clearly something is wrong….. If I read the stock market correctly, it’s telling me that there is a surprise ahead. And that surprise will be a reversal to the downside for the economy, plus a collection of other troubles ahead.

Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him.”

By year end, you won’t recognize America? A hard rain? Russell is saying that the stock market tea leaves are telling him that a complete economic collapse is about to beset us.  That’s a pretty dramatic statement and given his stature, gives many some pause.

If a collapse comes, the trigger will most certainly be debt defaults of some country. Even the recent $ 1.0 trillion bailout of the PIIGS of the EU has not sated investors in their concerns about unpaid debts dragging under the banks.  This was evidenced today by Germany suspending naked short selling of bank shares on its stock exchange. Our nation did a similar move during the 2008 crisis and like 2008, interbank lending is drying up in the EU.  This could be the start of another credit crunch that could take down several more financial institutions.  This time fiat paper currencies, some governments and the entire global financial system might go down with them.  There’s been a lot of money wasted attempting to bail out a broken system and right now, everyone is fresh out of money and there’s not enough to fix the problem.  From here, market forces will address the issue.

None of this is very comforting, particularly if you’ve got a window seat on the train that’s heading off a cliff.  The first thing most of us do is look in the rear view mirror and assume that the immediate future is going to be like the recent past.  So we don’t anticipate that the train will fly off the cliff because it didn’t do so in the recent past.  That maxim may not hold true in these times and perhaps the wisest thing to do is the exit the train before it goes over the cliff.  One thing is for certain, those who aren’t tied to the economic system in a significant way will be unscathed by this.  I’m thinking of people like the Amish and others who are self reliant, grow their own food, make their own clothes, build their own houses and etc. thereby minimizing their reliance on the financial  system.  In a way, they live like much of the country lived a few generations ago.  It’s not an entirely bad idea to learn how to grow and can your own vegetables, sew and make your own clothes and do whatever you can to “get off the train”.  If you do all of that and things happen to go along as they have, then you’ve not hurt yourself, but if the prognosis of the immediate future of Russell and others is true, there’s a risk in being unprepared.

 

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