Royal Bank of Scotland to investors: 'Sell everything'

You two are ridiculous.

When I was posting when the rip down was going on last month, I was talking to myself. I respond to just about anyone who addresses me, though.

The S&P is down 7 1/2 percent from its highs. We are in likely in a bear market.

You get rallies in bear markets. In fact, you get furious rallies in bear markets because short-covering rallies can be violent. They also take out the resistance below if / when the bear returns. It's why when the stock market ripped down in August / September and you got a similar type bear market rally in October, it didn't mean happy days were hear again -- as you saw in January and February.

I'd also point out that many times when you get nasty moves down in stocks, you get these bear market rallies after an initial pullback. It happened in 1929 and 1987. I am not predicting that -- although I am sure LTL will be back trying to represent me that way some day.

Stocks are overvalued. They are more overvalued today than they were at the beginning of the year, because even with the pullback in stock prices (something you both must be missing -- stocks are in negative territory for the year and well off their highs!), earnings have declined even more -- and forward earnings estimates are down yet even more.

Not that it matters. All stocks have traded on for several years is central bank liquidity -- not on fundamentals. So really all that is propping up the stock market (and a lot of asset classes) are central banks.

And what stocks do, with depend on what those central banks do.

IF central banks can figure out a way to pump more liquidity into the markets, stocks can go higher before they get crushed. As I pointed out in many posts. Their problem, as I see it, is that they are at the end of their ropes. They are pushing on strings. Even if they come in with bazookas now -- that game can't go on much longer. The stock market peaked out when the Fed ended QE3. The BOJ and ECB picked up some of the slack with their own asset purchases, which created carry trades with their currencies that propped up stocks -- even if they haven't gone up. When the Fed started talking about raising rates, though -- even just talk about it -- our stock market started to buckle.

My personal bet is that the S&P 500 will see 1600 before it sees 2200. Not as a trade. I don't trade that way. But as an investor, everything I would have in equities is sitting in cash waiting for what I think is going to be a terrific buying opportunity -- with the S&P likely getting down as low as 1000 to 1500.

 

That is fine. And I didn't tell you to sell anything in your portfolio. In fact, I take pains to tell people NOT to try to time markets if they have very long time horizons. It's a losers game.

But here is the thing. I think we are a HUGE risk of that calamitous drop you are afraid of. These are not normal times. Our markets are fundamentally out of whack because of reckless monetary policy. And there is going to have to be a massive deleveraging at SOME point, which is going to play havoc on a lot of things (not just an overvalued stock market).

The move in stocks the last week or so has been almost entirely stock buybacks resuming after a quiet period. Even today, the advance decline numbers were not what a bull would want to see. It has disaster written all over it -- as it has for the last several years that this has been going on. I think we are near the end of the game, but even if I am wrong, and it can go on another year, let's say, there is no good ending to a bubble being driven by zero interest rates and negative interest rates and central banks loading up their balance sheets with overpriced bonds that drain liquidity from those markets. Companies have borrowed boatloads of money cheaply (thanks to the Federal Reserve). Their earnings this quarter were even worse than they have been. It was a miserable quarter. And the economic data has been miserable -- our economy has been in a sinkhole. We didn't really get a significant recovery off of 2008/2009 and we are now very likely in recession or nearing recession. Which would make sense, because economic cycles happen regardless of central banks trying to rig the economy.

Stocks would be getting killed in that kind of environment, but they have been doing buybacks to keep boosting the stock prices. This has accounted for a great deal of the stock market gains the last 5 years. And it's artificial.

It's just more debt and leverage all over corporate balance sheets. ... to make the oncoming credit crisis (and there is one coming) that much worse. I am sorry I don't have a time frame for you. The world doesn't work that way. Mike Burry (and many others) saw a debt / credit crisis brewing in 2005 or 2006. Just because reckless monetary policy was able to keep the mess propped up for a few more years doesn't mean what they were seeing wasn't there before the house of cards fell. In 2008 / 2009 we needed a massive delveraging and the accompanying pain to pay the price for what they had created. They didn't let it happen and came back with even bigger doses of what had caused the bubbles in the first place. We are nearing the end of it.

In this case, I am not nearly as prescient. The debt levels that are permeating way more areas now because of the reckless actions of the Fed and BOJ and PBOC and ECB are scary. The oncoming defaults and the overall mess right now is fairly easy to see. A lot of people who kept themselves intentionally blind and leveraged themselves to partake in the "free money" for a few years are now waking up to it. The smart money is already well positioned. Even if they can't give you an exact time frame the way you think I should be able to.

It doesn't matter if the stock market climbs right now. I am very certain that at some point, stocks will be back to at least 2012 levels. I'd guess we get down below 1800 within a month or two (cue LTL in 2 months telling me what I guaranteed!). Before we probably get another bear market rally in there. Whether I am right or wrong about the short-term and what happens (and that is a guess), I do know that at some point (and I am guessing relatively soon -- I was saying heading into this year, before the blow off in January, that I couldn't see it going on much past the summer) stocks are going to be significantly lower than where they are today.

 

That has zero to do with anything I have posted. As usual from you.

Stocks have been a fantastic investment over the long term. I suspect they will continue to be a fantastic investment over the long term.

My point is that the run up in the last 4, 5 years has been artificial. It has been induced by liquidity from central banks -- using reckless and unprecedented tools such as suppressing interest rates (now into zero territory in many places) and buying assets -- crazy amounts of buying up debt themselves. That makes it very cheap to borrow and debt levels in all kinds of areas have run up as a resultr. That has created severe misallocations of capital, including a run up in stock prices. That is what this thread is focused on. Fundamentals have been crummy -- there is no fundamental reason why stocks have risen over the time period you posted about, because the U.S. economy hasn't been good and earnings didn't justify a run up. It was all speculation -- banks and institutions and companies borrowing cheaply and playing with the money like it is a casino. It was largely stock buybacks and companies borrowing to support dividends to induce savers who have been fucked sideways by the Federal Reserve. It doesn't end there. Auto loans have shot through the roof, for example. Student loan debt is off the charts. Indebted sovereigns have made their debt problems even worse. EVENTUALLY (and I think we are relatively close and we certainly have been seeing it) there is going to be a crack (it will just take one area) and there is going to be a credit crisis. And there will be forced deleveraging. With or without that, though, the stock market itself is only as good as the central banks ability to keep keeping to cheap to borrow to keep pumping it up. And they are at the end of their ropes. Which is why the stock market stopped going up and started to come down.

If I am right, stocks will be much cheaper than they are today (and got to last year) and there is going to be a great buying opportunity. I see it as a buying opportunity, for what it is worth, because historically, stocks have been a great way to invest if you have a LONG time horizon.

But ignore what I post and do your dumbass "SELL MOTHERFUCKERS" thing cause you are the pithiest guy in the world who spends his life on a message board.