The Bearish/Bullish Conundrum
Anthony Wile

The Drudge Report yesterday carried two bearish articles about stocks. I'll comment on both of them – generally anyway – because they bear directly on the Wall Street Party now taking place – and on which we've commented extensively.

One is linked to an article entitled "Billionaires Dumping Stocks, Economist Knows Why," the other to a Wall Street Journal article entitled, "Bearish Calls to End all Bearish Calls."

The first article carried a Newsmax byline and focused on the opinions of Robert Wiedemer, "an esteemed economist and author of the New York Times best-selling book Aftershock."

Wiedemar, we're told, forecast the puncturing of the 2006 housing bubble and is now prediciting, worst case, a 90 percent market decline.

Here's an excerpt from the Newsmax article:

In the interview for his latest blockbuster Aftershock, Wiedemer says the 90% drop in the stock market is "a worst-case scenario," and the host quickly challenged this claim. Wiedemer calmly laid out a clear explanation of why a large drop of some sort is a virtual certainty.

It starts with the reckless strategy of the Federal Reserve to print a massive amount of money out of thin air in an attempt to stimulate the economy. "These funds haven't made it into the markets and the economy yet. But it is a mathematical certainty that once the dam breaks, and this money passes through the reserves and hits the markets, inflation will surge," said Wiedemer.

"Once you hit 10% inflation, 10-year Treasury bonds lose about half their value. And by 20%, any value is all but gone. Interest rates will increase dramatically at this point, and that will cause real estate values to collapse. And the stock market will collapse as a consequence of these other problems."

And this is where Wiedemer explains why Buffett, Paulson, and Soros could be dumping U.S. stocks: "Companies will be spending more money on borrowing costs than business expansion costs. That means lower profit margins, lower dividends, and less hiring. Plus, more layoffs." No investors, let alone billionaires, will want to own stocks with falling profit margins and shrinking dividends.

Here's an excerpt from the Wall Street Journal article quoting United-ICAP chief market technician Walter Zimmerman.

Zimmerman is quite precise in his forecasts, explaining that the Dow Industrials "could still rally another 4% or so first, to a high around 17150, before the great reversal begins." Here's more:

The Bearish Call to End All Bearish Calls ... In what may be the bearish call to end all bearish calls, one technician believes 2014 will be the year of "major reversals," with the Dow Jones Industrial Average expected to start a two-year decline that could eventually take it down more than 70% to below 5000.

For those who thought 2008 was the worst bear market they will ever see, just wait. "Based on our longer-term time cycles the present stock market rally must be considered the bubble to end all bubbles," Mr. Zimmerman wrote in a note to clients.

He doesn't believe the Dow Industrials will hit a long-term cycle low until 2016, somewhere in the 5770 to 4650 range. The Dow hasn't seen those levels, which are 65% to 72% below current prices, since late-1995 to mid-1996.

What will it take to prove Mr. Zimmerman wrong? He said a "decisive monthly close above 17150.25″ for the Dow in 2014, and above 1924 for the S&P 500 and 4537 for the Nasdaq, would be needed to derail the bearish scenarios.

Despite the precision of his forecasts, we can see Zimmerman hedging in his last statement and indeed he should. It is impossible to time the market precisely and technical analysis is not by any means infallible.

Personally, I agree – and have stated – that the markets are considerably, fantastically overbought and that whatever happens after this "Wall Street Party" is going to be a sort of catastrophe.

But one could also argue it is foolishness to bet decisively against the top banking elites evidently organizing this latest, last blowout. We've analyzed what's been set in place and it doesn't seem to us that those behind this ploy are ready to declare it over, certainly not yet.

The groundwork has been laid, but there is much yet to reap.

• Janet Yellen, the Fed's uber-dove, has not yet taken office. England's uber-dove Mark Carney has only just begun his term at the top. Together these formidable easy-money mavens could print tidal waves of money to lubricate Anglosphere equity markets. This is part of a larger coordination of easy money policies affecting Asia, as well.
  
  
• The JOBS act allows private firms to advertise opportunities to a global audience, even though purchasers have to be accredited investors. The massive PR effect of the JOBS Act has barely been felt.
  
  
• The IPO pipeline is still jammed with warmist and "green" corporate product still waiting to be funded.
  
  
• Gold has been hammered down by the same elite banking forces that are forcing markets higher. The pressures on gold via dollar appreciation show no signs of easing any time soon.
  
  
• Fracking continues unabated, providing a further "feel good" story about energy resources and the prospect of stable energy prices going forward.

What could slow the "party" or end it would be significantly higher interest rates; but central banks coordinated by the Bank for International Settlements have proven to be effective thus far at controlling dollar-reserve rates despite the torrents of dollars that have been printed over the past half-decade.

And it is not as if central banks have stinted on the money printing.

While the Fed itself has admitted to something like US$16 trillion distributed post-crisis, mostly in short-term loans (probably not paid back), the actual total is a good deal higher.

Close to five years ago, we estimated that central banks would probably print about US$100 trillion to try to prop up the failing system. We figure the total thus far is somewhere around US$50 trillion, though it could be higher.

The point is that despite these unimaginable sums, price inflation has certainly not reached hyper levels, though to be sure, the amount of price inflation is considerably understated.

There is no overriding certainty that central banks will lose control of their monetary base in the next month or even in the next year.

And if they begin to, there are always stopgap measures such as the US "plunge protection team" which can brazenly – and illegally – go into the market with freshly printed central bank money to stabilize it as necessary, at least in the short term.

At some point there will be a breakdown. Real market forces will reassert themselves. But "when" is not easy to discern. I personally know people who are continually trying to sell this market short and are surrendering over and over because the timing is not right.

The IPO market is revving up; top central banking doves are in place; the JOBS Act is ready to pour its promotions on receptive investors around the world; central banks are coordinating money printing in ways never seen before; gold remains down.

It is sensible to predict the demise of this empyrean equity fairy tale. But those elite bankers controlling the central banking money printing have different ideas. To sell THEM short is not a good idea, as they have proven to be both brutal and determined over generations and continue to have formidable weaponry that allows them to pursue their goals.

One can make the bearish case with ease in this illogical market. But logic may have little to do with it currently. And no one can say with any precision when a final crash may come.

For now, the punch bowl sits squarely in the center of the table. There may be a good deal of volatility associated with this "party" but I don't see any sign that someone intends to confiscate the booze as of yet. And market forces can probably be staved off for a longer time.

When I see something different, I'll be the first to report it. But I don't ... not now, anyway. Maybe not for quite a while.

Anthony Wile is an active investor, business strategist and consultant, financial markets commentator, publisher and author. Having lived and worked in several leading financial centers around the world, Wile has established an international network of asset managers, banks, family offices, financial analysts, institutional investors and securities firms. Wile is Chairman and CEO of Toronto-based High Alert Capital Partners Inc., which provides direct financing and strategic consulting services to early-stage, privately-held growth companies.

Anthony is a pioneer of the alternative media, having founded two major websites that have presented many of the top free-market thinkers working today. Many serious commentators have adopted his insights regarding society's Dominant Social Themes and the Internet Reformation; his personal writing and editorials have been reprinted at numerous sites and read by millions. His insights and perspectives have helped shape the conversation on the Internet when it comes to analysis of the world today and how its sociopolitical and economic trends are evolving.

Wile's contributions continue to expand. Now chief editor of The High Alert Trends & Sector Report as well as TheDailyBell.com, Wile has recently written two new books, Freedom Investing (2013) that brings together his sociopolitical insights with economic analysis and The Best of Anthony Wile: Select Editorials and Interviews (2013), a compilation of material first published at TheDailyBell.com from 2010 – 2013. In 2003, Wile published his first book, The Liberation of Flockhead, under the pseudonym Yang. The fourth edition of Wile's well-received book, High Alert, originally released in the summer of 2007, was published in early 2013 to a favorable reception.

Congressman Ron Paul said, "High Alert should be read by everyone who wishes to educate themselves about the dangers fiat money poses to American liberty and prosperity. I wish I could get every member of Congress to read this book." Wile has assisted with the completion of over a dozen additional free-market oriented books, working as a collaborative editor to several leading free-market thinkers.

As founder and chief editor of well-known, free-market oriented Internet sites such as Free-Market News Network (FMNN) and The Daily Bell, Anthony leveraged more than 20 years of financial and business experience working with growth-oriented companies in a variety of sectors. In aggregate, these free-market educational websites have reached tens of millions of viewers and helped define the cutting edge of alternative news publishing.

In 2008, Wile founded a Swiss-based publishing firm and began publishing The Daily Bell, a leading alternative news website that publishes daily news analysis, editorials and exclusive interviews conducted by Wile with leading opinion makers such as Steve Forbes, Jim Rogers, Peter Schiff and Marc Faber. While living and working in Switzerland in 2009, Wile founded the Liechtenstein-based Foundation for the Advancement of Free-Market Thinking (FAFMT), of which he served as Executive Director until March 2013.

Anthony was born in Bridgewater, Nova Scotia, Canada, in 1968. Wile graduated from Saint Mary's University (SMU) with a degree in business in 1991 and worked in the Canadian investment industry with Scotia McLeod (Bank of Nova Scotia) and Nesbitt Burns (Bank of Montreal). In 1994 Anthony Wile was made a Fellow of the Canadian Securities Institute, which is a designation awarded to financial services professionals who attain advanced education and experience in the Canadian securities industry.

Anthony has visited every state in the US and every province and territory in Canada. Additionally, he has lived in a number of countries on several continents over the past three decades and has visited or done business in more than 60 countries. He currently resides in Toronto, Canada with his wife, Hillary, and their three children, Gabrielle, Jesse and Julian.

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