<blockquote>'A rather classic feature of speculative peaks is the eagerness of speculative companies to issue equities to the public while the getting is good. On that front, fully 78% of the initial public offerings over the past 6 months are companies that have negative earnings; a percentage that eclipses both the previous record of 76% at the height of the tech bubble in 2000, as well as the second-highest extreme of 65%, which was set, not surprisingly, in April 2007 during the distribution phase that preceded the 2007-2009 market collapse. Likewise, private equity firms have been dumping their ownership stakes at a record pace.
Of course, in equilibrium, somebody has to buy these same shares, and so one has to ask – who was heavily accumulating stock at the very peaks of the equity bubbles of 2000, 2007 and at present? Unfortunately, some of the most aggressive buyers at equity market peaks have been corporations themselves, via debt-financed stock repurchases. In recent weeks, the pace of these repurchases has eclipsed the previous peak that was set (again not surprisingly) at the 2007 market extreme. What’s rather disturbing is how seemingly resistant investors are to an examination of how these episodes have repeatedly ended.
..
..Once investors have shifted toward risk-aversion following extreme valuation and an extended period of overvalued, overbought, overbullish conditions, the markets have not reliably responded even to aggressive Federal Reserve easing. One can verify this by examining the 2000-2002 and 2007-2009 collapses, when the Fed was aggressively easing the whole time.
In short, it’s the deterioration in market internals and other risk-sensitive factors, and emphatically not simply elevated valuations alone, that suggests a much different and far more vulnerable environment here than we’ve observed for the majority of the period since the 2009 low. No forecasts are required here. It is enough to align our investment outlook with the market return/risk profile we identify. That outlook will change as the evidence does.'
- John P. Hussman,
Judging the Future at a Speculative Peak, July 6, 2015</blockquote>
<blockquote>'China’s market is severely oversold, and the odds-on bet should be that it will soon rebound. However, as the example from 1929 shows (and as the 2008 crash has actually shown as well), sometimes major concerted efforts to stop a market from declining can turn out to be utterly in vain. Panicked speculators merely use the bounces to sell into while the getting is still (relatively) good.'
- Acting Man,
China’s “Potent Directors” in Reenactment of 1929 Playbook, July 6, 2015</blockquote>
<blockquote>'Chinese authorities have suspended initial public offerings, restricted bearish bets via stock-index futures, encouraged financial firms to buy shares and ordered state-run companies to maintain holdings in listed units. In perhaps the most dramatic effort to prevent investors from selling, Chinese exchanges allowed at least 1,331 companies to halt trading in their shares.
“It’s absurd,” said Tsutomu Yamada, a market analyst at Kabu.com Securities Co. in Tokyo. “It shows how much of a fake market it is. Those who want to sell will keep wanting to sell. When they start trading again, just think of how much selling there’ll be.”
The government’s market meddling is pushing historical price relationships to extreme levels.'
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China’s Market Rescue Makes Matters Worse, July 8, 2015</blockquote>
Context (Banking Reform - Monetary Reform) - '..The Theory of Money and Credit .. an invaluable guide for ending the business cycles of our own time.'<blockquote>
Advanced '..memorable peers that include 1906, 1929, 1937, 1966, 1972, 2000 and 2007 .. this moment as historic..'A warning from the Bank for International SettlementsThe Crash in China Continues – and is Engulfing Hong Kong, July 8, 2015