The Next Crash And Its Significance

In the October 17 post ("Danger Signs In The Stock Market, Financial System And Economy") I wrote the following:

Of further concern is whether, and when, the above-mentioned problems might reach a point at which another (financial system) crash occurs.  I am particularly concerned about the prospects of the next crash for a number of reasons, of which I will elaborate upon shortly.

"The next crash" is a topic of great importance.  In the October 13, 2010 post ("Comments On The Next Crash") I stated:

In the past I have commented that I view a future crash as certain.  Like that of 2008, such a crash would include not only equity markets but many others as well.

also:

...this next crash should be accorded great importance as it is likely to be severe, i.e. outsized by historical standards.

I also mentioned similar aspects in point #9 of "10 'Front and Center' Problem Areas That Pose a Threat to the Economy."  Also from point #9:

Have we, as a nation, taken appropriate steps to avoid further financial and economic "crashes?" I would argue we have not, unfortunately.

Perhaps the main reason this next crash should be of paramount importance is its capability to usher in severe economic weakness, i.e. what would widely be considered a Depression.  History has shown that stock market (and overall financial market crashes) often precede periods of pronounced economic weakness.

For many reasons, a Depression at this point would present inordinate challenges and hardships.

The economy needs a certain level of momentum, a level which it must maintain in order to function properly.  If it doesn't maintain such a level, many different ill-effects are felt, not only from a strict economic sense but from a societal one as well.  Some of these societal impacts were mentioned in a February 15 2010 post titled "America's Economic Future."

Due to the enormity and complexity of our economic problems, there is a high likelihood that we would go into what I have termed a "Super Depression."  As defined in my June 23, 2009 post ("The Concept Of A "Super Depression"), a Super Depression is :

...a severe Depression embedded with highly complex, difficult-to-solve problems.

While no one likes to contemplate an economic future rife with adversity, the resolution of our current economic problems should be feared and respected.  Absent proper economic policy, one shouldn't underestimate the downside of the resolution of our economic problems, especially given both apparent and unapparent evidence.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1281.06 as this post is written

Are We Going Into A Depression?

Please note - some might find this post disturbing

I would like to provide an overall update as to my thoughts on our current economic situation.

First, however, a brief recap of what others think of our current economic situation (details of which can be found under the "Economic Forecasts" and "Stock Market" categories on the right-hand side of the home page):

-Practically all economists, federal officials, companies and investment professionals are confident that we have "seen the worst" of the economic damage, and are heading toward a gradual recovery

-Only a small handful of economists think even a "double-dip" recession (further economic weakness before a lasting recovery) is possible. None that I have seen are forecasting an economic dropoff that would lead into a Depression.

-Corporate Earnings growth is projected to be robust through (at least) 2010

-The stock market (as seen by the S&P500) is above 1000 - after having a very strong multi-month rally

Given the above, how likely is renewed economic weakness and how strong could it possibly be? What is the potential downside?

My analysis and overall thoughts on our economic condition, and likely future outcome, has not changed. Although I am an optimistic person by nature, my overall analysis of our current economic condition does not engender optimism. I do not believe that we have even come close to having seen "the bottom" as far as economic weakness is concerned. Furthermore, I see our future economic situation as one that holds great peril and rather severe potential downside. I do believe we are heading into what will inarguably be classified as a Depression.

The reasons for my conclusions are many. In general, we face an array of complex and deeply embedded problems. For those who want a more specific background of my thoughts on this matter, I would recommend reading the articles I have written (which can be found listed under the Directory Of Articles) and the various blog posts on this site.

In particular, I would like to call attention to my four-part Depression series that started with the June 22 post.

Since I wrote the article "A S&P500 Target of 100?" discussed in the last post of that Depression series I have used the S&P500 price of 100 as a type of potential endpost, and have been thinking of what type of probabilities to assign to its likelihood of occurring in the near future (a two-year window since it was written). Most people would think that such a price target is simply impossible. However, since I wrote the article in early March, the probabilities I have assigned to it have increased, unfortunately.

Our current and future economic conditions are of great complexity. As I have previously stated, I do not want further economic weakness to occur and I do hope that my analysis and conclusions regarding our economic course are completely incorrect. My overall desire is for us to attain what would be considered Sustainable Prosperity.

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For those who haven't yet read this site's disclaimer, please see the "Special Note"


SPX at 1020.62 as this post is written

The Concept of a "Super Depression"

The Concept of a “Super Depression”
Tuesday, June 23rd, 2009

Please note; some will find this post disturbing

I would like to call your attention to the article titled “A S&P500 Target of 100?”

With the S&P500 currently at 893.72, I am sure that many will find the mere notion of the 100 level to be highly unlikely if not outlandish. However, I would point out that our current economic situation is exceedingly complex, and that any further economic weakness could play out in an unpredictable fashion.

As indicated in the article, if the S&P500 were to fall to the 100 level the accompanying economic situation would likely be dreadful and chaotic. It could very well represent the biggest challenge our nation has ever encountered.

Such a situation, if it were to occur, could be categorized as a “Super Depression,” which I would define as a severe Depression embedded with highly complex, difficult-to-solve problems.

In future posts, I will likely further comment on the prospects of a Depression and/or ”Super Depression.” From my perspective, on an “all things considered” basis, both are (most unfortunately) possibilities.

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For those who haven’t yet read this site’s disclaimer, please see the “Special Note”



SPX at 893.31 as this post is written