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Stock Market Crash 2011

 

 

The 2011 Crash 

Greedometer 7300

The next time the Greedometer® climbed through 6500rpm was January 2011. It reached redline (7000) in February, and peaked at 7300 in April 2011 (matching the reading seen in pre-crash June 2007).  A similar sized economic collapse (and stock market crash) to the 2007-09 Great Recession was likely to unfold. Interestingly, while the Greedometer was providing a clear warning, the S&P500 had only managed to climb to a level that remained 300 points below the previous stock market peak (1270 vs 1570) — reinforcing that the Greedometer gauge is not directly influenced by stock market levels, but that it represents risk associated with stock market levels. Not long after the S&P500 flirted with a 20% drop from the April 2011 peak, the economic collapse was stopped by the Fed’s Operation Twist announcement in September, and the ECB’s LTRO program.  Once again, underlying economic imbalances were not addressed, but time was bought.

Greedometer 4 (2011)

The mini Greedometer presented a tighter focus. Again, months of advance warning was provided, and insight was provided into S&P500 interim inflection points (a week after it occurred).

mg11 2011

Notice the reaction by the mini Greedometer to the Fed changing its policy stance from one of expected rate hikes to one where rates would remain low for an extended period. That announcement in August 2011 prevented the baseline from being seen where indicated in August –and stopped the SPX with a mere 20% drop. This Fed announcement plus Operation Twist and ECB LTRO warped the sequence slower and truncated it.

In April & May 2011 I sent emails to every major financial news organization. That email said the S&P500 and global equity markets would initiate a crash in July. I justified the call by providing details of how the Greedometer and mini Greedometer work. No one would touch the story. But a year later CNN Money lunched their fear and greed index with a very similar looking gauge to what the Greedometer gauge looked like in the email I sent (to them and everyone else). Similar end points of Fear and Greed.  Alas CNN’s implementation had 7 inputs (with 3 shared with the Greedometer’s 8 inputs). FYI, I  initiated a USPTO trademark for Greedometer in 2011 and had two trademarks issued in 2012.  Here’s the 1/4 page WSJ ad I ran in early July 2011 — run because no one would touch the story. It should be clear from the mini Greedometer sequence that the Dow and S&P500 would have continued plummeting violently in 2011.  The Dow would likely have fallen all the way to the 5000s in December 2011.

July 2011 ad

I was correct that QE3 would not solve the problem (debt!), but wrong in that the Fed would indeed blink and initiate a QE3 program. Back in 2011, the top six global central banks carried $12T in QE assets. They now carry $24T –and are trying to initiate an unwinding of those QE assets. I’m not at all sure it can be done without crashing global asset markets. If it is doable, it will take decades to unwind $24T. Decades with a disinflationary wind prevailing.