Why the Dow will Fall by 750 Points in October

Stock markets sent mixed signals yesterday…

The Shanghai Composite closed up 0.86%.

Yet, the Japanese Nikkei closed lower 2.25%.

The ASX 200 climbed 1.5% higher. That was good to observe. Even better was seeing the most recent Resource Speculator stock recommendation jumping 40%. If you wish to know more, click here.

In other marketplaces, Europe had another violent session. And the Dow Jones recovered somewhat from sharp early losses, closing 0.48% lower.

Stock markets are living up to their commitment of volatility.

As investors, this action doesn’t make our job easy. And unfortunately, the tough times have only just started.

Greece’s nightmare just started

As you’re likely aware, Syriza received the Greek election final Sunday. It was by no means an excellent win for the political party.

45% of the country didn’t bother turning up to the polling booths. A signal which hope is gone. And further evidence that politicians act in their own individual interests — not their country’s.

Looking forward, after signing a good euro 85 billion bailout bundle in July, the first Greek ‘bail-out review’ is set for mid-October. According to the Guardian:

‘”The new government has no time to squander on trials and tests. The third memorandum [bailout accord] leaves no space,” warned the actual leftwing daily Efimerida Twn Syntaktwn.

‘”Within three months, 56.4% of the measures, or 127 actions, have to be taken, of which Fifteen have to be enforced in October.”

‘In the coming weeks the hugely sensitive issues of pensions cuts, tax increases on farmers, recapitalisation associated with banks, privatisation of state property and liberalisation of closed markets must all be tackled.

‘The steps, expected to spell further difficulty for the long-suffering middle class, have to be enacted before international inspectors conduct a review of the economy – key not only to unlocking dinar 3bn in badly needed help, but also to addressing the crucial issue of debt relief.‘?

Greek Prime Minister Alexis Tsipras has a tough road ahead.

The other major question dangling over the country is the banking system.?The European Central Bank (ECB) calculates that euro 25 billion will be needed to recapitalise the banks.

This isn’t going to be easy… Athens banks are suffering from a significant lack of deposits. Also they are riddled with bad loans on their own balance sheets.

The clock is ticking.?As it stands, this is likely to turn out an absolute disaster…

Ashoka Mody, the IMF’s former bail-out chief, stated?‘achieving the programme objectives will require a miracle’.

No doubt, Tsipras’ team will need a herculean effort to pass the ambitious reforms the following month. Already, Europe?has cautioned that there’s no second opportunity for Athens — a Grexit will ensue if commitments aren’t achieved.

Nevertheless, Syriza had been employed to do a job — a job that means more austerity. Although, ironically, Syriza came to power in the first place using the anti-austerity policy. And many of its party members remain opposed to strict austerity. Meaning that there’s risk that Syriza won’t get the job done in time. And that the world may be looking at the Grexit in October.

Although I’ve long argued that a Grexit is inevitable, I expect these reforms should pass.

Of course, only time will tell…

Now, with market volatility as well as uncertainty assured on the Ancient greek front, let’s turn to issues arising in the US.

The US government going to shut down…again

Do you remember the US debt ceiling crisis in 2013?

Looking back, the US government endured a 16-day long shutdown which year. It ended having a bill that extended your debt limit until February 2014. Our elected representatives then approved the most recent expansion, which expired this past 03.

Unsurprisingly the can was kicked down the road. That is, until now.

Officially, the federal government will run out of money in mid-November in order to early December.

There are now developing concerns that Capitol Hill will shut down on 1 Oct — the same date it closed down in 2013.

Again, US government must raise the debt limit that currently stands at around US$18.One trillion. A figure which should blow out to US$21.7 trillion by the end of this year.

This is just another financial debt problem that many US politicians don’t take seriously enough — they seem to believe that money grows upon trees.

It doesn’t.

And no doubt, while arguing whether money will grow on trees, an american government shutdown seems likely. This is, of course, extremely bad management.

With the shutdown looming, many ‘leaders’ worry that buyer sentiment could change rapidly. Epically if such episodes turn out to be routine.

But perhaps, they’ve currently become routine…

Governments will never change

Every federal government is dead broke.

At the moment, they’ll do whatever it takes to keep the lights on as well as party running. This includes visiting you asking for help (we.e. more taxes) and borrowing more money (i.e. issuing bonds). And it will continue until the public says sufficient is enough.

Indeed, eventually these lighting will turn off…

And the world will see a sovereign financial debt crisis like never before. Governments may outright default or delay capital payments on their relationship commitments. Meaning you’ll possibly lose everything or — within the best case scenario — you will be unable to access your funds for years to come and end up taking major capital losses on your bond portfolio.

Fortunately we have a year or two to organize before this happens.

That said, with the combination of Greece’s nightmare and a Government shut down next month, the smart punters will start to wake up for this financial crisis.

This minority will start considering: ‘why am I investing in debt? It can make absolutely no sense’.

But because no one wants a crash in the bond marketplace, the majority will panic and sell stocks.

Get ready for another stock exchange correction

Studying the charts, the actual Dow Jones fell about 750 points during the October The year 2013 US government shutdown. However, factoring in Greece’s issues, the modification could well exceed this number next month.

Especially considering the uncertainty surrounding the All of us Fed interest rate decision. I’ve long said that the US Fed would look to raise rates for the first time this or next month. Having a second raise in Dec. In this case, you have another month to prepare for the first All of us Fed rate hike.

And what this means is one thing: expect another roller coaster ride in the stock market next month. It’s more likely that we’re going to see a deeper correction in the stock market before the crash in the relationship market.

Over at Resource Speculator, I’ve been guiding readers through these turbulent times. They now understand that this stock exchange correction isn’t the real turmoil ahead — it’s the sovereign debt crisis. If you want survive and prosper during these times, click here.

Regards,

Jason Stevenson

Resources Expert, Resource Speculator

From the Port Phillip Publishing Library

Special Statement: The End of Australia Vern Gowdie’s new book is called The End of Australia: The Real Story Behind Australia’s Economic Collapse and What You Can do to Survive It. We’re mailing free copies of this guide to anyone who requests 1 online. It does not make for pleasant reading. But the idea is that you’ll be safer (and much wealthier) in 10 years’ time through receiving a more sober as well as realistic analysis of what’s going on…what happens next…and what you ought to be doing about it now… (more)