Why Hedge Fund closings will peak next year - stock market crash 2017

2015 saw more hedge funds close than at any time since the crash of 2007-2009. This has been a growing trend for the past several years.  I expect this year to top last year and for next year to set a new all-time peak in hedge fund closings.

I get it….

• stock / stock market fundamentals no longer matter — they haven’t for several years;
  • S&P500 price to revenue is at all time highs (as of early August 2016);
  • S&P500 cyclically adjusted P/E is at an extreme level (28) far above its long term mean (16.5) and only topped by the all-time high seen in the tech bubble;
  • S&P500 earnings have never fallen this much without the economy being in / entering recession;
• macroeconomic data no longer matter;
  • as of July, we’ve seen the longest stretch of declines in factory orders without the economy being in recession;
  • banks have never tightened two consecutive quarters without causing a recession — we’re now at 4 consecutive quarters;
• stock/ stock market technicals no longer matter;
  • most price-driven technical trading systems are being rendered useless courtesy of stop-hunting algorithms;

Fear not.  To the hedgies that survive the next year, you’ll have a lot less competition in 2018 and onwards as a global market crash washes out a lot of players in 2017.  The cost of repeatedly stopping stock market crashes (and crash initiations) has been a steady reduction in monetary policy ammunition levels as well as central bank credibility. These resources are finite. Let me suggest this because each  time a central bank myopic policy intrusion manages to stop a crash it buys a shorter holiday. The time between each central bank driven crash stop and new crash warning has fallen according to this exponential decay curve. (It is now at zero –>> if a warning is stopped by a major new central bank sugar bomb another crash warning immediately starts. )

FYI, the Greedometers warned a month ago that a drop was going to initiate within a week  unless more central bank sugar bombs were dropped. Result: within days we got helicopter money threats from the BoJ and even the Fed, plus more policy threats from the ECB and BoE.  We were once again poised to initiate a crash last week.  Result: more sugar bombs from Japan and England.  Let’s see how long this sugar rush lasts.

The Greedometers provide a means of quantifying how perilous the current environment is to the S&P500 and the direction it will likely take in the coming weeks, months, and year.  They have developed a new use: predicting when at least one of the top 5 central banks will need to threaten a new policy measure.

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