New Indicator to Predict Future Market Crashes

Michael Markowski  |

Signal could go from yellow to orange due to upcoming central bank meetings.

Last week, I discussed the possible impact of and how it may trigger a market collapse. It is not a coincidence that by conducting research on the crash of 2008, I discovered the market metrics that enabled me to develop the NIRP Crash Indicator. The NIPR Crash Indicator that I developed from conducting research on the crash of 2008 is now at yellow. The four-color signal, which ranged between yellow and orange during February, is projected to revert to orange by March 16, 2016. Orange is the final warning signal before red, which would indicate a crash is imminent or underway. My March 4, 2016 article, “Here’s How Japan’s NIRP Increases Probability of Global Market Crash”, explains why NIRPs and negative interest have increased volatility and have put global markets on the precipice of a crash comparable to that of 2008.

The probability of the indicator going to orange, and possibly to red by the end of March, is because the extremely controversial NIRPs and negative interest rates that are now spreading virally were created by the world’s central banks. Therefore, public statements that will be made by one or more officials of the world’s most influential central banks regarding NIRPs, stimulus, and economies, etc., will likely fuel the crash. The world’s leading central banks — U.S., Federal Reserve Bank (Fed), Bank of Japan (BoJ), and the European Central Bank (ECB) — each have seven remaining policy meetings scheduled through the end of 2016. Since the three have meetings scheduled between March 10 and March 16, 2016, and the officials will be speaking publicly, the probability is high that the volatility of the stock, bond, and currency markets will increase substantially during the second half of the month of March.

It is not a coincidence that by conducting research on the crash of 2008, I discovered the market metrics that enabled me to develop the NIRP Crash Indicator. My passion over the years has been to discover the root causes of anomalies that I have uncovered. Conducting a post mortem on Enron led to my discovery of The EPS Syndrome,a predictive cash-flow based algorithm that I have utilized to make many accurate bankruptcy predictions and catastrophes — including Lehman, Bear Stearns and Merrill Lynch documented in my 2007 Equities Magazine column. For my prior bankruptcy predictions including the Fleming Companies ($18.0 billion in revenue) and Adelphia Communications ($3.6 billion in revenue) please see July 2003 Forbes, “Markowski Goes With the Flow”.

My analysis of the Cypress incident in March of 2013 led me to make many predictions for gold, oil, commodities and the global stock markets. All were extremely accurate through the end of 2015. For example, with the price of oil at $100 per barrel in May of 2013, I accurately predicted it would go to $50 by the end of 2014, and that is precisely what has occurred.

The key to forecasting and making very accurate predictions is to find similar historical events and conduct extensive research on them to find common denominators. Research I conducted on the crash of 2008 enabled me to isolate the metrics to power a crash indicator. A NIRP Crash Indicator algorithm is arguably my most significant discovery since entering the capital markets when I joined Merrill Lynch in 1977. To isolate the metrics and develop the indicator my research was intently focused on the following:

  • In addition to an extreme increase in volatility, 2008’s cast of characters or usual suspects including bonds, credit defaults, currencies, and banks appear to be involved with what is brewing for 2016.

  • The banks that had the starring roles in 2008 have now returned to the main stage. The KBW index has declined by as much as 23% from the start of 2016 and traded to a two-year low during the week of February 8th. Notably, the share prices of most of the world’s money-center banks were recently trading below tangible book value.

The NIRP Crash Indicator utilizes metrics from the currency, sovereign debt and stock markets to enable an investor to maximize the amount of proceeds from their liquidations of securities, thus maximizing amounts available to invest into safe-haven U.S. Treasuries and other sovereign debt securities. Since the indicator will not turn red until a crash is imminent, it can provide an investor with the flexibility to manage their timing and minimize their tax liabilities — assuming the markets rally significantly prior to a crash commencing. To gain a better understanding of why government bonds (also known as sovereign debt) are the only “fail-safe” solutions that an investor can utilize to protect their liquid assets, please see my May 2009 “Safe Haven” white paper.

The four-signal (green, yellow, orange and red) NIRP Crash Indicator only monitors for crashes that could potentially result in a decline of 20% or more over a short period of time — with red being the signal to indicate a crash being imminent or underway The NIRP indicator is to be utilized only during periods of heightened volatility and is not to be relied upon for gradual corrections. Additionally, the market could potentially reach new all-time highs before the reading turns red. Finally, the probability of a crash would diminish altogether should an extremely positive U.S. or global economic event occur. The NIRP Crash Indicator is freely available at www.dynastywealth.com.

Black Swan Pre-Crash Investing Strategy

For those preferring to liquidate as soon as possible, instead of their having to monitor the NIRP Crash Indicator, my recommendation is that they employ a “black swan” investing strategy. Nassim Nicholas Taleb devised the strategy of investing 90% of one’s liquid assets in government securities and the remaining amount in extremely high-risk/high-return investments. Taleb’s book (Taleb, N.N. 2007. The Black Swan: The Impact of the Highly Improbable. Random House) spent 36 weeks on The New York Times Best Sellers list. In his book, Taleb, who had a distinguished career as a trader, contended that banks and trading firms are especially vulnerable to hazardous “Black Swan” events that expose their very defective models. (Please see CNBC interview with Taleb.)

Taleb’s philosophy is very simple. Invest under the assumption that it is inevitable that there will be a “Black Swan” or one-off events that will devastate a market. Should such an event occur, the result would be that the shares of the companies, even those in the S&P 500 — arguably the world’s highest quality stock index — would get clobbered. Thus, it is ludicrous for an investor to believe that they have little risk because they are fully diversified. Diversification does not protect an investor during periods of extreme volatility or against unforeseen mega-events. Taleb made huge profits from the crash of 1987, the bursting of the NASDAQ dot-com bubble in 2000, and from the crash of 2008.

The research philosophy of the Dynasty Wealth LLC, the “boutique” research firm that I founded perfectly positions an investor with the high-risk and high-return investment opportunities required to effectuate a “Black Swan” investing strategy. Dynasty Wealth evolved from research that I had conducted on the ongoing transformation from the industrial economy to the digital economy. My research findings enabled me to conclude that the period from 2015 through 2020 would be the best ever for investors to generate dynasty wealth returns of 10- to 100-times from utilizing a truly diversified portfolio.

Currently Dynasty Wealth has seven companies that have the potential to multiply in price by 10- to 100-times by 2020. Dynasty Wealth is projecting that it will have 60 companies by the end of 2016 and 300 by 2019. Because the majority of these companies will be first-movers and/or disruptors, the businesses that they are building are immune to a U.S. or global recession. (UBER is a good example of a disruptor business model that would be immune to a market crash. A $10,000 investment into UBER in 2010 was valued for $105 million in 2015.) Four-minute educational videos about first-movers and disruptors below explain why those companies meeting the qualifications of either have the potential to get to billion dollar valuations very quickly:

Video: Digital disruptor companies have the potential to get $10 billion valuations quickly:

Video: Why “First Mover” companies are poised to receive instant $1 billion valuations:

Investing in emerging public and private companies recommended by Dynasty Wealth is much less risky than investing in companies recommended by other analysts, brokers, etc., because of the following:

  • Cash flow expertise. My expertise of analyzing and understanding how a business produces operating cash flow enables me to screen the business models of each company before Dynasty Wealth recommends them. Each of the seven companies recommended by Dynasty Wealth has business models that will have excellent cash-flow metrics when they get to scale.
  • Experience with high-risk companies. My experience at finding and funding early-stage or start-up companies increases the probability of success. In 1986, I was the banker who launched the IPO that funded Senior Service, a visionary start-up company. The company has since changed its name to Almost Family and had grown to approximately $500 million in revenue in 2015.
  • Portfolio-building expertise. Again, based on my cash flow expertise, I am able to quickly assess companies that have outstanding cash flow models. My February 2010 Equities Magazine article entitled “Feeding Frenzy Under Way for Computer Services and Networking Industries” is a prime example of my expertise in identifying companies for inclusion in a portfolio that can outperform the market. As of February 1, 2016, an equally weighted portfolio consisting of the 12 companies in the table below, and that I recommended in my article, increased by 130% — as compared to a 74% return by investing into the S&P 500 over the six year period. In the article I pointed out that the dozen companies would all make attractive “acquisition candidates”. Two of the companies had been acquired for cash by the end of 2010. (Please see SmartMoney.com “The Best Stock Picker on Wall Street?”.)

6 Year Performance of February 2010: Recommendations @ February 1, 2016

Company

Symbol

Price February 2010

Price February 2016

% Change

RCM Technologies, Inc.

RCMT

2.43

4.97

104.5%

Intelligroup, Inc. *

ITIG

2.97

4.65

91%

Ciber, Inc.

CBR

3.46

3.21

-7%

Virtusa Corp.

VRTU

9.13

45.08

394%

TechTeam Global, Inc.*

TEAM

6.82

8.35

22%

Computer Sciences Corp.**

CSC

55.34

112.62

103%

DST Systems, Inc.

DST

42.33

107.26

153%

CGI Group, Inc.

GIB

12.70

43.31

241%

Jack Henry & Associates, Inc.

JKHY

23.50

81.34

246%

NetGear, Inc.

NTGR

20.89

38.18

87%

NetScout Systems, Inc.

NTCT

12.68

20.94

65%

CACI International, Inc.

CACI

47.38

81.59

72%

* Acquired in 2010

** Adjusted for 2015 Split, Spinoff and Special $10.50 Dividend

Dynasty Wealth monitors and produces ongoing research for a minimum of three years on every company that it recommends.

It is critically important that shareholders of a hyper-growth company, having the potential to multiply by 10- to 100-times within 5 years, have continual updates. Otherwise, shareholders might prematurely take a profit.

Access to Dynasty Wealth’s four public companies and detailed research reports on them are available free at www.dynastywealth.com. Three private companies being recommended by Dynasty Wealth are exclusively available to subscribers. Private company recommendations and the research reports on them are a premium offering because they typically have significantly more upside potential than a public company. For example, a $10,000 investment in one of Dynasty Wealth’s three private companies has the potential to generate a return of $200,000 by 2017 and $10 million by 2020. This private company has developed and launched a beta version of its very disruptive social media and search software that could enable it to grow by 5,000% to 10,000% by the end of 2016 or 2017 as compared to the end of 2015, regardless of what happens to the U.S. and global economies.

Because of the BoJ instituting a NIRP on January 29, 2016, I have revised my 2013 predictions for global equities and for gold (most recently reiterated and quoted in my early December 2015 interview with Opportunist Magazine). I am now predicting that the U.S. indices, including the Dow Jones 30 industrials, the S&P 500, and the indices for the stock markets of developed countries will not eclipse their 2015 all-time highs until 2020 at the earliest. I am also now predicting that the price of an ounce of gold will hit an all-time high by as early as within 2016 and as late as 2017. My May 2013 predictions for the price of gold and the global stock markets were very accurate as of the end of 2015. Gold hit new consecutive annual lows and the U.S. and the global stock indices hit consecutive new all-time highs in 2013, 2014, and 2015 as I had predicted.

Finally, I am also removing my “Buy” recommendations for the seven companies that I recommended in the table below in my August 26, 2015, “Major U.S. Indices Will Go to All-Time Highs in 2016: Current Correction Underway will be Short-Lived” article published by Equities.com in August 2015. I continue to believe that because all seven are well positioned to benefit from the ongoing transition from the industrial to the digital economy, they will outperform the S&P 500 through at least 2020.

(For my views on why the seven are well positioned to benefit from the digital economy please see my December 2015 interview and article by Opportunist Magazine entitled, “Crowdfunding: Predicted to Become the Largest Digital Industry in the World”. However, based on my 40 years of experience with the markets, I know that when a stock market crashes or corrects the share prices of all companies will experience significant declines. Upon a crash or a correction occurring, my plan will be to again recommend all of seven companies in the table below.

Share Price Performance of Companies Recommended on August 21, 2015;

Recommendations Removed March 3, 2016

Company

Price 8-21-2015

Price 3-3-2016

High Since Recommended

Facebook (FB)

$86.06

$109.58

$117.59*

Google (GOOG)

612.48

712.42

789.87*

Amazon (AMZN)

494.47

577.49

694.44*

LinkedIn (LNKD)

179.50

117.03

257.04

Priceline (PCLN)

1,216.92

1,303.04

1,473.99*

Walt Disney (DIS)

98.84

98.82

122.08

Netflix (NFLX)

103.96

97.93

133.27*

*All-time high

Research reports and commentary about NIRPs and the world economy by Dynasty Wealth’s analysts and economist will also be posted on the Website as they are produced. The green, yellow, orange and red Indicator levels for the NIRP Crash Indicator are posted on www.dynastywealth.com after the market close on each trading day. Finally, links to news and videos about NIRPs and negative interest rates produced by third parties will also be posted at dynastywealth.com.

My predictions are frequently ahead of the curve. The September 2007 predictions in my column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. That is the reason I advised readers to get out a second time in my January 2008 column entitled, “Brokerages and the Sub-Prime Crash”. My third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. For my article “The Carnage for Financials Isn’t Over” I reiterated that share prices for the two remaining public companies continued to be too high. By the end of November 2008 share prices of both Goldman and Morgan Stanley had fallen by an additional 60% and 70%, respectively — new all-time lows.

This writing addresses aspects shaping global markets and thus our collective futures: I bring into the open (i) why NIRPs can be catastrophic for the financial markets, (ii) why the probability of a crash occurring in March has increased, and (iii) how a Black-Swan investing strategy will enable an investor to be fully protected. My next two reports — available by the end of this week — will address the cash hoarding that has begun, and why I believe that a crash is unavoidable if NIRPs and negative interest rates are not eliminated. In the interim, I strongly recommend that you visit www.dynastywealth.com as we are adding new information regularly, including, but not limited to, links to videos and daily articles coming out about the very controversial NIRPs.

About Dynasty Wealth Investing

Dynasty Wealth Investing is an exclusive investing community, which was co-founded by Michael Markowski. He is predicting that the decade ending 2020 will be recorded by historians as having been the best ever for investors to build dynasty wealth of 10-to-100 times investment from a diversified portfolio. The 6 minute video below about Dynasty Wealth provides details about Dynasty Wealth’s investment philosophy and its analysts. It also covers the industries and companies which have the potential to increase by 100% per year and by 10 to 100 times in value within five years.


Additional videos about producing dynasty wealth are available at http://www.dynastywealth.com/video.php. In-depth information about Michael Markowski and his past and current predictions is available at www.michaelmarkowski.net.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 143.66 3.47 2.48 24,722,396 Trade
GOOGL Alphabet Inc. 1,043.41 17.76 1.73 2,182,317 Trade
RCMT RCM Technologies Inc. 3.55 -0.12 -3.27 16,377 Trade
CBR Ciber Inc. n/a n/a n/a 0
JKHY Jack Henry & Associates Inc. 128.40 -0.35 -0.27 442,134 Trade
PCLN BKNG Calfrac Well Services Ltd. n/a n/a n/a n/a
GIB CGI Group Inc. 62.11 0.27 0.44 133,895 Trade
VRTU Virtusa Corporation 39.83 1.76 4.62 268,318 Trade
NTCT NetScout Systems Inc. 25.09 -0.41 -1.61 675,288 Trade
LNKD LinkedIn Corporation Class A n/a n/a n/a 0 Trade
CACI CACI International Inc. Class A 152.13 -0.80 -0.52 289,597 Trade
NFLX Netflix Inc. 270.94 8.14 3.10 10,350,114 Trade
NTGR NETGEAR Inc. 49.01 0.35 0.72 388,405 Trade
AMZN Amazon.com Inc. 1,551.48 30.57 2.01 6,523,387 Trade
DIS The Walt Disney Company 109.45 -1.17 -1.06 6,682,316 Trade

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