​NIRP Crash Indicator Signal Now at “Red, All Out Crash Underway” Reading

Michael Markowski  |

The significant increase in the volatility of the currency markets overnight has resulted in the NIRP Crash Indicator going from the yellow cautionary signal to its red, all out crash underway signal for the first time ever. The cause of the signal going to Red was a spike in the volatility the world’s currency, bond and equities markets upon the U.K.’s citizens voting to leave the European Union on June 24, 2016. On the news the U.K.’s pound sterling fell by 10% to a 30 year low versus U.S. Dollar.

The following metrics which powered the crash of 2008 are now confirming that a full scale crash that will take the world’s equities markets to new lows is now underway. Over the last 24 hours:

  • Yen has advanced sharply versus all of the world’s currencies and up more than 4% versus the U.S. dollar.
  • U.S. dollar has advanced significantly versus all of the world’s currencies other than the yen.
  • U.S. dollar has advanced by more than 3% versus the euro.
  • Yield on U.S. 10 year Treasury bond dropping by more than 26 basis points to below 1.5%.

The currency volatility that the world has experienced over the last 24 hours and the volatility that the world’s equities markets will experience on Friday June 24, will result in a redistribution of capital throughout the world’s equities and debt markets. It also increases the probability that a world and U.S. recession will soon begin. For these reasons my recommendation is for investors to adopt a black swan investing strategy and invest a majority of their liquid assets into sovereign debt securities.

Based on my continuing research coverage of the spreading negative rates and the devastating effect that they can have on the global banking system the probability is high that the major global stock indices including the S&P 500 will now begin a significant decline to new multi-year lows by 2018 at the latest. My April 11, 2016 article entitled, "Negative Rates Could Send S&P 500 to 925 If Not Eliminated" provides the rationale as to why the S&P 500 could potentially decline by more than 50% from its May 2015 high. I highly recommend my 9 minute 34 second video interview by SCN's Jane King entitled "Why Negative Rates could send the S&P 500 to 925" be viewed.

The NIRP Crash Indicator was developed from research conducted on the Crash of 2008, which revealed the metrics that could have been used to predict the Crash of 2008 and its V-shaped reversal off of the March 2009 bottom. See my Seeking Alpha "Japan's NIRP Increases Probability of Global Market Crash"March 4, 2016 report. The metrics are now powering the indicator. Information about the NIRP Crash Indicator and the daily updating of its four signals (Red: Full-Crash; Orange: Pre-Crash; Yellow: Caution; Green: All-Clear) is available at www.dynastywealth.com.

For the NIPR Crash indicator to change or be downgraded from the crash imminent Orange or a crash Red reading to Yellow requires that the exchange rate between the yen and dollar be stable for an extended period of time or that the dollar advance significantly or spike up versus the yen. An increase in the indicator's reading from Yellow to Orange requires a steady advance or a significant one day advance for the yen versus the dollar. The indicator’s going from a Yellow to a Red reading requires a significant spike in the yen versus the dollar and a decline of three percent or more for the S&P 500.

The primary metric that I discovered that now powers the NIRP Crash Indicator are sudden increases in volatility for the exchange rates of the yen versus the dollar and other currencies. The significant changes in the yen-dollar exchange rate accurately predicted the crash of 2008, and the recent declines of the markets to multi-year lows in August of 2015 and February 2016. In my April 11, 2016 "Yen Volatility Is Leading Indicator For Market Sell-Offs" SA post and my video interview below entitled "Yen Volatility Causes Market Crashes", I provide further details on the phenomenon of the yen being a leading indicator of market crashes.

The only logical conclusion I could come up with for yen volatility or significant appreciation versus the dollar being a leading indicator of crashes is because the Japanese yen and the U.S. dollar are the world's two largest single country reserve currencies. For this reason, the yen is the best default safe-haven currency utilized by investors during any U.S. and global economic and market crises. When crises unfold, historically the U.S. dollar - by far the world's most liquid and largest safe-haven currency - is susceptible to dramatic declines until the storm has passed.

Savvy investors know that the U.S. is, unquestionably, considered the world's leading economy and markets. They know that upon a crash of the U.S. stock market, the initial knee-jerk reaction would be a simultaneous crash of the U.S. dollar versus the world's second leading single-nation currency. The yen is currently the default-hedge currency. Even though the euro, arguably, ranks with the U.S. dollar as the world's top reserve currency, it is not the preferred hedge against the greenback. The euro is shared by 19 of the European Union's member countries that have wide-ranging social and economic policies, and political persuasions. For this reason, and also because Japan is considered to be one of the most fiscally conservative countries on the planet, the default currency is the yen. The U.S. dollar does not experience extended crashes versus the Swiss franc and the British pound during times of crises because each of the underlying countries has economies much smaller than Japan's.

The impetus for the development of the NIRP Crash Indicator was from the research conducted on negative rates and the extreme volatility that they are causing for the capital markets. See "Japan's NIRP Increases Probability of Global Market Crash", March 4, 2016

The following are my other reports that I have produced on the rapidly spreading negative interest rates:

My following reports and articles covering the NRIP Crash Indicator and the yen are also recommended:

For an overview and access to links to the subjects that I cover, including the digital economy, negative rates, perfect shorts, and micro-cap stocks please go to www.michaelmarkowski.net. Free access to the NIRP Crash Indicator is available at www.dynastywealth.com.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily 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.


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