Economic Blogger Bet His Blog on Economic Failure and Stock Market Crash in Fall of 2014

David Haggith, who sometimes blogs as Knave Dave on The Great Recession Blog, bet his blog that the economy would take a nose-dive in the fall. As fall neared, he doubled down on his bet and said more specifically that the stock market would crash in the fall. 

Some say that market bears are like broken clocks. They constantly predict the market is going to fall. Therefore, just as a stopped clock is still right twice a day, the market bears are going to be right once in awhile so long as they maintain the same mantra. Sooner or later the market falls, and then they claim they told warned you it was coming.

Haggith, however, is not the typical doom and gloomer who constantly predicts the economy is going to fail. For 2013 and most of 2014, he predicted the economy would not fall but would muddle along with the same unimpressive appearance of recovering it has shown since the Great Recession began in 2008. On March 17th of 2014, Haggith posted a small bet: “What I am certain of and willing to bet this blog on is that the economy will not do better this year — so certain, that I will quit writing this blog if I’m wrong on that prediction.” He bet the illusion of recovery would end this year:

“Nothing the Fed does will keep [the economy] upright. Nothing Europe does will supplant the problems that are brewing in Europe in large part because of Russia but also because Europe has not fixed its banking problems that came out the Great Recession. I have read many pundits who are saying the economy will improve in 2014, but there is absolutely nothing going to lift this economy up any longer.”

Haggith based his prediction largely on the Federal Reserve ending its quantitative easing in the fall. The end of The Fed’s quantitative easing, he said, was the removal of artificial life support for the economy. The Fed’s stimulus had created huge inflation in the stock market, which would deflate when all the free money ended. He also based his prediction on 1) problems with Russia and Ukraine, which he said would turn into a sanctions war that would damage Europe and to a lesser extent the U.S. because Russia would not back down on Crimea; 2) problems with China and Japan, where he said China’s economy would continue to settle, creating a dead weight on the global economy, while Abenomics in Japan would fail entirely; and 3) that so many strong headwinds against the economy would create such economic instability that it would be easy for a single factor unknown at that time (such as Ebola now?) to arise out of the blue and knock the rickety economy over.

While most economists and market analysts were talking about economic recovery last spring, Haggith concluded, “It certainly looks like a stormy fall ahead of us as these pressures start to build against the global economy.” Haggith also said that, against such forces, ” minutia like job statistics and corporate profits will have little sway.”

Haggith’s trends also predicted last March that Russia and China would continue to back out of U.S. bonds, having been the primary funder of U.S. government debt for many years and would take the ultimate step they’ve been talking about to establish an international currency that would compete agains the U.S. dollar in oil purchases and other trade. And he stated that Iran would get another extension on its already extended summer deadline in the nuclear talks between Iran and the West. In short, all of the major worries that dampen the economic mood would grow worse by fall.

On September 3rd, while the stock market was soaring to new heights, Haggith began pointing out concerns that we may be in for more than a troubled looking economy in the fall. A stock market crash in the fall, he said, was looking very likely. Tech stocks in particular were looking like they could take the first and worst tumble similar to the dot-com crash in 2001. Currently the Dow and the S&P 500 are both tumbling; but the NASDAQ, which is weighted with high-tech stocks, is falling the worst. 

Haggith noted that the worst stock market crashes in history have happened in the fall, and this market was looking like it was loaded for bear. “With so many volatile forces growing to such magnitude and so much instability in the market’s own positioning, the likelihood of a crash being triggered by a single unpredictable event is also greatly increased. It’s like standing on a pop can where the forces trying to crush the can are so great that a mere touch to the sides of the can will cause it to crush.

“I maintain that bet while nearly everyone else is saying the economy has improved this year, and superficially it appears it has; but I am looking at the teetering state of the market and the growing forces of the winds that whirl around us and saying that those who think, based on statistics that the economy is recovering, are all looking in the wrong direction. They are not paying attention to the foundations of this structure, and they are not looking at the sheer forces that are ready to knock it off its wobbly foundation. The economy is, in fact, precariously weak, and the forces that could knock it over have grown increasingly strong.”

In this particular market, Haggith noted that investment banks are the biggest players; so, if the market crashes, it could also take down some banks.

Finally, on October 1st, Haggith effectively doubled down on his bet by upping the stakes from a more turbulent and failing economy in the fall to a full-on stock market crash that he said would be “near and severe.”

Haggith pointed out numerous forces that were now at odds with the economy and said that, for him, they presented “a picture of the perfect storm on steroids.” At this point, he said that the only thing the second dip of the Great Recession for the U.S. was now waiting for was a sufficient trigger to make all of this slide. While it was not, at that point, a part of economic discussions to any degree, he stated that the ebola epidemic could very well prove to be that trigger. I would not have to be that Ebola became a world pandemic, but simply that fears about it would rise to become the tipping point in fear for the stock markets of this world.

“The point is that vulnerability is extremely high, and the number of potential triggers is growing as fast as the number of serious fractures in the global economy, making the economic collapse more imminent.”

On October 5th, Haggith stated outright, “I predict a stock market crash in 2014.”

“My approach, which led to my predicting to friends and family the crash of 2008, is to look at crumbling fundaments and rapidly growing external pressures that mean the probability of a collapse is rising quickly… My bet is not based on certainty, but based on probabilities that are ganging up against the global economy..”

Haggith’s blog can be found at: http://thegreatrecession.info