Epocalypse Now: The Economic Apocalypse is HereBy David Haggith Just as I stated that the rate at which the market goes up now is a measurement of pure euphoria, by the same token,how quickly that euphoria fallsoff indicatesjust how far downthe downside is. If you have ever floated in the ocean and felt yourself unexpectedlydrop way down with the water, you know that means a huge wave is coming up right behind you. Particularly watch out, I warned, if the euphoria cools quickly because, after more than a year of concern over what would happen when stimulus ended, there is a lot of relief the bulls would like to celebrate. If the euphoria cools quickly, its likely to mean things are ready to go down hard and fast. While I said in my last article, Their party could last for days or end tomorrow, I actually anticipated the euphoric rise in the stock market would last several days, given how long investors feared what might happen when the Fed raised rates and how relieved theyd be that the sky didnt fall that day and how persistent they have been in taking bad news as good news. That the market turned so quickly on itself isa strong indicationof how different theEpocalypse will be compared toprevious Fed tightenings following previous recessions where the revelry over recovery lasted longer. For such a long recovery out of such a deep hole, the celebration sure was short! During many Fed tightenings, the stock market and overall economy improved for years afterward because the Fed stimulus had actually brought a temporary form of economic recovery. Rarely if ever has the mood turned dark so fast after the Fed officially announced that the recovery is sound and the life support can be removed. So, even whileI knew theglobal economic news was bleak, I didnt expect the market bulls to snuff out theirown ecstasy the day after the ball began. Ican only imagine how muchthe permabulls wanted to goon air that next morning torevel in their We told you sos about how the economy would do just fine after a Fed rate hike. Only they could not. They woke up to face reality. As the new week begins, everyone is nervously guessing whichway the market will continue. That also tells you the market is starting to realizethat bad news is only bad news from this point forward. Federal Reserve Chair, Janet Yellen, lookedvisibly happy whenshe was able to make the announcement of her lifetime the claim that things looked optimistic enough for the Feds recovery that the Fed could finally end its economic aid.Never before has a Fed chairman looked less dour and more ready to crack open the champagnefor the big Fed Christmas party. Hermarket minionsgleefullyrewarded their queenwith am immediate rise of 200 points in the Dow Jones Industrial Average during the remainsof the day after she delivered her glad yule tidings. The market, however, decided to crash the streetparty along Wall Street the next morning by dropping253 points farther than it had risen duringthe celebration. The real gravity of those numbers was proven when the fall picked up speed for a367-point plungethe next day, bringing the stock market down over 600 points before it closedat the end of last week. And, so, the Feds rate hike madethis the most volatile December for the Dow since the economic crisis of 2008. Moreover, since 1990 Decembers have been the least volatile month of the year. So, something is different this time. Something is very deeply and disturbingly different if you compare this seventy-degree day of Winter Solstice in Washington to any other. This isnt your typical placid and merry December. Fridays sell-off was the sharpest one-day plungesince September, and trading volume has been higher than usual in December as investors jockeyed to position themselves for the Feds anticipate rate rise. This is the feel of something big beginning to creep. The sharp sell-off in stocks across all sectors of the Dow in the heaviest trading of the year came because of news that oil prices were still falling and fear over what this means for banks that are heavily involved infinancing highly leveraged oil companies. For the past several years, such news would have caused the stock market to rise because it would mean another year of struggle in which the Fed would be hard at work trying to re-inflate the economy by giving free money to its banksters. All ten sectors of the SP 500 also closed innegative territory Friday. For the Dow, it was the third weekly decline in four weeks. Reality, in other words, hit the face like a glass of ice water the morning after the party. For the market bulls, it was off to work with a hangover. The sobering fact that bank stocks were the first to decline was a surprise to many (including myself).Common wisdom throughout the market expected bank stocks to rise the fastestwhen the Fed raised rates because the rise in interest would actuallyimprovebank profits since so many of their adjustable-rate loans and credit cards are pegged to interest rates that are strongly affected by the Feds target. Banks will be collecting more in interest but they will be slow to start paying more interest on deposits, so were expected to benefit. Yet, financialswent down because banks ensnared in a commodities massacre look edgy. Even high-tech stocks, which have been supporting the narrowly traded market fell last week with the King of Stocks, Apple, down 10% for the month! That means Apple, leader of the Dow, is already in correction territory. It looks like therell be no Christmas rally for stocks this year because theFederal Reserveturned off the free money just in time for Christmas. The global market went into a similar slide two weeks ago when the European Central Bank dida littlequantitative wheezing that didnt satisfythe demands of its junkies. Likewise with the Quantitative Queen, Japan, where five rounds of QE have now failed to jack up the economy any longer than the QE lasted. QE is so unsuccessful that Japanese income and household spending are in decline again, even with the money pumps still running. The Epocalypse is everywhere. Some might say that stocks have only fallen because of a badly timed bout of bad news, which just happened to hit as the Fed raised rates; but that has been my point throughout this year of predicting the global economy and US stock market would both crash in the fall of 2015. This is the same bad news that has been happening all year the same bad news that I said wouldonly become more intense by the timethe Fed finally did raise rates, so that it would be making its transition with the worst possible timing and be totally blind to that because the Fed doesnt look at the right indicators. The news trend all yearhas been tilting from moderately bad toward terrible. My predictions of the Epocalypse have been based on the loss of theloft effect from the Yellen put at a time when economic down pressures would become intense. We went back to reality on December 16. The market will now drop whenbad economic news happens, and there is a lot of bad economic news happening all around the globe right now, so the kinds of drops in the market we saw last week will keep happening because there is littleupside to bad news anymore and little chance of that trend changing anytime soon. What market investors need to realize is that the critical importanceof the Feds rate hike is not the meager quarter-of-a-percent rise in its interest target; it is the fact that the move off of the zero bound puts us back into the real world where bad news is now only bad news because bad news can no longer stave off the Feds first rate increase. Thats done. So, gone are the drunkenyearsof dissipation whenbad news came to meanthat speculators could anticipate a vault fullof new free money from the Fed.No longer will the market get a riserise out of the hope of more stimulus.This isan environmentmany market investors and advisors have never experienced in their neophytecareers. The market right now is huntingfor news, looking for some clue of which way to go in this new environment, and it will go the direction the news takes it. What everyone is or at least should be starting to understand is that when thisstock market crashes the market has no airbags. There will be wounded. Look at those events and ask yourself, Arent thosethe conditions under which central banks normally begin stimulus, not bring it to a close? That ought to tell you a lot about where the Feds tightening is going to go, and the Fed cannot simply reversecourse if things go from bad to worse because to do so would clearly be to admit itsrecovery was an immediate failure. To do so would also require overcoming huge inertia the Fed must feel toward starting back down a course that it had such a hard time getting out of and which it so rejoiced to bring to an end. To do so, will also require overcoming the Feds denial, which causes it to really believeits program was a big success. To do so would also require Yellen to lose face for having just pronounced the economy sound like Ben Bernanke stated in 2008 whenhe saw no recession in sight. One thing after another will now unravel as the most massive asset bubble in history unwinds globally, and the heaviest mountain of debt ever known to humankind crushes down upon it. The market is onlystarting to realize that there will be no Fed support in the short term if things do go bad.They still have no idea that an economic apocalypse is dawning. How bad will it be?One of the most reliable leading indicators of a market crash has historically beena sharp rise in the difference between the yields of reasonably safe investment-grade bonds and junk bonds. An article today in Bloomberg asks the same question about how bad a stock market crash right now might be: How bad? In the three months before August 1929, the high-yield spread spiked by 47 basis points, and in the three months before May 1937, it shot up 85 basis points. In the past six weeks of 2015, it has spiked by about 120 basis points. Investors are just starting to see in the meager light through their fuzzy hangovers, but still have little idea how bad this crash is going to be. So, there is a lot of fear to set in when denial breaks. Denial and a nearly religious belief in political-economic ideas of both parties, however, arehard to break. So, many will think Im foolish to name something like this the Epocalypse and to claim that it hasnow begun. And the stock market, of course, will attempt rallies, maybe even a brief one for Christmas, as it loves to rally then anyway. If it does, it is nothing but a spurt of optimism cheered on by holiday feelings, the hope of getting some of that party spirit back that was shorted after two hours, and the lack of much economic newsto go on today, leaving the market scouting around for a sense of direction in this fuzzy new world they are unaccustomed to. It probably wont even have enough holding power to last the week. If it doesnt rally at this generally upbeat time of year, which is usually a great time for the stock market, it really is going down fast. I am willing to take thechance of people saying such things because I am fully certain proof that the US stock market crashbegan the day after December 16 and was triggered by the Feds change of course on December 16 will quickly become a fact of history. I think the Epocalypse will even be big enough to break through nearly everyones denial, and critics of this claim will have to stuff their words back in their mouths in a hurry. Even afterward, somewill still argue foolishly for their own ideas about how and why it happened; but they will believe no morein the Feds phony recovery, and they will soon enough be forced to realize the Fed delivered a bear atChristmas. You can read more from David Haggith at The Great Recession Blog END the FED in 2016! BTW: no USURY. 