As Q3 Ends the Big Crash Begins

By John Galt
September 30, 2011 – 05:15 ET


On Tuesday’s radio show I outlined how the coming stock market crash will drastically impact the U.S. and world economies and the severity of what October’s nightmare might mean to the average citizen in the U.S.

Needless to say, I did not paint a picture of unicorns flying overhead spewing rainbows and Skittles out of their rears.

The stock markets are now technically set up for a 25-35% decline in October, most of which I think will occur in a one week period, possibly in just a 2 day move,  probably starting after the 6th. The attempts to paint the tape and put a smiley face on the S&P 500 and DJIA were abject failures this week and the underlying economic conditions on Main Street, not the crap you’re hearing about in mega-macro martini infused Bubblevision land are deteriorating rapidly. Need a little more proof? Here’s another Main Street headline for you:

Friendly’s Ice Cream Corp. May File Chapter 11

I was never a fan of their lunches and dinners but their sundaes rocked as this story is more of an indication that the middle class is once again pulling back hard in anticipation of difficult economic times. This week has seen a downward revision by Edmunds of auto sales this year and another indication that despite a 30K plus decrease in unemployment claims filed, Christmas retail hiring will only mitigate that number for about sixty days as the problems in Europe and our financial system spread fear into the economy causing retail sales for the holidays to likely disappoint.

The S&P 500 has a disturbing chart pattern similar to October of 2008 falling into place and the 3 month chart of this year is both daunting and a warning, in my opinion:

(click to enlarge)


There will be many idiots on television the next two weeks attempting to coax the average person into “buying the dip” and of course the “bargain of a lifetime” nonsense. Considering the world economic situation and instability indicated by the financials in our country, I would advise that everyone who believes that this might be the bottom review what happened to the same people who claimed the same thing in 1931 and 1907.  Markets, especially in crash mode, can eradicate wealth and “bottoms” faster than you can enter a stop order and in this high frequency trading environment, I offer one horrifying reminder from my Tuesday program:

If the stock markets reach their daily closing downside limits and close before 4 p.m. Eastern time on any given day next month, does anyone really think there will not be a run on the banks both physically and electronically?

The panic that would ensue from a 20% plus one day decline and cessation of trading before the close would pale compare to how our media and the masses would react. The first nature of humans is self-preservation and that includes what little personal fortunes they might have. It will start with the money markets and rapidly spread to ATM machines and branches within hours of the news breaking as the herd begins to freak out.

Prepare accordingly.

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