Stock Market Update - You Need to Read This One!

Submitted by THE MARKET VIGILANTE

This update is going to be a little longer than normal. There are some very concerning things going on in the markets over the last few days that could be signaling the very beginning of the next financial crisis. If you thought the first one was bad, YOU AIN'T SEEN NOTHING YET!

Before I get into the nitty gritty, let me say that major index's are not looking all that bad. In fact, it looks like another rally was about to form until I spotted a true BLACK SWAN event in the making. Yesterday I said that the Transportation index ($DJT) was the one to watch. Today it closed modestly higher but still hasn't taken out the highs from last week but that is no longer where my focus is going to be as the situation has changed. It's important to watch the major index's and I maintain that both the Transportation index and the Russell (IWM) are two to watch closely but there is something much larger lurking below the surface that is not showing on the major index's yet.

I've been watching the financial's struggling for a while (JPM, BAC, WFC, C, GS, XLF). They[ve been looking toppy for several weeks but today was an especially noticeable day...

The financial sector is saying something is wrong. What it is has not made the headlines yet. I'm going to give it to you here though.

The definition of a BLACK SWAN is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict. Hurricane Harvey looks to fit that bill.

Estimates for Harvey range from 40 to 190 billion. The consensus at this time is that Harvey is expected to be the SECOND COSTLIEST HURRICANE in history second only to Katrina. Please keep in mind that assessments are still coming in. There is a wide margin of error here so it could be a lot more or less than reported. But my gut says it's going to be more...

In additional the financial sector, insurance is taking a big hit (PGR, ALL, KIE). That is not to be unexpected. These events are why we have insurance (note: Sadly insurance often doesn't cover floods).

Where the PROBLEM LIES is in REINSURANCE SECTOR.

This chart brings back memories of AIG, who re-insured mortgage backed securities and then could not follow through when the housing crisis hit.

You see, since 2008 the markets haven't really done anything to reign in the systemic risk that created a market contagion which sparked the financial collapse. Folks on MAIN STREET still think it was the housing bubble that caused it. It wasn't. It was only the CATALYST. The housing bubble may have been the spark that caused the fire, but it was the risk in the markets that threw gasoline on the problem. Bubbles pop - that's just the nature of things. But the market's couldn't recover without central bank intervention (i.e. the FED).

Most folks ASSUME that Dodd/Frank resolved the systemic risk in the markets. Unfortunately it DID NOT. In the end, the US taxpayers ultimately REWARDED the TOO BIG TO FAIL banks instead of breaking them up and those banks literally doubled down on the risk that they took back in 2007.

FAST FORWARD TO TODAY...

So we have a market were even Goldman Sachs is warning of a bubble, where SYSTEMIC RISK is greater than ever, and we have a true BLACK SWAN event that no one could see coming until it was too late.

Add to this, the fact that we have hurricane IRMA that has already leveled islands in the Caribbean and stands to cause billions in damage to the East coast in the form of storm surge. I guess you would call that the coup de grace.

And we're not even done with hurricane season...

Today, we are in an EVERYTHING BUBBLE. Could this be the catalyst that sets off a global economic collapse? I don't know. But I can tell you that it's important to keep an eye on the reinsurance sector along with the financial sector. They may know something that the mainstream media has yet to catch wind of.

Certainly those charts are sending ominous warning sings. And I'm putting that mildly. Those are the ones to watch in the coming days.

Act Accordingly,

The Market Vigilante

p.s.

Another BLACK SWAN in the making???