Is The Global Economy Following The 'Classic Crash Formula?'

Stock market experts are asking whether the global economy is following the 'Classic Crash Formula.'
Stock market experts are asking whether the global economy is following the 'Classic Crash Formula.' (Reuters)

After $11 trillion in global stock market wealth was wiped out in the third quarter of this year—the end of the biblical Shemitah—the markets have rallied to new highs.

As this has happened, financial analysts and prophecy experts have asked two questions, "Are we out of the woods yet?" or "Is this the calm before the storm?"

Jay Peroni, the chief investment officer at Faith-Based Investor and author of Blood Moons on Wall Street, says these are important questions on the minds of many investors. Despite a strong market recovery in October, Peroni says he's seeing "very troubling signs for the global economy and stock market ahead."

Some of these signs, according to Peroni, include:

  • U.S. third quarter gross domestic product rose at just 1.5 percent, far below the 3.9 percent growth rate during the second quarter.
  • U.S. exports have fallen over 11 percent this year—lining up with prior recessions.
  • Manufacturing activity, a good indicator of overall financial health, has steadily declined in the U.S. and China—the largest economies in the world.
  • Nations throughout the world are keeping their countries propped up solely through central bank stimulus—keeping interest rates artificially low and printing more money to stimulate economic growth.
  • The International Monetary Fund has warned the world economy could crash if central banks do not continue their low interest rate policies.
  • Tensions with Russia and Syria could erupt into a much more global war, disrupting world stability.
  • The refugee crisis in Europe could make an already fragile economic crisis much worse.

At a time when many people believe the markets have normalized and the "worst is behind us," Peroni says this couldn't be further from the truth. Normally, during a bull market rally, investors will see a spike in the number of shares traded. In October, trading volume fell. Meanwhile, the number of advancing stocks versus declining stocks dropped, and the total number of advancing stocks as a group also declined—a bearish sign for the markets ahead. Further, earning expectations are the worst on record since the Great Recession.

Adding further stress to the U.S., President Obama is expected to sign into law a new budget on Monday that would increase the national debt to $20 trillion by the time he leaves office in 2017—double the amount when he took the oath in 2009.

In light of these signs, Peroni says the current market looks like it could be "following the classic crash formula" of a stock market drop followed by a quick recovery and then comes the "real collapse."

"Basically, what you tend to see whenever a crash has happened, if you go back to the last three major crashes in 1987, 2000 and 2007-08, is the market will have a pretty big drop—anywhere from 10-20 percent—and then you see a quick recovery ... followed by the third leg which is a significant drop even worse than the first drop."

Peroni says current market conditions and the global economy seem to be following the same pattern of prior Shemitahs that marked the beginning of market crashes that took place over the course of at least several months.

"It really does because it has been following the seven-year Shemitah pattern," Peroni says. "Even though August didn't give us a major crash—it gave us more of a correction—all the things that are developing are pretty significant. Around the world, we're seeing everything from China's stock market crashing to countries being in recessions and depressions.

"The other big development is the whole crisis with refugees. You have all these developments—Syria and Russian tensions. All these things are very much lining up with what we saw in the last Shemitah cycle where the markets started to unravel. Sometimes it's slowly and sometimes it's quickly. This one is unraveling a little more slowly, but there is a lot of strength behind it, and it could very quickly pick up steam."

Rabbi Jonathan Cahn, author of the New York Times best-selling books The Harbinger and The Mystery of the Shemitah, says America and the world "won't be out of the woods without repentance and a change of course."

"Any nation that turns away and turns against the ways of God is in danger of judgment," Cahn says. "America has turned away and is now turning increasingly against the ways of God and the foundation upon which it was founded."

The Hebrew word Shemitah can be translated to mean "the Fall." It was a previous year of the Shemitah—1973—that defined one of the greatest moments in America's moral and spiritual fall from God, the year it legalized the killing of the unborn, Cahn says. During this year's Shemitah, another milestone in America's fall from God was crossed as the nation, in effect, struck down the biblical order of marriage ordained by God, Cahn says.

"We have now reached the point when the state is finding guilty, punishing and even throwing in jail those who will not participate in what God calls sin," Cahn says. "To those to whom much is given, much is required. America has been given much, and much will be required. How much more America could do to invoke the judgment of God is hard to imagine. No, we are not out of the woods.

"Add to the equation the fact that at the same moment of our departure from God, we are departing from Israel, even taking action which the leaders of Israel say is putting the Jewish state in danger—(it's) a most dangerous combination."

Mark Biltz, founder of El Shaddai Ministries and author of Blood Moons: Decoding Imminent Heavenly Signs, says the world is "definitely not out of the woods, but entering the woods."

"The first year of a new seven-year cycle is often when judgment is poured out from a prophetic point of view," Biltz says. "We are now beyond the tipping point and will see dramatic results by the end of next year."

The last three market crashes, Peroni says, were preceded by initial drops of 10-15 percent, followed by sharp rebounds like the one that occurred in October. Based on history, Peroni says there are "still high odds that we could see another big crash very soon."

"Now is the time to have a game plan for a tough market," Peroni says. "It could be the calm before the storm. Make sure you own solid investments that can stand up through tough times."

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