The Jaws of Death (aka Megaphone Formation)

dow chart

Technical analysts recognize the megaphone formation seen in the chart on your left, but Dr. Robert McHugh has renamed it the Jaws of Death, because when these major bear market formations occur they very often bring with them major wars. In his book The Coming Economic Ice Age, Dr. McHugh pointed out how major stock market declines and economic turmoil led to major wars:

• The Revolutionary War of 1776 followed the Credit Crisis recession that hit Great Britain in 1772.
• The War of 1812 followed a three-year recession in the U.S. from 1807 to 1810 during Jefferson’s Presidency.
• The Mexican-American War of 1846 to 1948 came on the heels of the economic depression of 1836 to 1843.
• The American Civil War followed the Panic of 1857.
• The Spanish American War of 1898 was preceded by the Panic of 1893.
• World War I, which lasted from 1917 to 1918, followed the depression of 1913 to 1914, during which the U.S. economy fell 26%.
• World War II, during which the U.S. was involved from 1941 to 1945, followed the Great Depression of the 1930s.
• The Korean War arrived in 1950 and lasted through 1953; it was preceded by the 1949 recession.
• The Vietnam War started in 1953 and lasted until 1975; that war was preceded by the recession earlier in 1953.
• The Cold War escalated after the severe recession of 1980 to 1982, which was then followed up with a military buildup the likes of which the world has never seen and with unaccounted-for biological disease weapons like Ebola and silos holding thousands of armed nuclear bombs capable of wiping out humankind many times over!
• Gulf War I with Iraq followed the devastating stock market crash of 1987 and 1989.
• Gulf War II and the War on Terror followed the stock market crash and recession of 2000 through 2002.
• The Afghan War was contemporaneous with the War on Terror in Afghanistan.

Dr. McHugh’s book describes the market and economic aspects of these events, and he concludes that “major wars do tend to break out within a few years of economic recessions and depressions with few exceptions.”

The Current Picture – Wars and Rumors of Wars!

What is particularly troublesome about the current situation is that this megaphone or Jaws of Death formation is the largest one on record, thanks to endless manipulation of markets by the establishment. What that means is that when this system breaks down, the economic devastation is likely to be the greatest in history, and quite possibly a third world war could follow. As Dr. McHugh points out, war can mean shortages; gold confiscation; price inflation for necessities such as food, oil, water, medicines; and price depreciation for real estate. The point is, we live in a very, very uncertain world in which it is impossible to prepare for all eventualities. That is why I believe more than ever, taking care of your spiritual needs is at least as important as looking after your physical needs. For Christians there is no need to despair. There is only the hope of an eternal future of bliss, devoid of the troubles we will all experience in our lives while living within these four dimensions of time and space.

Turning to the current time, can there be any doubt but that the U.S. and its NATO alliances are preparing for more and more wars faster and faster, especially as the underpinning of the U.S. dollar—oil—declines dramatically? In fact it was just yesterday that Goldman Sachs was suggesting oil could be on its way to $20. Can you imagine how much less demand for the world’s reserve currency there will be over time with an oil price that is one-fifth as great as it was at its peak? And today we see that Iran is now selling oil to China at the cheapest price ever, even as Iran is also reportedly sending troops to Syria to assist Russia’s efforts to support the existing government of Syria. It would seem to me that the drums of war are already beating louder and louder even during these early days of what is at least a bear market decline of 30%. Or something much worse than that, as Dr. McHugh, Prechter, and Gordon are predicting.

As of this Friday morning, Dr. McHugh wrote the following:

“Again, let’s focus on what is coming. I ran about five scenarios of possible wave mappings for the short-term path for stocks, what I see coming over the next six weeks, and show those charts in tonight’s newsletter on pages 22 through 25, updated for Thursday’s price action. Our conclusion is that the odds are high that the stock market is about to start a massive stock market crash. Not gentle like we saw from August 14th through the 24th. The mapping on page 21 and 22 suggests a stock market massacre is possible.

“If this is the case, it probably means we are about to see an incredibly fearful event or series of fearful events that triggers and fuels this descent. If this is accurate, then a massive plunge is not far from starting.

“What we see is that most of the wave map possibilities are calling for a crash starting very soon. Several of those scenarios suggest the crash could shave 4,000 +/- points off the Industrials and 500 points +/- off the S&P 500 over a few weeks’ time. That is if wave (2) up or {ii} up is finishing now. However, if wave (5) down of {i} down is next, even in that case, the decline could be a mini-crash, 1,000 to 1,500 points in the Industrials and over 120 to 170 points in the S&P 500. No guarantees here, but I just don’t see a way out of this wave set up.

“It is important to understand that we are now in a primary Bear Market, which was just confirmed by a Dow Theory Bear Market signal. Further, the purpose of the Bear is not to help those investors, who are Bears to make money, and hurt Bulls. The Bear wants everyone to lose. The rally since August 24th is a perfect example of that, forcing shorts to cover. The top is in for the rally from 2009, and for the rally from 1987, and from the 1,700s. A Bear Market is starting.”

Regarding the gold markets, Dr. McHugh is far more constructive and to an extent so is Michael Oliver, as noted below. The point I want to make is that with the U.S. government and the Fed more and more involved in defying natural market action, and with our country moving rapidly toward what can only be described as an end-justifies-the-means dictatorship, I’m not sure we can count on anything within these four dimensions of time and space. The rule of law has long ago been done away with in the U.S., even though by sleight-of-hand policymakers would have you believe otherwise. I’m hoping to approach this topic with my guest next week on my radio show when I speak to David McAlvany. David recently explained how the U.S. is doing the same thing the Bank of China is doing to prop up stock prices. The only difference is that rather than the Fed buying stocks directly, it creates money out of thin air and gives it to the banks that own the Fed, who then buys shares of major U.S. companies and house them in Switzerland. That way the U.S. can pretend to be a free market economy while criticizing China for not being one. What BS! But that is fairly normal for the way our government propaganda operates, not only in the economy but with regard to foreign affairs as well. The propaganda and lies of our policymakers are amazing. If only the masses knew! As it is, anyone who talks this way is treated as mentally challenged. So why waste your money buying a rag like this when you can get the truth on CNBC and Bloomberg?

Now, getting back to McHugh’s view that we could be looking at a 4,000-point decline in the Dow, if you cast your eyes to the Dow chart on page 3 above, you will notice that a drop of that magnitude would take you only to around Dow 14,000. Notice the remaining support levels illustrated by the blue lines take the ultimate low to the lows of 2008-09, which would be another 50+% decline from the 14,000 level. Can you imagine the pain and margin calls—not only in the stock market but also in the debt and commodity markets around the world—that would result from that kind of decline? I firmly believe that in the coming years, we will see that magnitude of decline or worse because of the Keynesian lie, namely, that you can deficit spend and print your way to prosperity. It seemed to work for a while. But as Pinocchio found out, there is a limit to how farfetched your story can be. But what awaits the Western world now will be something far more serious than embarrassment.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.