On Friday, the Dow Jones Industrial Average dropped 531 points, basically tying for the 9th worst point decline in history. Of course, point declines and percentage declines are not the same. In percentage terms, the 3.2% drop barely registered historically. It would take a 7% drop to even crack the top 20 in percentage terms.
For the week, the Dow was down over 1,000 points or almost 6%. And it has declined more than 10% from its recent peak, marking the first Dow correction in several years. In fact, it was almost 4 years since the last official 10% correction ended in October 2011, the third longest string in history. But most market watchers judge by the S&P 500, not the Dow Jones Industrial Average. The S&P 500 is down just a little less than 8% since its recent (and all-time) high.
Regardless of how you measure it, however, the week was miserable. In hindsight, perhaps it should have appeared obvious. So often, however, the obvious has been ignored as share prices have started to slide only to rebound fairly quickly. There have been plenty of 5% drops in the past few years and they were all considered to be buying opportunities. Those who "bought the dips" were nicely rewarded.
Is this time different?
That's the real question to ask. Unfortunately, the answer may not come exclusively from American stock market history. There are serious geo-political factors at work, and on that front things are very complex. When you add in global economic warfare, it gets very serious, very quickly.
In January 2012, Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It Could Happen Again was first published. The NY Times Bestseller drew on research conducted for the Irregular Warfare unit of the Department of Defense and demonstrated that a man-made stock market crash was indeed a 21st Century Weapon of enormous power.
The concept of a stock market crash weapon was mentioned in a 1999 book on Unrestricted Warfare written by two senior Colonels in the Chinese military and published by PLA Press. The Chinese authors were clear in explaining how powerful of an impact that a market crash could have on an enemy nation. They also explained how Americans would never be able to grasp such a weapon, being "slaves to technology" and traditional weaponry.
The Russians, however, fully understand the weapon of a stock market crash. In fact, they have boasted about the capability, were recently caught using spies to research ways to attack (even with ETFs), and had an attempt in 2008 that no doubt contributed to the crash that year. To make matters worse, the Russians seem certain that we have been engaged in economic warfare against them and have warned that they will retaliate in kind.
Radical Islamists and the Iranians also seem more than aware of the potential for a market crash weapon. Osama bin Laden seemed fascinated by the potential of causing a market crash. The Iranians, likewise, have teased that they have economic weapons. And, recently, the Iranian "supreme leader" has called on all Muslims to pout aside their differences to win the greater struggle. The Syrian Electronic army even used a Twitter hack to hit the stock market. There were all sorts of fingerprints in 2008 that seem to have had jihadist motives.
A classic strategy in warfare is to accuse your enemy of doing precisely what you intend to do. In that light, the fact that the Chinese officially have blamed the United States for their market crash becomes very intriguing. If they truly believe it, this serves as the basis for retaliation. If they don't believe it, could they be preparing justification for their own attack?
So How Could Such a Crash Be Triggered Today?
Clearly our market is overdue for a correction. A bear market is likewise not out of the question given valuations and global economic weakness. But a manipulated crash could prove far more devastating. The best way to achieve such an outcome would be via Cyber Warfare. We've explained how the flash crash could have been a weapons test. We've noted that our own NSA admits that other major nations have the capability of bringing down our financial system. We've shared how Russia successfully hacked the NASDAQ. Since computers basically run all our markets, would we even know if a hacker was manipulating them? Algorithms can be manipulated.
All of this is to say that the global economic war has been heating up. Glenn Beck's The Blaze has taken note as shown in this video clip.
The question becomes whether or not the stock market crash weapon will be unleashed. It is interesting to note that the dollar actually declined even as the stock market was tumbling. This is an important difference from typical market drops. This one is attributed to a belief that in the midst of a correction, the Federal Reserve would be reluctant to raise interest rates from zero. This notion removed the impetus for a dollar rise, at least for the moment. It is important to note, however, that it is also the stated intention of multiple parties to take down the U.S. dollar alongside our market and economy.
Only time will tell whether last week's stock market and dollar decline will prove to be just another correction, a bear market, or something far more sinister. There is more than ample reason, however, to be on our guard for signs of economic warfare. We are watching closely.