Gambling

If you were to tell someone that the life insurance they had purchased was “a bad bet” or (even more judgmentally) “sheer stupidity”, almost certainly that person would feel insulted. 

Last week’s volatility to the downside was entirely predictable, as the first leg down during this ongoing market crash reached the correction stage of 11%. The technical bounce was a given, as the 30 year old HFT MBAs on Wall Street have been trained like rats to BTFD. In their lemming like minds, it has worked for the last six years of this Federal Reserve created “bull market”, so why wouldn’t it work now. Last week was their first lesson in why it doesn’t work during bear markets, and we’ve entered a bear market. John Hussman seems amused at the shallowness of the arguments by Wall Street shills and CNBC cheerleaders about the future of the stock market in his weekly letter. After this modest pullback from all-time highs, the S&P 500 is still overvalued by 92%...

Banks in the US and Europe are trying to develop a cashless transactions system. The concept is to establish a comprehensive ledger for a business or a person that records everything received and spent, and all of the assets held – mortgages, investment portfolios, debts, contractual financial obligations, and anything else of market value. There would be no need for cash because the ledger would tell you and anyone you were considering a transaction with how much is available and would be transactable at any specific moment. This is not a dreamy idea. Blythe Masters is leading a new business effort to develop a universal cashless system. Not only is she gathering significant investor interest, but the Federal Reserve and various US Government agencies have become keenly interested in the potential usefulness and efficiencies of a universal cashless system

The last few months have seen a steady drip-drip-drip increase in US, European, and Chinese bank credit risks, even as stock prices rose (aside from the latter). The turning point appears to have been the downturn in oil prices as traders began to hedge their counterparty risk in massive levered derivative positions tied to commodities. But it is not just banks... COMEX counterparty risk mut sbe on the rise, as Jesse's Cafe Americain notes, the 'claims per ounce of gold' deliverable at current prices has spiked higher once again, to a record 126:1.

News That Matters

"China is imposing fresh controls to prevent too much money from leaving the country, in an effort to keep badly needed funds at home to battle a deepening slowdown in the world’s No. 2 economy." This is undsiputedly bad news for China, but Blythe Masters would be the first to admit, escalating Chinese capital controls would be just the thing bitcoin needs to surge, and surpass, it previous all time highs...

• Markets on edge as policymakers flex muscles (Reuters)
• European shares recover from rough ride (Reuters)
• For Stock Markets, the Moment When Humans Matter (WSJ)
• Puerto Rico's PREPA, bondholders have framework for deal (Reuters)
• Hundreds of migrants protest at Budapest station, want to go to Germany (Reuters)
• New Whale Seen Moving Tokyo Markets (BBG)

Call it the rigor mortis of the robo-machines. About 430 days ago the S&P 500 crossed the 1973 mark for the first time - the same point where it settled today. In between there has been endless reflexive thrashing in the trading range highlighted below. As is evident, the stock averages have not “climbed” the proverbial wall of worry; they have jerked and twitched to a series of short-lived new highs, which have now been abandoned. Surely most thinking investors have left the casino by now. So what remains is chart driven trading programs, racing madly up, then down, then back up again - rinsing and repeating with ever more furious intensity.

It doesn’t make sense to you. And it shouldn’t to anyone. Unless – they first go directly to the ‘house bar and media entertainment center’ that is always open and always free with spiked Kool-Aid™. It works better and is cheaper than actual liquor. It’s not actually a drink per se. It’s just hoopla and endless propaganda for the masses. That’s why it’s free and encouraged. It keeps everyone happy within the walls and enhances the experience, while simultaneously acting as one non-stop running commercial to entice anyone foolish to think they too can get rich quick. All legal by the way. The laws were adapted to fit the criteria.

With every passing week that money markets rates remain pinned to the zero bound by the Fed, the magnitude of the financial catastrophe hurtling toward main street America intensifies. When the next financial bubble crashes it can only be hoped that this time the people will grab their torches and pitchforks. Stanley Fischer ought to be among the first tarred and feathered for the calamity that he has so arrogantly helped enable.

The private economy and its millions of savers exist for the convenience of the apparatchiks who run the central bank. In their palpable fear and unrelieved arrogance, would they now throw millions of already ruined retirees and savers completely under the bus? Yes they would.

• Virginia TV journalists killed by suspect with 'powder keg' of anger (Reuters)
• Policeman shot to death and three women stabbed, one fatally, in Louisiana (Reuters)
• China Intervened Today to Shore Up Stocks Ahead of Military Parade (Reuters)
• Margin Calls Bite Investors, Banks (WSJ)
• "Computer glitch" is preventing dozens of mutual funds, ETFs from promptly pricing their securities (WSJ)
• Oil prices rise more than 4 percent as equities rally (Reuters)
• Oil Industry Needs Half a Trillion Dollars to Endure Price Slump (BBG)

• China’s Central Bank Cuts Interest Rates (WSJ)
• Chinese Stocks Crash Again to Extend Biggest Plunge Since 1996 (BBG)
• China cuts rates, reserve ratio to aid economy as stocks sink (Reuters)
• Wall St. suffers worst day in four years, S&P confirms correction (Reuters)
• Europe's Stocks Head for Best Day Since 2011 (BBG)
• Market turmoil clouds Fed rate outlook (FT)
• For All Its Heft, China’s Economy Is a Black Box (WSJ)

The trouble is that it’s not inconceivable Trump could get elected. Farfetched, perhaps, but not out of the question. The USA is heading for a very rough patch of history — as those of you with your eyes on the stock indexes lately may suspect. The country stands an excellent chance of waking up some morning soon to discover it is broke and broken. When that happens, all the anxiety and animus will be focused on looking for scapegoats, and they are likely to be the wrong ones. World leaders considered Hitler a clown in the early going, too, you know.

It’s getting downright hazardous out there, and not just because the robo-machines were slamming the “sell” key today. The real danger comes from the loose assemblage of official institutions which claim to be running the world.