Market Crash

"Black Friday. China shares dive 7.4%... How much further will it fall after this massacre?"

"It's a do-or-die moment for all investors... If retail investors become skittish now, panic selling will continue next week."

For a glimpse of what happens next, look no further than Sweden.

CEOs are not the most trustworthy figures in society. They will lay off thousands of employees to beat analysts' estimates, and yet they have no trouble looting the stock to pay themselves millions while the company loses money. However, one theme that keeps coming up is that unethical behavior has a price tag. With this in mind, consider the implications when the New York Fed tells us that economic activity declined because of the weather. Now that it's summer, it's not clear how cold weather is interfering. Perhaps the Fed has a South Pole subsidiary? When will the market crash and the Fed be replaced for lying about poor performance?

Prepare to laugh. A lot.

Today will go down in history as one of the worst times in history to be invested in the stock market. Virtually no one believes this statement. That is why it will prove to be true. Every valuation method known to mankind is flashing red. A crash is baked in the cake. Will the trigger be Greek default, a Chinese market crash, a Fed rate increase, a derivative bet going boom, a Middle East event, someone doing something stupid in the South China Sea, a Ukrainian eruption, or a butterfly flapping its wings? When greed turns to fear, for whatever reason, the house of cards will collapse for the 3rd time in 15 years. Thank the “brilliant” bankers at the Federal Reserve.

Among the renewed Greek drama, many missed a key development in the past week, namely Jefferies Q2 earnings, and particularly the company's fixed income revenue: traditionally a harbinger of profitability for Wall Street's biggest source of profit (or at least biggest source of profit in the Old Normal). And while not as abysmal as the 56% collapse in the first quarter, in the three months ended May 31 what has traditionally been the bread and butter of Dick Handler's operation generated just $153 million in revenue. CEO Handler blamed that decline on a lack of trading in the market and fewer companies selling junk bonds.

"There are clear advantages to going against the herd at the moment,” said the Head of Multi Asset at Sweden's largest fund manager.“You get more return taking less risk by not joining a herd that goes for an asset without fundamental backing.” Ultimately, investors are aware of the disconnect between fundamentals and valuations, so they’re “trigger-happy.” That means they’re ready to “reverse as soon as things shake a little,” he said adding that " the shortage of liquidity is a sign people are starting to doubt the sustainability of the current price environment."

In short, the era the phony recovery narrative has come unhinged.  We have no entered a cycle of actual price discovery in which financial assets fall to more accurate values. This will eventually result in a stock market crash, very likely within the next 12 months.

Is something really big about to happen?

"As Chen projected Homily Stone’s software on a screen and began by reviewing the basics of “buy low, sell high,” the students alternated between scribbling notes and stealing bites of steamed buns and swigs from milk cartons and thermoses of tea... when he guaranteed a 300 percent return for people who buy the program and follow his methods with recommended “dragon head” — or hot — stocks, the room erupted in applause."

It all started when Scotland Yard arrived in a house in Hounslow, on the western fringes of London, where Nav Sarao was arrested on one late April morning. Wait, this wasn't some dramatic perp walk out of a glass tower in Canary Wharf? No, for one simple reason: Sarao lived his parents. He also didn't know how to drive. And so begins one of the most fascinating profiles of a modern day financial mastermind: instead of tailored Saville Row suits, thundering parties, booming Bugattis and the occasional jaunt to the Riviera, Nav was the antithesis of a Wall Street. He was, in the words of Bloomberg which has created a fascinating profile of the young trading guru, "pathologically frugal" in fact "Sarao was so frugal it was almost an eccentricity."

After years of crusading against the farce of non-gAAP "earnings" by management teams who are engaging in fraud against their shareholders, one in which both accountants, bank advisors and regulators are all complicit, we are delighted to see that finally the mainstream press has taken the bullshit that is non-GAAP "EPS" to task. In a report by AP's Bernard Candon, titled "Experts worry that 'phony numbers' are misleading investors" we read that the "record profits that companies are reporting may not be all they're cracked up to be." He was being very polite.

This is the end game of unfettered capitalism. The signs are all here. When you cast aside reasonable restraints, the unscrupulous among us will rise to the top and exploit everyone else. What we have left is a new American feudalism where CEOs move around like a pack of ruthless Somalian warlords. Riding behind the banner of efficiency, they replace employees with robots, outsource their work to foreigners and tell their employees to train their own replacements, and collude with hedge fund managers to strip companies of their most valuable assets to temporarily boost the stock price.

"How long the bubble can continue to inflate is the key question – but necessarily unanswerable. Inherently irrational, bubbles usually last longer than expected, [but they] ultimately burst... they expand continuously, then pop."

For once Mario Draghi was right. A day after the European central bank head warned of a spike in volatility, volatility did just that, with markets everywhere from China to Europe seeing volatility explode.