Market Crash

We're gonna need a bigger rate cut...

SHANGHAI COMPOSITE HEADS FOR BIGGEST 3-DAY DROP SINCE 1996
CHINA CSI 500 STOCK-INDEX FUTURES FALL BY MAXIMUM 10% LIMIT

"It's time to wake up," because, the fate of the world is in the hands of illiterate Chinese farmers and Greek grannies.

"The positive wealth effect of the equity market on consumption or aggregate demand is limited in China, but an equity market collapse would hurt millions of mid-class households and pose great danger to the economy and social stability."

As we previously noted, liquidity is there when you don't need it, and it promptly disappears once it is in demand. Consider it "cocktease capitalism." If liquidity lasts longer than 4 hours, call the CFTC because you may be experiencing a spoof. Right now, the ultimate spoof is setting up as the credit default swap market collapses, and a global bond market margin call is just around the corner.

For the first time since October, 2008, China cuts both the benchmark lending rate and RRR on the same day, in a frantic attempt to sustain the country's equity bubble after stocks collapsed to the edge of bear market territory on Friday.

"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."