Margin Debt Soars To 2008 Levels As Everyone Is "All In", Levered, And Selling Vol

Tyler Durden's picture

There were some readers who took offense at our "bloodbath" recap of yesterday's market action (modestly different from that provided by MarketWatch). And, all else equal, a modest 28 step drop in the E-Mini/SPX would hardly be earthshattering. However, all else was not equal, and based on peripheral facts, the reason for our qualifier is that as of last week virtually nobody was prepared for a move as violent and sharp as the one experienced in the last minutes of trading yesterday. In such a context a "mere" 1.5% drop in the futures market has a far more pronounced impact on participants than a 10% or even 5% drop would have had, had traders been positioned appropriately. They weren't. So what was the context? Let's find out.

First as the NYSE just reported margin debt just soared to a near five year high, with Margin Debt at a whopping $327 billion, surpassing the highest print since the Lehman collapse, and the highest level since February 2008. Not only is everyone all in based on , but they are all in on nearly record amounts of leverage.

As noted previously this happened just as the net long positioning of specs soared to an all time high.

In short - the "sidelines" speculator money is already all in, and is using gobs of leverage.

Second, when it comes to high beta, or traditionally the most volatile stocks, those that serves as either leaders or laggards in the market in its year end phases, we take a look at the Russell 2000 Mini speculative exposure as shown by the CFTC's weekly Commitment of Traders update. The chart below needs no explanation: the net non-commercial spec longs in the Russell 2000 have never been more bullish. If the market, which is priced to absolute levered perfection disappoints, the high beta exposure will be annihilated.

Third, and last, for all those who have had a sinking feeling ever since June that something was even more broken with the equity market, more so than usual, we have just one chart to prove all of them right. As this chart of net non-commercial CoT VIX exposure shows, starting in June and continuing ever since, the net exposure in VIX futures has gone down in what is virtually a straight line.

But what changed in June? Well, as some may recall, something very substantial - the head of the Fed's Markets Group, i.e., its trading desk, got a new head: one who has been rumored to have a different PPT style to his predecessor Brian Sack - a style that involves the relentless selling of VIX to take advantage of a market which is drowning in reflexivity, and in which the movement of the vol surface has a far greater impact on the underlying asset than any fundamentals or news flow: want to send the market higher (and have an infinite balance sheet at JV partner Citadel courtesy of your backstop, then just sell, sell, sell VIX).

At least we can now scrap the "rumored" part.

* * *

So to all those who are confused why a 1.5% drop in the market constitutes a bloodbath, now you know: with no hedges on, with massive margin exposure on, and with everyone all in, the last thing the market can sustain is selling, any selling, or else the dreaded margin calls start coming in and PMs have to satisfy margin insufficiency with more selling, setting of an avalanche of even more selling, which ends where, nobody knows. In fact one can argue that in this context a modest 1.5% drop may have a greater impact on sentiment and positioning than a whopping 10% drop did as recently as 2008 when everyone was more or less positioned to expect precisely such a thing. Because if one is 99% levered, a 1.5% move lower just wiped out all equity.

But hey: a few more percent and one can be certain that Wall Street's unofficial branch of government, the Fed, will get a solemn request by such representatives of "the people" as Chuck Schumer to "get to printwork" as soon as possible...

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BooMushroom's picture

Allow me to redirect: why must there be a single, worldwide reserve currency?

If each country accepts the currency of a couple of its neighbors, and a regional power accepts all the local currencies, and that of other regional powers, why could there not be multiple currencies used for global trade? I can see USD/CNY/EUR.

obejoyful's picture

I think the US dollar will eventually fail due to all the obvious reasons. 


But before it does I think there will be a HUGE short squeeze, this will be a great time to buy silver and gold.

Here are the reasons for the short squeeze:

  1. Debt satisfaction creates a demand for dollars. 
  2. Demand for debt satisfaction creates a demand for dollars. 
  3. Bankruptcy reduces the number of dollars available to use to satisfy debts. 
  4. Asset deflation reduces the theoretical amount of dollars available to satisfy debts. 
The huge reduction in dollars available to transact real value exchange creates an inflation of the value of the remaining dollars and a reduction in the value of assets that are valued against them...


BlueCheeseBandit's picture


I read your post with legitimate interest, hoping to learn something that might change my long term outlook on USD and gold. No such luck.

Your whole argument is based on the assumption that one reserve paper currency is necessary for international trade. That doesn't jive with almost all of human history, when international trade was conducted in gold and silver.

You also imply your belief that a certain amount of currency is necessary when you talk about the Yuan. You might argue that gold and silver stocks are insufficient given international trade today. This is a common inflation isn't fallacy. It ignores the fact that purchasing power is flexible. The argument doesn't show that gold isn't quantitatively insufficient for trade, but that it's undervalued relative to an environment in which it becomes the international currency nice again. That's exactly the point of "goldbugs," such as myself.

If you have better arguments or evidence, you would be doing me a favor by bringing them forth.

PS: I own a lot more USD than gold atm, so I'm a short term deflation isn't, long term dollar collapsionist.

Orly's picture

I appreciate your response, Bandit and I am afraid that I would be unable to convince you of anything, except to give you another avenue of thought.  There are really only two scenarios under which gold would become the basis for exchange again and that is in a deflationary scenario and a hyerinflationary scenario.

But let me take your comment for argument first. 

"Your whole argument is based on the assumption that one reserve paper currency is necessary for international trade. That doesn't jive with almost all of human history, when international trade was conducted in gold and silver."

  • While it may be theoretically possible to tag all monetary exchanges to silver and gold, it is a matter of practicality and liquidity.  There is just not enough gold or silver in the world to provide enough liquidity for transactions.  Of course, one could value gold at $25,000 and ounce and be relative for silver.  Then you'd have to cut the tradable amounts down to nano-ounces and add palladium and platinum to increase the liquidity of the market.  If it weren't enough, you could add molybdenum and copper to the mix- a basket of commodities- but then you'd be back in the same boat as you are now in that it is not gold and silver that are the bases of currency exchange.  If the field would be so corrupted, then why not simply stick with the one thing- the US Dollar.
  • Fluctuations in the daily price of gold and silver and other commodities could possibly make markets more chaotic, not less.  More chaos is less confidence.  Less confidence means less free trade and that's bad.  The idea is that if everyone's gold is "pooled" into the world-wide gold/silver currency basket and , say, Putin gets assassinated, the uncertainty in Russia would lead to large fluctuations in the price fix of gold.  Or Abe gets elected in Japan, the Chinese Premier cracks down on protestors... Political ramifications behind the gold held by a sovereign could greatly efffect the price fix and add to instability in the currency markets.  When you're talking about some of these whack-a-doodle countries, the price could jump thousands of dollars in a day.  Not good.
  • Never before in the history of the world has a soybean broker in Iowa been able to get on the horn to Osaka and agree to a price for next summer's crop (or whenever soybeans are harvested...).  Most of human history, as you say, has never seen the internet, the telephone and digital transfer of millions of dollars instantly over a wire.  It has never been available and never been needed until now.  Moving backward to an illiquid, narrow and politically chaotic market for currency exchange makes no sense.

To my point that one doesn't need gold unless there is a hyperinflationary environment or a deflationary environment, the world is clearly in a deflationary environment and has been for some time.  These latest bubbles have been blown to try to reflate the bubbles that have been deflating for many years.

Hyperinflation is not oing to happen because that entails a comlete lack of faith in a currency and that is just not going to happen.

As the Japanese have demonstrated, a deflationary environment is insipid and certainly not welcome but it can go on and on and on.  They're on 25 years already and they don't even have the world's reserve currency!  Just imagine what the Fed could do, monetarily speaking, over that time period.  I am not to say that it is right or wrong but it just is.  We could find ourseves trying to reflate our way out of this hole for the next fifty years.

So you see, in all of these possible scenarios, gold and silver are simply a risk asset that acts according to available money and speculation in the commodities markets.  The same thing has happened to copper and iron ore in that the easy money came in and bid up the price.  The gold and silver markets are so thin and easy to manipulate, it is no wonder that they have gone vertical.  Goldman-Sachs did the same thing to oil in 2008 before they were told to cut it out and the chart of gold today is going to mimic the chart of crude oil back then.  Gold is in exactly the same boat as oil was except no one cares about gold because, while it is very pretty, it is just about useless except in nano-tecnhology.  That's why the big boys like JPM are "allowed" to play in that sandbox and, to me, that speaks volumes.


akak's picture

Orly, your arguments are once again simply specious as well as historically ignorant.

While it may be theoretically possible to tag all monetary exchanges to silver and gold, it is a matter of practicality and liquidity.  There is just not enough gold or silver in the world to provide enough liquidity for transactions.

I suppose that is why the world was able to support a level of international trade pre-WWI, almost entirely under the classical gold standard (some countries such as China were on the silver standard instead), at levels that were not exceeded, even and especially in ABSOLUTE terms, until the last decade?

Again, as an intellectual captive of the status-quo financial and monetary paradigms, you assume that the current, hyperbolic levels of "liquidity" are necessary for contemporary levels of international trade.  Logic and history, however, both show you to be wrong.

Fluctuations in the daily price of gold and silver and other commodities could possibly make markets more chaotic, not less.

Your captivity to the fiat monetary paradigm is again on display here.   You are putting the cart before the horse here, though ---- in a monetary system in which gold and/or silver are the numeraire, there ARE NO meaningful "daily fluctuations" in the prices of the precious metals, as those (fiat currency) price fluctations are a RESULT of the unbacked fiat monetary system having to take, and make, daily relative 'votes of no confidence' in the constantly fluctuating (but generally downward) value of the fiat currency itself.  You are mistaking cause and effect.

Moving backward to an illiquid, narrow and politically chaotic market for currency exchange makes no sense.

Disingenuous and specious in a way that could bring tears to the eyes of Jon Nadler himself.

"Politically chaotic"?  GOLD?  Compared to FIAT CURRENCY, which is a PURELY political creation, and whose ONLY value is based on debt and statist coercion?  Get the fuck out of here with this shit.

One only needs to (rhetorically) ask oneself why it is that, if fiat currency is such a marvelous invention, governments feel the insistent (and vigorously enforced) need to FORCE their citizens to use it, to the exlusion of any possible monetary competitors, at the point of a gun?  We all here know the answer to that question.

Lord Of Finance's picture

Orly, you are one smart chick, and if that's your picture, u are quite adorable. Will u marry me:D

misnomer00's picture

Is the scenario of bullion as well as USD appreciating against other currencies so unimaginable? I might not be able to match you guys in your fundamental analysis, but one thing I do know for sure

ie, if gold & silver break down, we Indians will not sell, we will buy triple of that what we own.

BlueCheeseBandit's picture

"There is just not enough gold or silver in the world to provide enough liquidity for transactions."

Why can't you divide the units further? One of the reasons gold and silver became money was their divisibility. With modern tech it would seem there's no limit to how small the unit would be. And international trade deals in large sums anyway.

"If the field would be so corrupted, then why not simply stick with the one thing- the US Dollar."

What if ppl lose faith in the issuer? I think that's the basic argument for gold.

"Fluctuations in the daily price of gold and silver and other commodities could possibly make markets more chaotic, not less."

By and large, fluctuations in gold and silver today are fluctuations in the dollar side of the ratio, not the metals. The price of a loaf of bread in gold is essentially the same today as in Ancient Rome. The price of an gasoline in silver is the same as the 60s.

"Most of human history, as you say, has never seen the internet, the telephone and digital transfer of millions of dollars instantly over a wire. It has never been available and never been needed until now."

How was gold used in trade before? Do you think every transaction required gold to be shipped to one's door? The details were handled by banks, with clearing houses that only shipped gold when transactions didn't net out and irregularly to save costs. The rest of the time credit filled the gaps. Just because one is using gold and silver money doesn't mean you can't have a banking system. Indeed, it's common knowledge among economists that the first age of globalization per-WWI was more intense than today's globalization. Look it up.

"Hyperinflation is not oing to happen because that entails a comlete lack of faith in a currency and that is just not going to happen."

Why not? I think everything else is moot if you don't have a reason for believing this, because it's the central issue. Hint: It hasn't happened before is no more a valid argument than Ben Bernanke's "we've never seen housing go down on a nationwide basis" argument in 2005.

"Gold is in exactly the same boat as oil was except no one cares about gold because, while it is very pretty, it is just about useless except in nano-tecnhology."

How many uses do the little pieces of paper in your wallet have? Is it possible a commodity is more useful as money the fewer its industrial uses because of the reduction in supply and demand fluctuations?

"The gold and silver markets are so thin and easy to manipulate, it is no wonder that they have gone vertical. Goldman-Sachs did the same thing to oil in 2008 before they were told to cut it out and the chart of gold today is going to mimic the chart of crude oil back then."

If gold is being manipulated upward, why did we see so much price insensitive naked short selling last week? And why do institutional investors collectively have about 1% of their portfolios in gold?

Diogenes's picture

The dollar is the world's reserve currency, we must be very careful how we manage it

The dollar is the world's reserve currency,  we can pull any scam we want and nothing will happen.

merizobeach's picture

Friend, you've put a great effort into developing your ideas today in this thread, and for that and the further discussion it has facilitated, thanks.

Still, though, I first began facing what I felt was the inevitable ending of the USD about 15 years ago, when I was still in school, and I said since then that I thought that 2010 would be the beginning of the collapse, which would accelerate over the ensuing decade.  I didn't predict or recognize the magnitude of the housing bubble, not living there, so I was a bit surprised when the wheels fell off in '08.  But that's irrelevant to the reasons for which I had predicted collapse--primarily a demographic argument, and those are still playing out.  The various easings of monetary policy that have occured will only exacerbate the consequences: hyperinflation of a reserve currency will necessarily be slower than any other single nation's because, since it's the reserve, other nations will try, until they absolutely can't, to accomodate the changing monetary environment (where they are just riders of the storm--for example, all countries like Cambodia or Palau who have hard pegs, and what is basically the rest of the world who maintain soft pegs, and thereby all support the reserve currency).  The whole world is being dragged down the whirlpool because the Fed has ensured everyone's maximum interconnectedness.

But the Fed may not actually be the final end of the rope.  It looks an awful lot to me like an entity such as the BIS, and its puppetmasters, may be set to pull off a new global fiat revolution with their SDRs.  It would mean that all governments could go on deficit spending, and the proportion to which they do that, relative to other currencies, plus their on-going buy-in deposits, will influence their stake in the global currency--the SDR, or some new-named derivative of the same concept: a weighted basket of currencies--which expands and dilutes to include every member nation who pledges allegiance.  GDP calculations for each nation would be made by the dynamic weighted-average standard of the SDR and each nation's fiat's value would fluctuate according to economic strength and local monetary/fiscal (merged) policy.  The key difference between such a system and that of today's is that global exchange rates would be dictacted by a central authority.  From Wikipedia: "Since 2004, the BIS has published its accounts in terms of special drawing rights (SDRs)"  I think we'll see a new era of globalist fiat before we'll see a official standard to 'sound money', except in small isolated pockets, or maybe even on a pervasive black market.

Obviously, many nationalists (not to mention libertarians) in America, and elsewhere, resist this idea, and we may have seen the strength of their reach yet--just last year when DSK was taken down: months earlier, he'd displeased the US by suggesting that 'his' SDRs were poised and ready to take over as a reserve currency if needed, in so many words; he further displeased China, by excluding them from the new (same as the old) SDR basket when it was recently re-evaluated, and his own France, by appearing to be a primary challenger for the sitting president.  And there he went.  At least he didn't get a bullet in his head like Lincoln and Kennedy did when they tried to disempower a US central bank.

klockwerks's picture

Max, you will find out in the next 6 months when the perfect storm fully hits
Banjo's picture

My understanding is that less than 2.5% of peoples assets are in gold / metals, of that I would say a small percentage is held as actual physical.

How much paper gold could you or I sell to take the pressure off the physical market? (for this reason it might not be the investment for you or even me)

However in extremis gold can revalue 100% or more over night and there are more dire scenarios that make physical gold an essential.


My question based on your analysis and understanding of peoples investment allocation, paper instruments that give people exposure to gold and various manipulations especially outside of the gold market; e.g. crowding in being forced on the bond markets and the other alternatives available including property, dividend paying stock etc..

1. Where do you expect the gold market should be? Do you personally think the current gold price is too high/low? What is your opinion on a more realistic price?

2. Give us a hypothetical asset allocation of a 500K portfolio?

Additionally if you are overweight in an asset class what is your exit strategy and what do you roll into? I would like to sell my gold and silver at significant more favorable ratios than currently available and swap for equities. Say DOW/Gold at 4:1, 3:1, 2:1 will this happen not sure? Of course if the macro picture were to improve, with regards, employment, trillion dollar deficits, companies starting to rev up spending I might have to sell out and re-allocate way before any such ratios are reached.


If people have their life saving in 2oz of gold hoping for it to go to 200K I think you could be waiting a while. I think many people miss out on the point of gold being wealth preservation not winning lotto. Check gold from 1900 to today and match against inflation. Sure you might get lucky and pick 100%-300% real gain but it could equally just plod along.


For example my thoughts on current allocation

55% Property (family home)

5% Cash

20% silver

20% gold

0% stocks/equities

0% gold/silver mining stocks (never ever in a million years)

1.4% debt  (very low debt)




Missiondweller's picture

With 12 years of gains in gold I fail to see your point. But you also indirectly point out the absurdity of a gold market that fundamentals suggest should in fact be well over $2,000. Could it be that the Fed and the BIS who are manipulating every other market are also manipulating gold? Sure seems like it when massive amounts are sold into the market during low volume hours all at once as if the trader were seeking the worst execution price rather than the best execution.

knukles's picture

The BoJ just announced additional QE measures... And the BoJ experience has well been a precursor, good proxy for the US...  So the good betting would likewise be on the table for additional US QE...
Especially with the U rate still above 6.5%.

However, what has been done already in Japan are similar to that pursued domestically, to no avail in the environment of a liquidity trap (by definition).  And politicians world wide desperately wish to goose economies, else they might be voted off their gravy trains, no?
So what's a CB to do?
Continue with the standard QE, expansive monetary measures, continue gravy train fiscal wasteful spending (Given by numerical, empirical research that the Keynesian multiplier is at best Zero and in fact might even be negative.) but must augment such....

Buy stocks...
But that's already happening via Commercial and Investment banks deployment of excess liquidity (Net Free Reserves) and likely the Fed's Other Asset category (undisclosed details, kinda like Ft Knox)

So, looking at it from The Bernak's past promulgations, from a speech of his in 2002: (h/t Jesse/Duy)

"...Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets."

Note the highlighted, "real assets". 

That generally means commodities, etc.  So in essence, it also by implication clearly targets Nominal GDP.  Which means that it would not be unreasonable to see the "Authorities" withhold further suppression of gold and silver thereby allowing the indica of inflation to rise but not directly translating into a structurally direct impact of higher commodity prices as if corn, wheat, oil, etc. were purchased by the Fed.
OMG, could you hear the hew and cry?  Fed buying oil, corn, livestock.... nope, wouldn't work.
Riots in the streets.
Nuh uh... have to be a proxy....

Just might not be that far out of the realm of "reasonable" when the prospect of "deflationary pressure" rise again to the fore with respect to CB expectations.

Don't forget the start of the last huge prolonged rally in gold prices happened around the end of September, 2008.  When there were the fears of the world coming to an end and deflationary cycles taking hold....  The Fed at that time made clear, unambiguous statements of concern with deflationary pressures.  And thus allowed the PM's to rise sending a clear message to the financial markets.  There would be no deflation.

Just sayin'....

History rhymes/repeats/whatever....

Orly's picture

You're right in that Abe has done nothing other than what the BoJ has been doing for lo these many years.  He wants the USDJPY cross at 90 and 4X traders are happy to oblige- to a point.

They have positioned themselves for the first leg up but now it's going to come down to real action.  That won't be done until April when Shirakawa is replaced as governor.  But then what?  They're going to buy stocks!  That's their plan!

Seriously?  I suppose it has worked so well here in the US, what with all the mom and pops just dying to get into the stock market!  Mutual fund and 401(k) redemptions are at an all-time low over here...

No, wait...

knukles's picture

Yep, the Perceptions Management is directed at the wrong area.
Mom and Pop have no interest in stocks as they got wiped out in 2007-10, etc.  All lost, nothing but bad attitudes and anger
And pictures of Sugar Plum Bankers Dancing on their Retirement Graves.

It hasn't and won't work.
Liquidity Trap and Simple Human Behavior

They're going to have to retreat to the last bastion...
Real assets...
And optics won't let them deal with the energy or softs...

So by default (pun intended halfheartedly) it'll be the PM's.  The next run, be my guess.

OpenThePodBayDoorHAL's picture

These f*ckers will not give up without a serious fight, I mean look at the bag of tricks they've already unloaded on us. When Japan started the concept of QE more than a decade ago everybody said it was dangerous, risky, with completely unknown consequences. Now it's normalized behavior by CBs everywhere. So the next trick they pull out of the hat will be even more experimental IMO. Maybe mint a $1 trillion platinum coin. Direct real estate purchases. Helicopter cash. Japan could nationalize Sharp, Panasonic, and Sony. The Treasury could take a direct cut of all online and CC transactions...I mean the sky's the limit once you've completely severed any links between the financial and the real economy.

Carnival time

ball-and-chain's picture

Everything goes back to the same old same old when a deal is reached.

We need to go over the cliff.  But it ain't gonna happen.

The republicans are looking for a way to save face.

Then they'll cave.

kevinearick's picture

...blinders, get your blinders right here folks, for just a few more cents than you already have invested...leverage/levitation included in the package...surprisingly, not, the short term is catching up to the long term and the psychology is getting ugly...

kevinearick's picture


Maybe this will help a few:

As provided, QE4 lasted all of a couple of milliseconds in the grand scheme of things, and Treasury ran out of room much faster than forecast. This next traunch will not get Treasury to March, maybe the 2nd week of Feb if its lucky, without exposing more of the machine, again speeding up the system.

Capital is hopelessly under water and getting its income from the Fed, still employing margin as bait in the trap, but the only critters left lining up are balance sheet underwater with falling income in a collapsing job market. You have to consider the psychology on the margin as to how little it takes to wipe the remainder out.

In the accounting model, the income drain vacuum is growing, while the balance sheet faucet is contracting. From the weather model perspective, variability is increasing because irrational use is proliferating faster than the planet can recycle, and the ice is melting in response to salinity, all in positive feedback loops.

Conman's picture

These charts are why i chuckle anyone mentions "burning the shorts" or even short squeeze. What shorts!?

Karlus's picture

Arrr, matey, looks like a good time to short this market, arrr

Salon's picture

Every good time before the volatility blew me put of the water.

Just use a pinch of leverage. Double inverse is great for the cowards and thrice bitten.

Salon's picture

Yeah supposedly this is the time to go short, right?

There will be a sunday evening "leak" of a fiscal cliff breakthrough

Conman's picture

No, didn't say go short. Just that everyone is mega long, ala BTFDs,  because of  anticipation of a meeting or rumor of a band-aid fix/bailout/asset purchase/spiderman towel giveaway.

disabledvet's picture

this is by FAR the best reason to be negative. "the bull has stomped out all the shorts"...hence the market falls. We saw what happened with Apple...that's what a fall in price looks like when the shorts have exited "en toto." priced to PERFECTION as they say. To me this market is NOT priced to perfection tho. It's relationship to the economy might be tenuous...that i would agree with...which might go a long ways towards explaining why the "fiscal cliff" thing had such an outsized impact (it's lack of resolution being a major negative on the economy.) i still think the biggest danger to the equity market comes from "it's self"...namely "the bulk of the recovery has been an inflation trade and now that trade is looking like a total dud." that would include gold and maybe even silver i might add. Should this trade unwind and a "new" secular bull market begin (on a pure alpha basis) then i think many of the averages will struggle. it's hard to tell because "energy" plays such an outsized role in any economy...and in that space "you can never be too big." i'll be watching to see just how quickly the USA exits its so called "oil dependency." if we become a net oil exporter in 2013 then that would start drawing dollars into the USA...and bring further investment with it. "we'll have to wait and see."

Salon's picture


Still getting scared of my double inverse SDS.

I am really too much of a pussy to truly short. Just yet anyway

max2205's picture

At 40x leverage, 1% loss = 40% loss of capital. TBTF

ekm's picture

Oh, no doubt, I'll give you the extremely high leverage net longs.


Question: Who is going to sell?

Answer: Only after one or two primary dealers or major private pensions funds have been assigned to be pulverized. That is done by executive order.

The market forces this when real goods like crude oil are withheld from the market from the same leveraged net longs, thus starving the real economy for energy. Which is No different from 2008.

Lack of crude oil in the real economy forced the Gov to force Lehman to be pulverized. The same reason will force the Gov to let 1 or 2 major players to be pulverized this time.

That's why I say, unless I see 1000 dow pts drop per day for 3 days in a row, it's not a drop. Somebody has to be FORCED to sell.



andrewp111's picture

Right now, there is plenty of oil.

ekm's picture


In storage, but not in the market for consumption.

Leveraged net longs have stored this oil off shore and onshore. Same as in 2008.

Time has come for it to  be flushed into the consumption market.

That was the trigger in 2008, that will be the trigger now.

Crude oil at $40 is not far fetched. I'm saying, crude oil will go as low as $15/barrel WTI. There's just too, too, too much of it stored around.

J 457's picture

At current global consumption rate, $15 barrel would never happen, short of the world economy literally ceasing.  Even $40 barrel is too low based upon FED's $85 billion a month never-ending liquidity injection.  Add in Iran military exercises and all the other geo-political issues and you'll not see anything less than $80 WTI in 2013. 

ekm's picture

I did not say it's going to stay $40 for a long time.

disabledvet's picture

Detroit has done its duty and made sure "there's a gas guzzler in every garage." They got what was coming to them in my view. I miss the David Rockefeller "rusty bumper" artwork that used to be in the lobby when you entered his Chase Manhattan Bank. He knew shit when he saw it...and these folks with their Government bailouts STILL produce something "only in the interests of big oil" and not in the interests of the consumer or the economy as a whole. (this is not to say they will lose of course. I just like the idea of a NO FUEL vehicle. Something i saw in the Army in the early 90's i might add.) I did see a solar powered plane on sixty minutes the other day. I was disappointed in my motorcycle consumer news when they jumped on the Big Oil Screw America Again bandwagon though. I mean "why not put the solar panels and the battery back on the motorcycle rider himself" you hybrid hating buttmunchers? HE can be the power source if necessary..."no battery required." Anywho that would actually be a BENEFIT to consumers...why would a media outlet want to do that? They're too busy selling "what your neighbor is up to."

ekm's picture

And of course, crude oil at $40 for few months or $15 for few weeks will put Iran to the ground.

fonzannoon's picture

what would it do to Saudi Arabia?  They are very happy with $85 crude.

ekm's picture

They have already pre-sold at above $90 and shipped to US most of their quota, from what I read.


Middle men have purchased in advance this oil on leverage aiming at selling it quite higher.

Gov have purchased this oil for the reserve in case Iran goes mad. Qatar and Bahrain have hedged at $45 drop.

It gets to a point that there would be so much oil stored that the gulf would have to stop producing. This is info I've gathered from different internet sources.

Spastica Rex's picture

I think you have a very interesting theory. +1

Orly's picture

He knows of what he speaks...

ekm's picture

I have no inside knowledge. I do not work in finance since I love to have my sanity under control.

However, people with inside knowledge spill the beans here and there on the internet.

Enough spill makes up for a good full glass.

Orly's picture

Same with 4X. Just to pick up the crumbs of these big boys is a LOT of money.

J 457's picture

Interesting concept.  But why would POTUS want forced selling?  Seems the goal is to maintain these asset prices to fund the govt budget.

ekm's picture

Because world trade is grinding to a halt.

Stocks are not trading, hence NYSE going bankrupt. Oil is getting stored, hence the real economy has halted.


Even in 2008, nobody wanted to let Lehman go, but their hands were forced. Oil went $147.

NYSE volume had evaporated. World trade was minimal.

fonzannoon's picture

EKM the only problem that I have with your theories in general, is that they are too well thought out. I do actually think there is a true chance that TPTB are actually just despearate and dumb as all hell. What we try to attribute as evil genius is them just barely holding this thing together with newly printed dollars. It has staved off the end, but not prevented it. Laws of Physics is unavoudable.

ekm's picture

Agree with everything you said.

Why is that a problem?



If you had time like me and delved into studying how things are actually done behind closed doors, you wouldn't have made that comment.

Wheeling and dealing behind closed doors among power holders is no different than what we see on mafia movies.

Everything is thought out pretty well, it just a matter of whether it works as per plan or not, bute THERE IS ALWAYS A PLAN.

fonzannoon's picture

The plan is always to print. That plan always fails.

LongBalls's picture

Is it possible that the gov. is hoarding oil in prep for war in the oil producing region of the world? Honest question here. I know that Russia has troops on the ground in Syria. The U.S. has troops on the ground with Patriot missile detachments in Turkey. Seems to me things are heating up.