Guest Post: Will The Next Bear Market Be A Planned Event Or A Failure Of Central Planning?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Ironically, the very success of stock market manipulation only thins the market of legitimate participants and thus increases the probability that risk that has been suppressed for years will erupt uncontrollably.

Longtime correspondent B.C. recently shared some provocative thoughts on the nature of the next Bear Market. Bear markets are often defined as a decline of 20% or more from recent highs.
Alternatively, others look at long periods of subnormal returns as secular Bear Markets. For example, if officially measured inflation has reduced purchasing power by 35% since 2000, and total stock market returns (dividends plus appreciation) are 15%, then the real return of "buy and hold" is a negative 20%--a Bear Market by any reasonable metric.
That the stock market is manipulated is no longer in question. One explicit goal in the Fed's zero-interest rate policy (ZIRP) is to drive capital into risk assets such as stocks. That is a first-order, transparent policy of manipulation, i.e. a centrally managed policy aimed at managing markets to meet a key central-planning goal: creating an illusion of prosperity via an elevated stock market and the resultant "wealth effect" for the 10% who own enough stocks to matter.
Indirect manipulation is hidden from public view lest the rigging of the market taint the perception that a rising market is "proof" that Federal Reserve and Administration policies are "succeeding." Indirect manipulation is achieved via Federal Reserve quantitative easing operations, unlimited liquidity and lines of credit to fund bank speculations and masked buying of market futures.
This multilevel manipulation creates a Boolean either/or for any Bear market:either it is a planned "panic" that profits the banks or a systemic failure of the orchestrated campaign of market manipulation.
Here is B.C.'s commentary:

Consider the possibility that the banksters now effectively control the stock market in ways never before possible, using the NY Fed acting in concert with the dark pools, offshore shell companies and pass-through entities, PTFs, and high-frequency trading (HFT) via the for-profit exchanges.How much would it "cost" the primary dealers to manage the markets using leveraged derivatives, assuming a complicit counterparty or counterparties? 

Hypothetically, if the banks wanted to keep the SPX to no lower than, say, 3% to 7% of the 200 dynamic moving average (DMA) indefinitely, thereby keeping the 200 DMA in a steady uptrend, what would it cost? A few tens of billions at the margin?
If one or more parties could leverage 10:1 futures and then 10:1 again with options, it would cost a small fraction of banks' ~$13 trillion in assets and $1.7 trillion in cash assets. 

One can at least envision the possibility of banks continually leveraging of futures and options on futures, rolling the positions forward while keeping sufficient amount of incremental liquidity to further lever long as required. 

We can infer that if Wall Street banks wants the market to go down because it's the best opportunity for them to make money given the alternatives, a bear market will occur; but it will be blamed not on cyclical factors, overvaluation, etc., but on some other perceived "exogenous" factor, such as the "fiscal cliff", war, "policy mistakes", etc. 

Yet with the banksters having directed Bernanke to explicitly talk up the stock market for more than three years, even specifically referring to the Russell 2000 (small-cap stocks) as a benchmark, to expect that a bear market will occur is by definition to assume that (1) the banksters will act in some manner to allow, or cause, a bear market; or (2) their efforts will fail to prevent one, risking their credibility and legitimacy. Given the hyper-interventionism and expectations management, one is left to assume that the banksters have the capability to prevent a bear market until proven otherwise. 

But without a bear market, valuations will not improve enough to permit a future return that warrants the 35-50% cyclical drawdown risk in the meantime.
How does one trade, speculate, or allocate assets in an environment where one is like a conspicuous, slow-moving target in a shooting gallery for the HFT and PTF sharpshooters, or one's assets are hardly more than part of a slush fund for fee scalpers who add no value to the economy or society?

Thank you, B.C. for explicating the conundrum facing the manipulators: if they never let the market decline, the resultant modest appreciation and low yield does not provide an attractive risk/return given the possibility, however remote, that the market could escape the control of the Fed and banks and plummet by a third or a half.
The loss of credibility and legitimacy any serious decline would trigger could launch a positive feedback loop where buyers who have been trained by four long years of manipulation to "buy the dip" would lose faith if their buying was rewarded with sustained losses.
This means the manipulative Powers That Be must tread a precarious path between a Bear market sell-off that creates buying opportunities for themselves and a decline that escapes their grasp as a loss of faith in the manipulators' control triggers an avalanche of selling.
We can surmise that a manipulated sell-off will have a V-shape: a steep decline that triggers widespread stops and margin calls, followed by a sharp recovery as the manipulators buy the dip they enabled. Ideally, the sell-off would fail to reward buy-the-dip buyers, causing traders to sell to waiting hands. Perhaps the November sell-off was just such an orchestrated decline and recovery.
A sell-off that gets away from the manipulators would likely be characterized by failed rallies and high-volume selling as money managers bail on risk and the perception that the manipulators are not God-like in their powers.
If the markets are well and truly captured by the banks and officially sanctioned manipulation, then any sell-off will be limited. Ironically, the very success of the manipulation only thins the market of legitimate participants and thus increases the probability that risk that has been suppressed for years will erupt uncontrollably.
The after-effect of a Bear that escapes the Fed/bank Zoo is a market that has lost the legitimacy of a truly free market and the credibility of a centrally managed market. It will truly be a dead-zone market, abandoned by all but the bank/central planning manipulators and day-traders.

My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

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tooriskytoinvest's picture

We Are Witnessing The End Of A Once Great Country: A Fiscal Deal Approved By The Senate And President Will CUTS $1 IN SPENDING FOR EVERY $41 IN TAXES, And 'Somehow' ADDS Nearly $4 TRILLION To The Deficit Over The Next 10 Years, Now The House Republicans Are Forced To Pass It Or Millions Will Lose Unemployment Benefits And Market Will Crash. WTF!?!?


ApollyonDestroy's picture

Wow really? I had no idea anything bad might happen. Who would have thought the NewOrder would CRASH its way into our faces.. The world seems fine to me with my head up my ass, but what do I know..

I think I need to buy a gun's picture

hasn't this been planned for the last 10 years? or longer?

Fredo Corleone's picture

"This is the year when it will become clear to many that Europe is in far deeper trouble than supposed; that it risks tipping into irretrievable decline; that it is wasting its precious youth at the worst moment, as the aging crunch nears, when it should have none to spare; that it is resorting to ever more coercive measures and autocratic methods; and all to save a currency that is the elemental cause of the disaster in the first place, and should morally be broken into its democratically-controlled parts.

"There is no place for a monetary dictatorship in 21st Century Europe."

-- Ambrose Evans-Pritchard from today's Telegraph. Presented for your appraisal with a single comment: Omnia transeunt.


Yep, the Klingons from Uranus have been running the show into the ground for a while now. Snooki for the masses, they gets all the cashes, and nothing left but privileged enclaves, and preppers. Damm. Downright zombie apocalypse.

eatthebanksters's picture

Central planning worked wonderfully for the housing market!

Snakeeyes's picture

Taxes, insane regulation, cronyism, corruption, government monopoly of housing finance and healthcare, rampant entitlements and no way to pay for them.

yogibear's picture

Obama Deal Adds $3.97 Trillion to Deficit Over 10 Years; 


King Obama and money printer, Bubble Bernanke and the Fed,  think more spending and printing is better.

They will spend and print more aggressively as the economy deteriorates. 


ball-and-chain's picture

America's epic failure has been in the works for quite some time.

Both parties forgot the importance of the middle class.

The democrats concentrate on the poor.

The republicans love the rich.

But without a middle class, America is just another banana republic.

Freddie's picture

Levitating markets for dear leader and the NWO.

Keep watching TV and Hollywood's crap.  You viewership and paying for cable/sat TV of their 24x7 propaganda keeps them in control.

Disenchanted's picture



Them goddamn Hollywood muslims...I knowed it was them all along.

LeisureSmith's picture

Is central planning failing miserably or succeeding spectacularly... all depends on whether you are in the lucky sperm club or not.

TonyCoitus's picture

The next bear market will be bullish.

auric1234's picture

I'm bullish on loaf of bread. My target price is 10 million USD.


CPL's picture

Zimbabwe could be contained.


This cannot.

NemoDeNovo's picture

Does it REALLY matter at this point?  Just burn this Bitch down and lets start over, only way out at this point IMHO.


Happy 2013 Bitchez!!!!!!


Totally agree. Burn this mo fo to the ground and start over.

1100-TACTICAL-12's picture

I agree it's a never ending soap opra, with a bunch of fat ugly chicks with the clap. Let'er burn.

CPL's picture


I was always partial to the City Sleeps.  Mellow, thick bassline and Dark.

Harbanger's picture

"The privileged daughter of a prominent city doctor, and her boyfriend — a Harvard grad and Occupy Wall Street activist — have been busted for allegedly having a cache of weapons and a bombmaking explosive in their Greenwich Village apartment."

CPL's picture

"Got the silverware sargent?"

"Yes sir"

"I'll dispose of the hamburger helper.  Stay back, the smell of it will linger for hours."

"Yes Sir!"

Dr Benway's picture

Thanks for posting this. The comment section of that article is especially interesting.

The banksters have expertly turned this into a phony right-versus-left fight, as can be seen every day on ZH too. Divide and conquer.

This is the roadmap of the future, right there.

Cabreado's picture

"Burn this mo fo to the ground and start over."

This mo fo will burn to the ground when it has to, and not before.
With regard to the "start over" part --

some things cannot be replicated, once polluted, in chaos, and gone...

hang your hat on the dynamics of Control.

zorba THE GREEK's picture

With algo trading and gov. manipulated markets, we could see an loss of confidence in markets

that could spawn a drop like never before experienced both in depth and speed.

tawse57's picture

I wish you are right but I do not see it happening as the Fed and BOE plung protection team will just pump up the markets or, more simply, just halt the markets after just, say, 5% drop in a day.

That is how they will do it - open and in plain sight. Just stop the markets and blame it on some computer error or a fat finger.

Dr Benway's picture

There is no 'market' anymore and so there will never be a 'market crash'. After all real investors are gone, it reaches singularity, is cancelled out and blinks out of existence.

DavidC's picture

With the continued withdrawal of retail money though the year I'd argue that loss of confidence is already there.

The US is a bit like a bully, who slowly realises that nobody likes him and when he needs something from other people, is unlikely to find it forthcoming. It'll happen.


MiltonFriedmansNightmare's picture

2013 is only hours old and I already despise it.

Harbanger's picture

The 2013 is the year of black Snake, bitches. ;)

"Water Snakes are lucky with finances, they always seem to have money flowing their way. They are adventurous spirits and love to take risks. They are also very intelligent and often a wellspring of creative ideas. Water Snakes love to socialize and meet new friends.They are proud of their achievements, and also very thoughtful and considerate of others.
The colour of the 2013 year of Snake is Black. Black color is the Space, Arctic night, darkness on the Abyss, this is a color of deep waters. The Black Snake will bring people unexpected changes, instability, and changeability. That is why it is important in the year of Snake to plan everything beforehand, and evaluate adequately before taking any actions. You need to be more careful and cautious than ever. "

Getting Old Sucks's picture

"That the stock market is manipulated is no longer in question. One explicit goal in the Fed's zero-interest rate policy (ZIRP) is to drive capital into risk assets such as stocks."

I figured that out 3 years ago. 

ekm's picture

I've been saying this since Nov 2011. What happened in Nov 2011?

MFG collapse and the subsequent global bailout.


But, I provided the answer about 6 months ago. The only thing that will make Obama give the order to call the margin on primary dealers is the PRICE OF CRUDE OIL. Same thing forced George Bush to call margin on primary dealers.

If it weren't for the price of crude oil, Bush would have never allowed 2008 to happen.

But mind you, $140 in 2008 is equal to $90 now. Crude oil is overpriced by 100% in my opinion.

CPL's picture

What margin?

That's been gone and done with for a while.  This isn't 2007, lots of shit was actually done about the futures traders fucking around with oil prices.  Today though if you want mess with futures, you have to buy the oil and hope that you have someplace to put it.  That's why all the oil tankers are leased but not going anywhere.

All that's done is give tin pots the excuse to steal the oil from underneath the noses of the people that actually OWN the oil.


So as you can see.  Theft by futures placed on massive 500% margin accounts.  Or have it physically stolen, which was happening with an alarming frequency two years ago.


Today though they don't go after oil tankers because they are being shipped back empty from the countries people have been attempting to hide their oil 'futures'.  The big thing for Somali pirates is waiting for anyone to float out of the gulf not watching a gun ship.  All those well armed military crews and a million somali's in tiny rubber boats waiting in the dark to snag one.  

Imagine if they managed to get a could charge pay per view to watch a fox chase with a nuclear powered ship.

ekm's picture

I meant Primary Dealers buying up stocks with 'reserve' money. That's what I mean by Obama calling "margin" on primary dealers who are all of them INSOLVENT.


Oil is being stored onshore, not off shore like in 2008.

Dr Benway's picture

"The big thing for Somali pirates is waiting for anyone to float out of the gulf not watching a gun ship."


CPL, you are kidding right? Let me immedately desillusion you as to what kind of resistance Somali pirates really fight back against. Two men with ARs on the target has been enough to repel in EVERY instance this has occured. Warning shots generally suffice.


See this excellent clip of security guards blasting pirates:

ISEEIT's picture

Cannibalism comes to mind.

Salon's picture

The central banks are inflating as much as they cam get away with until inflation psychology begins to take hold.

Then they allow the system to contract for a while until it looks deflationary again.

These cyclical mini bull and bear cycles will be repeated until we have completed the deleveraging from the last cycle of credit expansion and wrung out the excesses of the last 24 years or so.

Once all the proper ratios are restored then its time for the next secular expansion. Or so they hope. But they may overshoot on the downside. Unlikely, since they err on the side of inflation, just not too much.

adr's picture

The reason why they manipulate the system is because those running the show are not capable of existing in any alternative that exists.

Without the stock market you take away the ability for just about any truly wealthy person to derive income. Do you think any one of them is actually capable of running a real business? Do you think any of them have any usefull skills. Without the ability to endlessly draw money from the sale of stock, while simultaneously not making a penny of profit, the business would collapse. Please tell me how Amazon could exist under a private corporation business model? They would be bankrupt on day one.

That is also why we will never get tort reform. If we fix the legal system, and it doesn't require a team of lawyers just to interpret another team of lawyers. What will all the lawyers do? Really, what does Mr. Liebowitz actually contribute to society? Is he even worth more than the space he takes up? Probably not.

Real business, the rule of law, and every other portion of an active funtional society has been replaced by a malignant tumor ridden organ only capable of killing the host. It has gone so far that we can't even recognize the organ in order to attempt a transplant. Are we looking at a heart, liver, or lung?

We now have a society that is in essence 90% useless. A small minority of workers stuck in the middle class are all that's left of functonal America. The top 1% wants it that way because they are among the least productive of all and suck more blood out of the economy than the bottom 50% combined.

The market is a tool to grant those who fall inside the wall and endless supply of wealth without work. They protect their walled city with the bodies of the feeders, sucking at the trough of discarded leftovers. Nomatter how much damage the market does to society, it will still be used. It is the only tool which the manipulators can wield.

itstippy's picture

Great post, ADR.

One scenario that would throw a wrench in the works is if (when) American middle-class mainstream "consumers" decide that things are not going to get better any time soon.  That Bernanke is full of shit when he describes the current economy as merely in a "stubborn rough patch".  That there's little reason for more Hope and not much Change going on.  That MOPE is a giant failure.  The Animal Spirits become frightened and subdued and go into survival mode.

Americans were a frugal and prudent people for generations.  We haven't always been fixated on fashion, bling, and keeping up with the Joneses.  We haven't always been addicted to credit and spending beyond our means.  That's pretty new.

"Wear it out, use it up, make it do."  "Save for a rainy day".  "A penny saved is a penny earned". "A stitch in time saves nine".  These were considered truths to live by. 

If middle-class Americans get scared of a turbulent future and adopt prudence as a virtue, the corporate Ponzi model falls apart.  No profits anywhere.  Not in banking or retail or advertising or ANYWHERE.  Stocks plummet - who wants to own a piece of a corporation that's losing money?

Game over for the Ponzi.  Wicked fallout, I'm sure.   

MyBrothersKeeper's picture

Very good thoughts in my opinion.  When you think about how much that debt controls the average middle class consumer you realize there will some inflection points that turn public opinion against the status quo.  For example, banks lose money in only one way in today's system:  personal defaults/bankruptcy. So the government is complicit in preventing this from happening by providing all the government sponsored programs and making sure there are no loarger scale defaults. And if there are, it's bailout time or fines vs prosecution for criminal activity.  The problem is most programs don't help the middle class and when the private sector middle class starts to realize real depreciation of quality of life you may very well see a nation of savers again and they will then become fiscal conservative voters.

LooseLee's picture

Very few of us 'get it'. Welcome aboard!

Boilermaker's picture

When do futures open tonight?

It'll be interesting to see if Ben is there (he is) to keep them up.

yogibear's picture

Bubble Bernanke flooded the banksters with lots of money to buy equities and keep the market elevated. 

King Obama will be pleased.

Boilermaker's picture

Pretty sure it's 3am tonight / tomorrow morning.

buzzsaw99's picture

B.C. wrote this:'s assets are hardly more than part of a slush fund for fee scalpers who add no value to the economy or society?

Then CHS wrote this:

A sell-off that gets away from the manipulators would likely be characterized by failed rallies and high-volume selling as money managers bail on risk and the perception that the manipulators are not God-like in their powers...

Leading me to believe that B.C. understands "the (manipulated) markets" better than CHS. Fund managers don't sell from fear of loss, they make their money by leaving funds at risk in various roach motels. It is redemption requests that get the ball rolling down hill. CHS hits all around what is really going on toward the end but unfortunately misses the nail with every blow.

Getting Old Sucks's picture

Tyler, go home and get some rest.  Leave an open thread, tomorrow's another day.

Atomizer's picture

You need to go to bed, tomorrow we’ll expose more on the weak global financial system. Fear mongering, terrorism and the mere idea to rape society too carry on your illusion will come to an end. What happens when no one believes your fairy tales/lies? Tell us Ph.D. spin doctor’s.  /LOL