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What A Correction Could Look Like
While disappointment from the FOMC's comments tomorrow may not be enough to create 'the big one', it is perhaps worth a look at the more meaningful corrections over the last 10 years in equity and credit markets for some sense of context for what is possible. So far, it is clear, especially given today's equity rally (and ongoing credit weakness) that the consensus of the equity herd are not expecting disappointment tomorrow - while credit markets are preparing for the 'flow' to slow.
Credit markets are well on their way to a 'normal' correction...
But stocks remain notably confident relative to previous corrections...
and the divergence is becoming clearer...
and continues today...
Charts: Morgan Stanley
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Nothing's gonna happen tomorrow or even next week, unless the Fed DOES something
Let me repeat this again.
The Fed is the Market. Hence, it does not matter what Fed says; what matters is what Fed does.
Does the fed determine if Comex or LBMA default?
That's White House/Congress Committee decision.
People think the Fed is omnipotent.
Obama last night showed to the world who's the boss, by firing Bernanke on TV
Here is an image of the upcoming correction.
.
http://upload.wikimedia.org/wikipedia/commons/1/19/Train_wreck_at_Montpa...
I'm thinking it might look more like this.....
http://www.wallpaperswala.com/wp-content/gallery/mushroom-cloud/red_mush...
I am becoming convinced that even if you "win", you are still going to lose.
Here's a real world example of what HAS happened...
Japan.
BoJ announces a "taper" in March 2006.
J. Stocks had risen some 60+% from say, mid 2005 to around March 2006 or so, then fell 20% to about 14500. Followed by a subsequent rally back to about, say 18250... The rest is history....
BONDS
10yr JGB's.
May 2003, yielded 0.5%
Tapertime announced March2006.
April and into July 2006 the 10 yr JGB fiddled about at a peak of 1.91%.
Now are at 0.93% or so.... the subsequent decline in rates being choppy, volatile but none the less to much lower levels.
Why?
Liquidity Trap.
It doesn't matter. It's broken, the system will not, indeed cannot respond to an environment awash in money in spite of slack... it's all about fiscal and tax policies, demographics, etc.
One More Time: Liquidity Traps are Monetary Phenomenon brought upon by Non-Monetary Policies and Events
A taper will not change the longer run direction of financial markets!
Longer Run.
And for you doubting Thomases out there, yes, take a look at Gold in Yen terms since then.... I throw that in just for shits and grins for correlation is not causation, but knew this audience would like it.... LOL
The conclusion does not apply to a world reserve currency like dollar, IMO
As has been shown numerous times, the Federal Reserve Note's reign of terror will not go on forever.
S&P down to 721?
I love it!
Obama can (and WILL!!) demand Bernacke print as much gold as is needed. cuz he can?
how can you actually tell what the fed is doing?
You can't
Only insiders can, like Hank Paulson who told hedge funders what was going to happen in 2008
You can't...????
But you can, in many posts you have clearly stated the fed was already tapering.
Testing, but not full blown margin call like to Lehman
Don't get all misty now on me ekm.
Only few people know liabilities of primary dealers, their derivative daily losses and how much is needed to be printed in order to cover that.
We can only see the results, not the numbers that caused it.
I think it's inevitable White House will call the margin on 1 or 2 primary dealers
Which primary dealers have the least amount of reserves stored at the Fed?
Those are the targets for margin call, no?
The ones will least connections to the lobbies and gov.
My speculation goes on MS and Merryll Lynch
Thanks for the feedback, always appreciate your posts and their content.
Much to think about...
good bet. ms was weakened with infighters and this ml/bac thing - at some point montag
was a GS guy - but that's worn off now and lloyd and jamie going to toss him real quick to survive,
one would guess bac/ml has cordoned off the ml thing legally.
The Fed has the capability to own the whole stock market if needed. It can buy up all the US debt.
If it ran correctly it would penalize the value of the US dollar appropriate to the amount of stock purchased with printed money by it's member banks.
Nothing productive here, just financialization.
They already almost own all dow and bonds
It leads to dollar avoidance and currency swaps. It's a disaster
Do you really believe that?
I believe in God.
As to currency swaps, that is the reality happening right now
The Fed ain't doin nothin to crash this thing, unless they are told to. It ain't time yet. The market has to go higher to temp us holdouts back in before they crash it. In the bankers world its not about money, its about leverage. You use money for leverage to gain power, dominance, control. Money is just paper afterall. But when they have our tenders tightly in their grasp, then they will have that leverage. We will be jumping as high as they command. Just think how great it would be to be able to tell anyone, everyone, to do something and they would...right now, and no matter how wrong or screwed up it was it would be their fault, not yours. Thats what they want, not money. POWER
probably the smartest thing you will see in ZH today.
DO not fight the fed, even a taper is not culling the fed, its just slowing down, the market will quickly find a positive side to this, and up we go.
HERE IS A GOOD WAY TO PLAY THE FED DAY.
When you erase all of the QE, I see a deflationary (demand side), and healthy, reflation scenario.
Stop teasing me, you!
Gotta love " Meat Hammer". can i go fishing now?
Great idea
Thanks Man. You're the best! kamloop Rainbow trout. (sunset)
So the fed hints a little too hard at taper. The market dumps 10% or so. Yields do what? Rise because of taper? Fall because of equities selling off? Then what....data magically comes out weak and the July meeting the untaper? Amazingly the market will already have bounced back because the early distribution list got the memo.
We spend the next year going between taper and untaper. That sounds like a truly nightmarish scenario. Sounds right.
The Fed + Primary Dealers can do anything they want, literally anything they want.
The problem is that the world will simply bypass them, by going for currency swaps and pure barter.
Not talking about crude oil and commodity starvation which makes things 1000x worse
there is no untaper, or taper, there always the possiblity of both....bernanks is an amazing communicator, eh???? on to 16,000!!!! hi ho silv...er...stocks....and away!!!!!!
@ekm
There is always frontrunning. How do you think these people get out before the muppets do?
Not enough muppets.
They can't get out unless one or two of them become muppets
that's just so obvious. in 2008 - the heads of aig, bear, lehman were muppets. they got crushed. stanley o'neal cashed out of ML with something north of
150MM. nice job. goldman should have been muppet - except for uncle hank paulson funneled 180 billion through aig muppet system. so yes - at some point,
the sharks do eat themselves, and will do so again. shortly. you think jamie dimon will give up a cent to lloyd boy?
JPM and GS are untouchable, IMO
except for one thing. jamie and lloydie boy are in competion - and only one can win.
These are excerpts from The Empire of “The City”–
The Secret History Of British Financial Power by E.C. Knuth, first published in 1944.
* Referring to “Great Britain, Banking In” in the Encyclopedia Americana, it appears that the Bank of England is not subject to any control by any governmental agency of Great Britain, and that it is above all government, despite the fact that it is privately owned and its directors are nominated by its proprietors. In the Encyclopedia Britannica of 1891 it is termed “a great Engine of Government.”
* While the gigantic fortune of Maier Amschel Bauer, who had lived once in a house bearing a red shield in Frankfort, Germany, had been a potent factor in the politics of Europe before the year 1800, the 1943 Encyclopedia Americana states under the subject heading “Rothschild:”. “The political events of 1813 raised the House of Rothschild to the important position it has SINCE occupied in the commercial and financial world.” And further: :”…much intermarriage among cousins indicates the family is destined long to control of European finance.”
* In a carefully developed plan to attain financial control
of all Europe, Maier Amschel established his five sons in the leading five financial centers of Europe: Nathan in London, Solomon in Vienna, Jacob in Paris, Karl in Naples, while the eldest (Anselm Maier) remained in the German headquarters.
* Maier Amschel laid down on his deathbed that all members of the family were to act as one. That they chose wives out of their own family, that they must remain true to their orthodox religion.
"Rothschild" Old German. Literal translation "Red Shield."
Christians of the middle ages were forbidden to have anything to do with "usuary". However, the Jews who were the gold merchants and money lenders could. Hence wealthy clientele would avail themselves, of this service provided by the Jewish segment of the population, which were a part of society, but kept apart from, in what was then known as "The Jewish Section", which amounted to no more than a ghetto. With the entrance/exit gates being locked at sundown during curfew - from the french 'curb de feau', meaning "fire out." It was rumoured that Maier Amschel kept an underground strong room beneath his store for valuables. His political influence grew out of loaning influential royal families money, that some never paid back. Never the less his, political stature remained.
Weil it looks like the ZH crowd will soon have to change their catch phrase : f*** u Ben! ...to something else and start yelling :
Janet I'm yellen at ya!
Wouldn't it be nice if Janet made a statement of allegiance to Obammy of the kind Christine Lagarde made to Sarko.
Then we would two of the most powerful women in the world saying : Please beat me if a get out of line. Boss, you are my inspiration and my mentor. I'lll do anything to be your instrument in the new film and play the role you cast me for.
Hellz Bellz.
God save the queen! /sarc
you mean Bloomberg?
My Samsung "4 inch" screen is working well. I'm telling the truth when I say I'm fishing! I'm in the middle of a lake!
"Weil it looks like the ZH crowd will soon have to change their catch phrase : f*** u Ben! ...to something else"
~~~
Most of the ZH crowd, all along, hasn't even been saying "f*** u Ben"...
What they REALLY mean is... "f*** u Mariner Eccles building rocks that were quarried from Indiana limestone... We berate you, oh ungodly stones, that have the magical power of printing money... But in our hour of ignoring 'elephant in the room' misery, we take the time, [because we fancy ourselves as patrons of 'Cheers' with a Bloomberg Terminal], to give thanks for our daily stock charts, as well as pearls of economic brain farts from Paul Krugman [so we all can feel intelligent by finding 100 ways to laugh at his funny beard]... Long live the S&Pee"...
That cheers comment really got to you eh?
I hate to tell you this but that's where we are at. You were elected big toe. So everything from here on out is happening on your watch.
Yes I mean 'we'... ZH'ers... 'Homeschooled' in memorization & recital... Have committed to memory & catalogued, the entire dewey decimal system of EVERY SINGLE SOLITARY 'cult of mysticism' [save for those who aren't fans of the 'BLUES' BROTHERS]... We like to share that knowledge on sacred occasions [like on the days Syria gets bombed]...
Long live the S&Pee"... Amen...
Did you like Woody better or Coach?
The only character I ever understood was 'Dr. Lilith Sternin'... All the rest were predictable bums...
it's a pleasure to make your aquaintance. (It's a pleasure)
Obama will tank the market when it is best for Obama.
Either prior to the midterms so he can blame the Tea Party Republicans, or prior to his third term so he can justify another illegal power grab......
Obama will pop the bubble he has blown when it is best for Obama.
Ask yourself what is best for Obama, not what is best for your country.....
Obie will?
Methinks there are forces way beyond even his control.
To wit: That pic of him and Putin.
Yeah, makes Tiger and Sergio look like the Captain & Tennille.
So Obowel isn't Bernanke's boss and Bernake did not QE when Obama needed him to QE?
Obie works for the folks who told him to tell the Bernak as an added fillip after they'd already told the Bernak.
-1 for still believing there is a difference in the parties and that barry has ANY power that isn't bestowed upon him by his masters. Same damn thing in everyone of your comments.
Meh, I shouldn't feed him.
Yep, "both parties are exactly the same"
Why no QE under Bush then?
Name a few racial hiring quotas for white people that the Republicans put into their bills like Obowel put into his Finance Bill for black people?
Bush's 600 BILLION dollar deficit the "same" as Obowel's 1.6 TRILLION dollar deficit?
Care to mention which percentage of our national economy that Bush socialized?
Same only to retards and dumbasses! Keep repeating that socialist media 'logic' if iit makes you feel better.
Don't respond without answering my questions, unless you enjoy looking like a cowardly pussy!
Keep down that bitter road, it will do ya good. I wouldn't know any "socialist media logic", as I don't pay attention to any of it. Keep tongue jacking that Romney fartbox though, I'm sure it tastes like xenu. I'll stick to eating pussy and trying to get people to see the big picture; you keep doing whatever it is you do.
PS - It probably chaps your ass that I supported Ron Paul in 08 & 12; cuz ya know it enabled everything that's wrong right now
Obama desperately wants to sweep the Midterms right now. But here is the problem. An ordinary market swoon won't help him, and might even hurt because Obama will at least share any blame. He needs a big one. A crash so scary that the public will be crying to Obama on their hands and knees begging for new unemployment benefits, SNAP, and mortgage assistance. If the crash is scary enough, the voters won't care who is to blame. They just want to survive.
Problem is, the market right now is probably not high enough to produce a crash and bust that is sufficiently scary for Obama's needs. It needs to go much higher first. So the best thing for Obama is a correction and a massive push higher. Obama will probably have to settle for a super crash in 2016 unless the market doubles by the summer of 2014.
I agree with EKM, the market as far as the dealing market, yes Wall Street, is underwritten by the NY Fed in it's entirety. Since most Wall Street banks, firms, hedgefunds etc are connected to European banks, firms, hedge funds etc there is a two way liquidity pump, from the NY Fed to the ECB. That's the play to keep confidence in European markets (EUR bid). HFTs algorithms are still wired to EUR selling. In doing that, they have kept the derivative market calm and suppressed volatility. BoJ has joined the fray, only on the pretext of any contagion based bond panic. So we see major YEN selling/swaps onto Fed balance sheets.
All and all, it's a chess game by bond holders playing vigilante and toying with markets, I believe this is a cold war move namely China. The Fed WILL NOT taper anything, they can't anyway. They push rates up unrealized losses will be staggering on ECB and Fed balance sheets. Forget it.
As the Germans once said re: Berlin. "Your dance partner is death" Well, the Fed and market are locked in a dance with death. One day this market will cease to exist.
In saying that, as far as correction goes. I would 100% short this market on any major war. Not fighting bandits and Muslim lunatics, a major stand up fight...somewhere.
chump666 aud/usd is stable. Cable is over-bought. Look at eur/gbp.
Yen, commodities just got the green light. We are going to rally from here to whenever. I'll be watching China especially how they react to inflows. They will do what they have been doing for months and months which is buy up USDs and attempt to push rates up on the long dated USTs. As far as the AUD, it will peg to the iron ore price, which will probably go the other way (sell). Asia, South America may not let the USD drop too far under 80. All eyes on gold IMO, if it can't get off it's low after the Fed well pump prime the market. I dunno, but it might tank.
Good luck
Quite frankly, all this crap is beyond me. I will continue to bury gallon jugs of whisky and prep for the destruction of the infrastructure. My targets are electricity, water, food, fuel, all wireless communications and finally beer in the 7 counties which surround DC.
When the crap hits, I plan on having lots of company.
No ack acks
You're a retard! Live with fact that you will never contribute to society! (in any meaningful way)
OR! You can quit being a PUSSY!
How much of the equity gains are from foreign investors seeking............?
Does this have a dampening effect on corrections? Is other stimulus from around the globe making it to our markets? Maybe it can continue with others money propping it up for a while. It gives the Fed a chance to save/ease a little?
No matter what happens on Wednesday, the only correction will be that the bulls didn't charge hard enough. Buyers will be lined up from New york to Miami waiting to pile in at the slightest move down. Until the FED is dead, stocks will rise briskly. Dow 66,000 by 2020.
Unfortunately that's exactly what's been going on.
I have noticed my short positions aren't making me rich.
Can something crash big time please?
Sell vol. Nothing happening tomorrow...the baton has been passed to Yellen to make these decisions next year.