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The One Lesson To Learn Before A Market Crash

Tyler Durden's picture




 

Submitted by Jim Quinn via The Burning Platform blog,

Greece is saved!!! I mean BANKERS are saved!!! The market will celebrate the total capitulation of Greece to the EU bankers. Nothing has been resolved. The debt won’t be repaid. The can has been kicked again. Portugal, Spain, Italy, Ireland and even France are essentially insolvent. It’s all a ponzi scheme. The bankers win and the people lose. Hope is not a strategy. Hussman’s weekly tome shows how a crisis plays out. Bad shit happens and the powers that be react with bad solutions that keep their wealth and power protected. Their bad solutions lead to a worse crisis. More bad solutions. And so on, until complete collapse.

Look back to the 2007-2009 market collapse, and you’ll notice something. Despite repeated monetary and fiscal interventions, a positive shift in market internals didn’t happen until March-April 2009. In hindsight, it was none of those interventions that produced the shift, but instead the change in accounting rule FAS 157 in the second week of March 2009 that finally ended the collapse. That accounting change eliminated the “mark-to-market” rule that had required banks to report the value of their assets at market value, and instead allowed banks considerable discretion to choose the value at which those assets were reported. With the stroke of a pen, banks that were insolvent on a mark-to-market basis became whole on a mark-to-model basis. In hindsight, regulatory authorities used that change to abandon any further action that might have put those insolvent banks and financial institutions into receivership or conservatorship. In the end, it was not monetary easing, nor troubled-asset relief, that ended the collapse. It was a change in accounting rules.

 

A similar failure of memory seems to prevail when the media incorrectly suggests that the collapse of the market in 2008 began with the Lehman bankruptcy on September 15. The fact is that the market fully recovered to even higher levels the following week as the government banned short selling of financial stocks (much like China is doing more broadly at present). Weeks later, in a wicked case of “sell the news,” the actual collapse started literally 15 seconds after the TARP bailout was passed by Congress. Investors want to tie market outcomes to very specific events or catalysts. But history suggests a different lesson: once extreme valuations are joined by a shift toward risk-aversion among investors, the specific events become irrelevant. One way or another, the market is likely to get hit by a truck.

 

In October 2008, as the global financial crisis was in full force, Robert Prechter of EWT published a very instructive graphic illustrating how the accumulating market losses were descending along a “slope of hope” (the corollary to bull markets climbing a so-called “wall of worry”) despite repeated official interventions. Notice that aside from very short-term rallies following various interventions, the market kept collapsing. We encourage investors to learn from this now.

 

The S&P 500 would ultimately plunge below 700 by March 2009. Importantly, investors who “followed the Fed” during the 2007-2009 collapse would have done so through the 55% loss in the S&P 500, because the Fed began easing weeks before the 2007 peak, and kept easing all the way down. As in every other market cycle across history, it was far better to follow the condition of investor risk-preferences directly.

 

 

Don’t make the mistake of getting the relationship between monetary interventions and the risk-preferences of investors backwards. Monetary easing and other interventions can be very effective when they occur against a backdrop of risk-seeking investor preferences, but history shows that they regularly fail when they occur against a backdrop of risk-aversion among investors. The best measure of investor risk preferences is the uniformity or divergence of market internals across a broad range of risk-sensitive securities. Prechter describes the prevailing psychology of investors with the term “socioeconomic orientation,” and his observations on this, I think, are exactly correct:

 

“People keep asking, ‘What effect will the next central-bank plan have on the stock market’s behavior?’ This is the wrong question. The socioeconomic orientation turns the question around: ‘What effect will the next stock market move have on the central bank’s behavior?’ Just study [the chart above] and you can see that the authorities are not pushing the stock market around; the stock market is pushing the authorities around. Sadly, when markets push authorities around, authorities push people around. All it does is make things worse.”

Read Hussman’s Weekly Letter

 

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Mon, 07/13/2015 - 16:01 | 6307698 ted41776
ted41776's picture

https://www.youtube.com/watch?v=0akBdQa55b4

borrow money cheap and go buy the dip

Mon, 07/13/2015 - 16:12 | 6307767 Four chan
Four chan's picture

an oldie but a goodie.

Mon, 07/13/2015 - 16:21 | 6307815 Stuck on Zero
Stuck on Zero's picture

Bankers and governments keep celebrating each step toward central control with rising markets and more bravado.  Meanwhile each little loss of liberty fertilizes the garden of resentment in the populace.  How long will this go on?

Mon, 07/13/2015 - 16:24 | 6307824 847328_3527
847328_3527's picture

" No Banker left behind! "

Mon, 07/13/2015 - 16:02 | 6307717 FreeShitter
FreeShitter's picture

Except this time it's different.

Mon, 07/13/2015 - 16:10 | 6307755 Rainman
Rainman's picture

I say that about the form and texture of my poop every morning.

Mon, 07/13/2015 - 18:04 | 6308198 wee-weed up
wee-weed up's picture

Geeze... get a life, man!

Mon, 07/13/2015 - 16:06 | 6307735 order66
order66's picture

Mark to Unicorn will save us all.

Mon, 07/13/2015 - 16:16 | 6307796 J Jason Djfmam
J Jason Djfmam's picture

"Skittles".

Mon, 07/13/2015 - 16:07 | 6307737 ebworthen
ebworthen's picture

That first paragraph about says it all.

"Back to the salt mines serfs!"

Save a child - hang a banker today!

Mon, 07/13/2015 - 16:06 | 6307739 KnuckleDragger-X
KnuckleDragger-X's picture

Good thing it's all open and above board, otherwise things could go bad......

Mon, 07/13/2015 - 16:07 | 6307744 order66
order66's picture

"Buffet Buy" on that chart was preceded by "Buffet Bought" at 880. Just sayin'.

Mon, 07/13/2015 - 16:12 | 6307765 cougar_w
cougar_w's picture

I think they can keep this going for another 10-20 years at least. There is enough pension and 401k money in the US alone to fund these guys that long.

You don't think they can get that money? Then let me explain to you why they didn't blink when Jon Corzine walked away with "other peoples' money" pretty much the exact same way. He did it when he did because he already knew how this shit show is going to play out. No way TPTB were going to make an example of Corzine when they were already talking about pulling the exact same stunt and on a very much larger scale Any Day Now.

Mon, 07/13/2015 - 16:30 | 6307856 10mm
10mm's picture

That's because it's a big club, and you ain't in it. You and i are not in the big club. They own this fuckin place, and they want it ALLLL. Like at Davos, they are not content with half, they want it alll.

Mon, 07/13/2015 - 16:55 | 6307950 Tinky
Tinky's picture

I'm a fan of some of your posts, but I don't see any way in hell that this will hold together for another two years, let alone 10-20.

I understand how you might arrive at your conclusion on paper, but in reality the world's economies are now too tightly connected, there are a rapidly growing number of explosive charges with short fuses (e.g. Greece, China, Japan, Puerto Rico, etc.) attached, and plenty black swans are flapping about.

Mon, 07/13/2015 - 17:16 | 6308031 Obamamerica
Obamamerica's picture

Nothing to prevent continuous printing printing printing. Unless the US Military is soundly defeated on the world stage, we will maintain reserve currency status, and that means the FED can just buy all the debt (and all the stocks for that matter).

 

This could go on forever. We've basically been off the gold standard for 80 years and fully fiat for 40+. As long as the gubmet gives the masses bread and circuses it can go on until the 2nd coming of Jesus. 

Mon, 07/13/2015 - 17:24 | 6308068 disabledvet
disabledvet's picture

Actually YOU ARE TOTALLY FUCKING WRONG.

QE absolutely DOES prevent "money printing" because by monetizing the debt you're taking cash OUT of the system. (Taxes, fees, tolls, etc)

So "instead of a Bakken shale boom yielding untold riches!..." basically it all gets sucked into a Balck Hole of Full Retard Government and debt.

In short. "Let the Defaults begin!" Greece is the first...the first of many no doubt.

Move along...

Mon, 07/13/2015 - 19:31 | 6308500 tarsubil
tarsubil's picture

If the Fed bought stuff that isn't toxic worthless bullshit, yes, they'd take money out the system. But that is what they are buying.

Mon, 07/13/2015 - 18:47 | 6308357 Tinky
Tinky's picture

Nonsense. The limitations of such an insane "solution" are already becoming readily apparent.

No chance this goes on for many years. None.

Mon, 07/13/2015 - 17:18 | 6308038 disabledvet
disabledvet's picture

I was thinking more like "two weeks maybe two days" actually.

The problem is State and local debt and the "death of the taxpayer" (REITS, MLP's, etc)

With zero income growth in the USA "good luck paying for the next Banking Collapse."

The irony of course is that the U.S. Dollar is finally worth something.

Mon, 07/13/2015 - 17:05 | 6307988 geminiRX
geminiRX's picture

Armstrong has things falling off the wagon in a big way between Oct 1, 2015 to 2017. Do I believe his economic cycle theory? Not entirely, but he's caught some major turning points in the past. We'll find out if it holds any weight very soon

Mon, 07/13/2015 - 18:36 | 6308330 MFL8240
MFL8240's picture

I agree with you in principle but with the current otc derivative exposure and general bad debt, I thing 5 months is more like it!

Mon, 07/13/2015 - 16:13 | 6307777 MansaMusa
MansaMusa's picture

The people are not rioting so I say everything is A-ok in Greece; wake me up when downtown starts burning.

Mon, 07/13/2015 - 16:20 | 6307810 J Jason Djfmam
J Jason Djfmam's picture

Perhaps those with the inclination/energy to riot have already removed their funds from these fine financial institutions.

All that's left are weak, stupid, old people.

Not much of a rioting crowd in my opinion.

Mon, 07/13/2015 - 19:28 | 6308496 Quus Ant
Quus Ant's picture

Not too fond of your grandparents, eh? 

Greeks will not abandon their loved ones to the vampire squid.  The tinder is dry, the wind is high.  We await a spark.

Mon, 07/13/2015 - 16:32 | 6307860 10mm
10mm's picture

I don't see them Greeks burning much and i don't expect much at all in terms of rioting. Now crime rising, no doubt.

Mon, 07/13/2015 - 17:33 | 6308095 Oldwood
Oldwood's picture

The one thing this Greek tragedy has taught us all is that the answer to all of our problems comes from raising taxes. It is all the EUcrats really want. Its all our progressive American government wants. Ultimately it is what ALL governments want. The thing about Greece that makes this so obvious is that they have managed through debt to employ or otherwise create dependents of a significant portion of their population. These people, being dependent upon whomever, any entity, that will write them a check, and if that means higher taxes...so be it. After all, its only the rich who pay taxes. right?? The EU has made this very clear....

if you want to stay on the tit you must submit

And they will....but of course they won't, anymore than one can lift themselves with their own bootstraps. They want their cake and eat it too. The debt is too large and growing. To attempt to raise taxes enough to service the debt AND service themselves is impossible, and therefor will not happen.

Mon, 07/13/2015 - 16:14 | 6307783 opt out
opt out's picture

The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. - GB Shaw

 

working as intended. move along.

Mon, 07/13/2015 - 17:20 | 6308041 Obamamerica
Obamamerica's picture

Gotta love Shaw. He wanted to gas all the Blacks, Jews, crippled, mentally handicapped, elderly, and everyone else who wasn't a productive member of society. He was the original Progressive. Hilary and Barack have certainly followed in his path. Look at all the minority abortions. Gotta love Barack. He has pushed for more Black abortions than any politician in US History. What a great guy!

Mon, 07/13/2015 - 16:14 | 6307785 thepigman
thepigman's picture

Not a single market in the world that is not now selling dogshit for the price of caviar. This will end well.

Mon, 07/13/2015 - 16:15 | 6307790 T-NUTZ
T-NUTZ's picture

Cue the third Great Crash of the second Great Depression.

Mon, 07/13/2015 - 16:21 | 6307816 J Jason Djfmam
J Jason Djfmam's picture

"Over a long period of time, then all at once".

Mon, 07/13/2015 - 16:26 | 6307835 nakki
nakki's picture

The fact that the "market"  became even more ponzied by way of legalizing fraud,  mark to fantasy, zirp, buybacks, and Non Gaap reporting just blows my mind. 

The fact that 95% of the people don't understand the Federal Reserve "system" and its true owners, or what fractional lending is just blows my mind. Its not that hard. Perhaps a culling of the herd isnt such a bad idea.

Mon, 07/13/2015 - 17:23 | 6308065 Obamamerica
Obamamerica's picture

Where can anyone invest now? Cash is trash, PM's are toast, stocks and bonds are in a huge bubble, housing is out of control. 

I would open a marijuana farm in NY but the regulation and fees would eat up any profit. 

Seriously, there is no where to invest in the US of A anymore.

Mon, 07/13/2015 - 17:49 | 6308149 EndOfDayExit
EndOfDayExit's picture

This is why it is called a depression. There is not much productive (and profitable) one can find to do.

Mon, 07/13/2015 - 16:27 | 6307838 Atomizer
Atomizer's picture

The media is humping each other's legs to spin the obvious in another direction. Enjoy. 

How To Create Your Own Ad - YouTube

Mon, 07/13/2015 - 16:34 | 6307872 youngman
youngman's picture

From here on out...we are just going to print until enough people say no to the fiat.....so expect trillions more of QE and social program bailouts....until that dollar..yen..or Euro is worthless on the street...that is the end...TPTB will print to save their wealth forever as long as we let them....no stopping now...noone can lose money on any bond now....its all fixed....

Mon, 07/13/2015 - 16:56 | 6307953 large_wooden_badger
large_wooden_badger's picture

Heads the banksters win, tails the people lose. This cannot end well.

Mon, 07/13/2015 - 17:32 | 6308090 we built this city
we built this city's picture

The one lesson the tylers should learn

 

being wrong on market direction for 5 years.....

 

instead of writibg bull****

propaganda about

meltdown and crisis maybe you should start writing about your 5 years of terrible mistakes

why should someone care if markets are rigged- you should be smart not  right in the market- the objective is to make money- and this site unfortunately had made people to lose alot of money either by missing the enormous rally or by shorting and erasing assets.

Mon, 07/13/2015 - 18:04 | 6308199 adr
adr's picture

You aren't making money in the stock market. The stock market only transfers money. The market is based on stealing other people's money and selling them on the idea that someone else will give them more money for the same exact thing they bought down the line.

This hypothesis that there will always be someone else willing to pay more is based on lies, fraud, and the destruction of real honest business. Because fraud is far easier than real business.

The stock market can only create speculative bubbles because outside a few rare instances blowing bubbles is the only way to create returns for investors.

You can't pay a dividend if your company doesn't generate any income. It is insane that corporations with no real operating income are allowed to not only exist, but prosper in this publicly traded hell.

Horrors of human beings have become billionaires manipulating a system without adding a single true dollar to the economy. How much is Amazon still I'm the hole after 20 years of operations? How many working people have been destroyed through Amazon's relentless drive to lose billions of dollars to grab market share?

So yes you can be right and miss out on I'll gotten gains, or throw ethics in the toilet and watch your paper wealth soar without having to lift a finger. Everyone knows the market is pure bullshit, but they don't care as long as money is being made. But why even have a stock market?

You could be running a computer simulation that randomly sends symbols up and down that people place bets on. Essentially today's stock market is just that. Can anyone honestly say why a stock like Netflix trades where it does on any given day? Is it supposed to be different because these companies are supposed to really exist and do business. Once again in reality these corporations are actually bankrupt. They shouldn't exist and there shouldn't be anyone supporting them. It is only the simulation of the market that allows them to exist, by faking solvency so people will trade dollars they earned for the hope that someone else will trade them more dollars down the road.

It is an absurd assumption. Anyone with a brain can realize eventually you run out of people willing to pay more. The astounding thing is that the market makers have been able to obscure this undebatable fact from people using layer after layer of bullshit. An endless parade of pundits and commentators lying through their teeth, supporting a flawed system because they can't exist in a honest society.

Supporting this system of putrid stink just so you can raise your net worth without having to work for it makes you rotten to the core. The goal should be to starve this beast, not throw in the towel and join in.

Mon, 07/13/2015 - 18:43 | 6308346 FreeNewEnergy
FreeNewEnergy's picture

No, no, no, no, no, no, no, no, NO!

Play.

The banks and government have provided a perfect blueprint for exceptional returns for at least the next five years.

Many here on ZH and elsewhere never thought the bankers could pull this off for 3 years, 4 years, five, now six or seven years - or longer depending upon your personal horizons - so, now does anyone with a few brain cells believe that they can't keep doing this for another five yeas at least?

Many ways to play this, dependet on you own circumstances.

Buy gold. Never that bad an idea.

Sell shit. Kinda a pair trade with above.

Gamble. Race traces (love 'em) and casinos (loathe 'em) provide an essential market dynamic to our economy. The urge to piss away MONEY, which is a huge difference from pissing away wealth.

I saw a table full of stuff on the road today with a sign that said "free." I thought about it a few minutes, inspected the goods and grabbed a Mr. Coffee, a toaster oven, crock pot, four candle lanterns, a book full of cookbooks, (many of them new, some vintage from the 70s'), a folding table, a flagstand, about 100 tubes of acryllic paint in a multitude of colors, a huge pewter-type platter (I don't know the proper term for this, sorry) about 30 inches wide (I kid you not. It's huge.), a toaster, and some other stuff.

OK, I'm out in the country. The stuff was just sitting there and the people live right down the road from me. I'd venture to guess that if youput the same stuff out on the street in the City 25 miles from here, most of it would be gone in a few minutes. I'm thinking the stuff I picked up was there at least a day, maybe 2, 3 or 4. It's a pretty quiet road and most of the people have more stuff than they want, I suppose.

My point is that everyone's needs are different.

ZHers might want to go into the financial advisor business rather than continuously posting about the collapse of the fnancial system and by inference of civilization.

God knows, we've seen this shitshow before.

Profit. Watch The Wolf of Wall Street. You'll either puke, laugh, cry, want to turn it off, or all of the above, and more. Wall Street, Greed, Money. Crime. Corruption. Drugs. A very good degenerate movie, if that's your thing.

Pretty much a realism flick, with extra dramatic effects.

All I'm trying to say is play it your own way and don't get caught, which is pretty much the same thing we used to say to each other in high school when facing circumstances foreign to our accumulated intelligence.

I'm finding it easier to get along every day.

Hope you all are too.

This always guided me: It's better to light one candle than to curse the darkness.

Good luck.

Mon, 07/13/2015 - 19:56 | 6308578 buffed
buffed's picture

We all know the market's in a buuble, the market's rigged, money printing and interest rate suppression will destroy the fiat monetary system.  However, this game can evidently be strung-out for God only knows how long.  Look at Japan,  they've been hanging-on for a couple decades and they don't even have the world's reserve currency.  The writing is on the wall; most govenments in the world are hopelessly bankrupt but the worse things get for other countries the stronger the USD gets despite the US Governments obscene debt.  Of course this is crazy but the bottom line is that if you invest in the way things should be unfolding you've been slaughtered. 

Mon, 07/13/2015 - 20:10 | 6308612 lotsoffun
lotsoffun's picture

Did the yankees, cubs, clippers, kardashians, jenners, win today? What is the plot of game of thrones? Etc. Do not expect changes in the usa. They are all on welfare of one sort or another, that buys votes. Ending it is the solution, but nobody will or can.

Mon, 07/13/2015 - 20:38 | 6308682 tool
tool's picture

So someone should be asking when we going back to mark to market not when are they going to "hike" rates by a 1/4 of a percent after six years!

One guy that I've read picked this bull market from the beginning his name is Nadeem Walayat and basically say QE will never end.

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