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The Raging Fire Within
I've been trading the stock market for nearly thirty years, virtually non-stop. Today (that is, Monday, August 24) easily ranks in the top five strangest, craziest days in the thousands upon thousands of trading days I've ever witnessed. I felt like I was entering a cage of gorillas that had just ingested a large quantity of PCP. It felt dangerous and really, really unpredictable.
As I mentioned on my lengthy Saturday post:
I expect (and, again, hope – – because, God forgive me, I'm actually long five ETFs in size right now) we get a meaningful relief rally, carrying us up to the psychologically-important 17,000 level. At that point, please don’t be anywhere between me and my keyboard, because I am going to be shorting anything with a ticker symbol in size.
Well, God most certainly did not forgive me. If this permabear's time machine was working, he'd go back to Thursday morning, warn the slightly-younger Tim to not cover a single position, and further warn him not to buy a single thing.
Instead, I waited sleeplessly through Sunday night and early Monday morning for the opening bell to see how big a chunk of flesh those longs would take out of my 55 (much smaller) short positions. Well, the "tax" was quite hefty. Hedging as I did wiped out half of the profits I would have had otherwise, just as covering wiped out half my profits the prior Friday. I had relinquished tens of thousands of dollars of extra profit just to be - - well - - "safe."
I think we can all agree that approximately nobody anticipated the Dow falling 1,000 points right from the start of Monday morning. Frankly, the kind of "lift" I am seeing at the moment I am typing this (with the ES up 42 points) is more along the lines of what I thought would happen.
But the past few days have generated countless stories of triumph or woe, because in a market this volatile, you are going to have some accidental millionaires, and you're going to have some people absolutely wiped out, never to enter the markets again. Keep in mind the VIX was at 10 - 10!!!!!! - only a few weeks ago, and today it roared into the mid-50s. This is without precedent.
I tend to think in metaphors and analogs, so here is what I have in mind for your consideration: think about a forest. In a large forest, from time to time, there are naturally-occurring fires. These take place due to, say, a lightning strike, and what happens is that all the dry underbrush lights up and damages the forest to a certain degree. Some trees are killed. Some animals are killed. There is loss.
But, once the fire burns out of its own accord, life begins anew. The soil is rich with nutrients. More sunlight gets through to the surviving trees, and they flourish. The forest grows stronger. And, sooner or later, another fire will take place, but through this repeating cycle, in spite of Bambi getting killed from time to time, things improve and are relatively stable.
The same can be said for a financial market which is allowed to rise and fall based on naturally-occurring market forces. Some people get hurt along the way. Some people prosper. But, on the whole, the system works, and it works in such a way that it is fair and, in the grand scheme of things, beneficial.
What we have, instead, is a forest that hasn't been allowed to catch fire. The forest has been drenched with water every day, for years on end, to ensure that no spark can take hold. Lightning still takes place, but it is simply snuffed out on wet tinder. The layers of dead limbs, leaves, and other crinkly detritus accumulate on the ground, and soon you have a forest that is several feet deep in tinder.
So, in this instance, when a spark manages to get through, you don't have a run-of-the-mill fire: you have an apocalypse. The natural give-and-take of the organic system has been suppressed, and a towering inferno rages with a ferocity that seems surreal. You have, at long last, a calamity on your hands.
And that, my friends, is that we've been witnessing the past few trading days. Fire Marshall Yellen (and retired Fire Marshall Bernanke) have utterly perverted the natural order of things, and we are only now beginning to pay the price. The fire, I firmly believe, has only just started. We will indeed have some violent relief rallies along the way, but as we look at charts like these..........
..........my only conclusion is that the sensational bearish setups are firmly in place and, once the bounce is complete, you will be witness to a fury of plunging price quotes that will, in the end, prove that Monday, August 24th, was simply a shot across the bow.
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Remember Only You Can Prevent Forest Fires? You don't see Smokey the Bear anymore because they reversed the policy. As you pointed out, preventing forest fires allows a massive buildup of dry tinder and when you get a fire it is a disaster. If you had a small fire every year it would clear out the dead wood and weeds, and do more good than harm. This is the forest management policy of today. Hope TPTB in the financial markets get wise to this before the whole system burns to the ground.
Now it's "Only you can prevent wildfires"
The "Forest Service" learned at the knee of TPTB how to do this. They were "naturalists" and now are drinking the fluid of the Church of the Environment.
- Ned
Did’ja ever see the episode of Dudley Do-Right which got censored for defaming Smokey the Bear?
Seriously… It’s here: “Stokey the Bear”
Well done.
Given the enormity of the increase in FRN supply, I'm not seeing where the S&P would go below 1800.
101 between Redwood city and S.J. airport could use some relief, Tim... You know, a few less cars - preferably from a Tsunami of layoffs in the 'app' sector... Then again, perhaps I should be mindful of what I wish for...
And that, my friends, is that we've been witnessing the past few trading days. Fire Marshall Yellen (and retired Fire Marshall Bernanke) have utterly perverted the natural order of things, and we are only now beginning to pay the price. The fire, I firmly believe, has only just started. We will indeed have some violent relief rallies along the way, but as we look at charts like these.........."
You're right, except in this respect; they did what the racket demanded.
We do NOT have an economy in any way reflective of a DOW 17k or 18k. And yet, if things like shack values and share prices and dividends and bonuses (many unearned) aren't GROWING rationally...the racket throws fits until your Fire Marshals show up.
No one gives a damn about reality or the broken, once-mighty middle class. Consumer spending is a side show today.
We have, at best, a DOW somewhere between 4k and 6k, if that.
Shortsighted western corporations fucked a lot of shit up with the way they have behaved. They have also gotten away with it. Your "forest" isn't just overgrown--it is very ill mentally. It is delusional.
It's time the people shut the incompetent Fire Marshal down directly.
There is a rational response to this madness: repeal the Federal Reserve Act.
After all, if a therapist joins his/her patient in their delusion as a treatment, they're just as ill and should be removed from the case.
m
Repealing the fed isn't some miracle cure like folks on ZH think. The system of politics and corps is completely corrupted. The banksters will buy who ever makes policy. Even on a gold standard, it will just be another artificial hurdle for them to work around. Watch them ultimately create a corporate branch on mars to get out of the jurisdiction.
The only cure is honest people. Impossible now with dishonest politicians, cops, prosecutors, judges.
Granted.
But removing a major enabler is a the right first step. We're dealing with addiction here, nothing more. Too many with too much are delusional.
Rock bottom, painful though it'll be is the only place to start. THEN you deal with the players...
m
Repeal the Federal Reserve Act AND re-instate Glass-Steagal as originally written.
spot on
This current meltdown is going to be unlike anything ever before witnessed.
For the simple fact that over 70% of the daily equity volume is driven by computers. And many of those computers are trading the same algorithmic program.
So when it comes time to sell, it becomes very difficult to get out without crashing the market. Yesterday was merely a sign of what lies ahead.
I think future volatilility in the equity markets is going to make yesterday's opening seem tame.
The more they manipulate it, the more volitile it will be. It's computer wars anyway. None of this has been tested.
Testing gives me the creeps ... so skip it.
Had a manager like that once. Couldn't handle the truth. So I kinda' let slip what was going on, and ... well ... his creeps were also communicated to others. Voila! Fired my manager for the first time, now, well ...
- Ned
The ticker today is showing the same suspects as always, going back up just enough to prop up the index's again. There is no real reason, but confidence is breaking down and that scares the shit out of Wall St. The little disasters are popping up more often and it'll go straight to hell if a sector like bonds takes a shit.....
Ahhhhhh. Bear Porn.
Thank you for your insight. I have never been in the financial pits and only a little bit of commodities trading in the 70's. My broker did well and me, not so much.
Picture of Janet Yellen: "What is stock market?"