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The Phrase That Launches Recessions
Submitted by Pater Tenenbrarum of Acting Man
It Can’t Get Any Worse?
On Friday, shortly after the release of the payrolls report, we asked half in jest whether the time had finally come for the market to interpret bad news as bad news, and not as an opportunity to speculate on more central bank largesse. As someone remarked to us later: “You had to ask”.

Photo credit: Paul Cross
Apparently a slightly later released news item informing us that “factory orders hit the skids” was taken as a buy signal of the “it can’t get any worse” sort. Normally it is considered bullish when the market rises on ostensibly bad news – and very often, this is actually the correct interpretation of such market action. However, one must be careful when the fundamental backdrop is subject to severe deterioration. Readers may recall that commentary on the markets was brimming over with the same type of argument in late 2007 and early 2008. In October 2007, the market in its unending wisdom priced the shares of Fannie Mae at $73 for instance.
SPX, 10 minute chart – after initially sliding on Friday, the market quickly recovered and has rallied quite a bit since then
click to enlarge.
The point is this: Although as a trader one must always respect market action, especially in the short term, one must at the same time avoid to ascribe to the mass of market participants a degree of wisdom they simply don’t possess. The market very often “knows” nothing and frequently tends to get things completely wrong. If that were not so, there would never be any buying or selling opportunities, but plenty of those obviously exist.
The “Throwing of the Light Switch”
Anyway, over the weekend we caught up a little on our reading, and inter alia came across an article at Wolfstreet a friend had pointed out to us, which discusses the recent weakness in US manufacturing data.
What struck us was a comment made by the CEO of a manufacturing company in the context of the latest Kansas manufacturing survey release. As Wolf street notes, according to the survey, “the future composite index and the indexes for the future production, shipments, and new orders all dropped to their worst levels since 2009”. Here is what the CEO said:
“It feels like someone just flipped the switch to ‘off’ without any concrete reasoning,” one of the executives commented.
(emphasis added)
We immediately recognized that phrase – we have heard it twice before, and it has stuck with us ever since. In fact, we have mentioned it a few times when occasion demanded in past articles. The first time we heard this phrase was in late 2000, in an interview with the CEO of a telecom equipment provider. Paraphrasing: “It’s as if someone had just thrown a light switch – orders have suddenly disappeared”.
The next time we heard the phrase uttered was in late 2007 – this time in connection with a mortgage credit company. Ever since, we have filed it away as an anecdotal reference to the onset of recessions. And lo and behold, the phrase is popping up again in a district manufacturing survey.
Over the weekend we also looked at the latest EWI financial forecast (a monthly publication focused on US markets). In one section, the authors discuss the recent prevalence of individual stocks and corporate bonds crashing even while the market as a whole seems to be holding up relatively well. They also ponder whether certain corners of the bond market that are lately attracting funds from those fleeing the junk bond market for their perceived safety are really as safe as is widely assumed. The following turn of phrase stood out to us in this context:
“Our view is that Glencore’s “flash crash” will turn out to be one of many “light-switch” declines, and not just in commodity-related businesses. Already, a plethora of stocks in a wide range of industries have quietly crashed over 50% this year. The industries range from specialty retail (Aeropostale, -78%) to coffee (Keurig Green Mountain, -67%) to semiconductors (Micron Technology, -61%) and the Internet (Groupon, -61%).”
[and further below, in the discussion of corporate debt]:
“As the charts of Glencore’s stock and its credit default swaps illustrate, the “light switch” moments are starting to appear.”
(emphasis added)
So there you have the same phrase again, only this time in connection with financial market behavior. As the accompanying chart shows, junk bond spreads are exhibiting a distinct similarity to how they looked just ahead of the most recent recessions and bear markets:
Junk bond spreads with a proposed wave count by EWI – click to enlarge..
This synchronicity in this turn of phrase is of course not a coincidence – both the sudden disappearance of manufacturing orders and the “quiet flash crashes” of individual stocks from a wide range of industries coupled with persistent weakness in junk bonds, are symptoms of the same underlying phenomenon.
Conclusion
When we see the phrase about a “light switch suddenly being flipped to ‘off’” or a variant thereof popping up in reports about the economy or descriptions of market behavior, our ears are perking up. Admittedly, a sample of two is not exactly the mother of all sample sizes. Then again, anecdotal evidence is by its nature not statistical, but rather reflects the perceptions of people, in this case people intimately involved with the underlying businesses or markets.
We tend to believe that such evidence is actually important. Both in 2000 and 2007 we encountered this phrase shortly after the stock market (in the form of the S&P 500) had put in an all time high or a retest of an all time high. Even the very first time in 2000 it struck us as significant. The reason in this case was that only half a year earlier, there had been much talk of “equipment shortages” and even (hold on to your hat ) “DRAM shortages”.
When manufacturers see their orders suddenly dry up, something is very wrong in the economy already (note also, this tends to happen before any material effects on employment become evident. A sudden rise in initial claims would definitely cinch it). In light of this, stock market rebounds, even impressive ones, should be viewed with a healthy dose of skepticism.
Charts by: StockCharts, Elliott Wave International
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It's 3:38. Do you know where your ramp is? Seems late today.
BOHICA!
I don't know, the DOW is green, but just about every thing else is red. Transports are down 1%, Naz is down, S&P is down.
I work for a large global communications provider. In general our large Fortune 500 customers (banks and multinationals) are three to four months late on bills when 30 to 60 days is the norm.
Take that for what it's worth...
That's accounts payable management by Big Business, regardless of the business cycle. They fuck everyone they owe money to, as long as they can. They laugh at your payment terms and pay you when they feel like, and have for 15+ years. What are you going to do, fire them as customers? That's their attitude.
Hopefully that 3-gang switch is not in some “employee’s only” restroom at a restaurant?
You never want to go in there, trust me.
They make a public toilet in Calcutta look like a paragon of cleanliness by comparison. Right down to the footprints on the toilet seat and the shit-stained finger-swipes on the "Lava los manos" sign.
Enjoy your meal and tip well.
If it is a “employee’s only” restroom at a restaurant. I hope they're just doing drugs in there.
15 years ? You must be young.
When I was selling to British Aerospace and GE(UK) back in 1970s they paid you once a year if
you were lucky.
Anytime the CEO is an accountant you are going to get squeezed. Like miniskirts and bell bottoms,
they come back into fashion on a cycle..
I gave terms of 3 % 10/net 30 and my customers were borrowing the money to pay early. It made sence to them and I worked it into the pricing.
2 1/2% net ten got me nothing.Finally I bought some stock and went to both AGM's.
Caused such a stink, I got paid promptly by both therafter.After 18months of hell.
Lots of ways to skin a cat.
This is truly the problem in the current business climate. Businesses need to have an option to fire customers and vendors. When your business model is ego driven, and seeks out the TBTF's, a master/slave relationship develops, rather than that of a vendor/customer.
a/r at >150 days average
Don worrie man, nit'll get here bout 4 20 er sumpin. Heh he he hheeeeh Didjall order a pizza?
I have a general question. Anytime I go to ZH, my laptop starts using 100% of its memory. It starts running like it is going to explode. ZH is the only site that does this. Most of the time, after a short period of time, I have to exit ZH because my computer has locked up. What is going on? Anyone?
An important message from your friends at zero hedge.
https://www.youtube.com/watch?v=8CtjhWhw2I8
" They did'nt Flashy Thing you yet ?"
Men in Black
most of us old duuuuuudes have lernt to do Firefox and AdBlock and the other add ins.
Of course, no zuch ajancy might have ... er ... penetrated your machine b/c of your "illicit" behaviours.
Time for a general wipe, don't cha' know ;-)
- Ned
You gave new ist the best advice. So happens I complained to ZH myself about the same issue yesterday. Your a Good Person. Told them I can't read their site.
The running sound of the computer is the fan cooling the CPU which is not good either. Happens because there is not enough memory on any machine to run that many video ads.
I would suggest AdBlock + as Zero did for me. Good Day all
Switch to EPIC browser. I only use it for ZH. Blocks all trackers scanners, hackers and trojans.
The Ads will do that. They are all flash and all have high CPU loads. An ad-blocker will help.
After years of being told to on here, I finally got AdBlock Plus today.
In terms of speed and page loading, practically a life changing experience. Pissed at myself for waiting so long.
stock market rebounds, even impressive ones, should be viewed with a healthy dose of skepticism.
You are assuming free and fair markets free from infinite manipulations by the Fed.
Besides, we have been in a recession since 2008 if you use accurate inflation data.
We've been in a depression since 2008, if you use accurate unemployment data and actual EBT data.
I'm trying to write a eulogy right now for friend.
I could make it dual purpose.
The last funeral I attended by skype, this one if he passes, will have to be in person
to deliver it..
Paying respects by skype, thats how fucked we are.
Break up relationship by registering change of status on social media profile.
Attend funeral via skype.
Murder by drone.
Conceive children via artificial insemination.
..& some wonder how people can treat each other so callously...?
The Brave New World aka 'digital lifestyle' is a paradise for socipaths, social retards, anxiety ghosts, and simple cowards.
Yes, and it was a big mistake that I realized too late.
I should have done the 12 hour roundtrip by plane, even though I wasn't well at the time.
This time, even though I'm hoping he doesn't pass though he's 87 and poorly, I will make that trip.
Fuck the paparazi who will be all over it like flies on shit.
He was a great friend and mentor to me as a teenager, before he found incredible fame and success.
Its his due.
"Yes, and it was a big mistake that I realized too late. "
To some extent we have all made a variation of that mistake. Me, too.
I didn't mean to take a piss on you, Winston.
I apologize if that came off wrong.
I'm sorry you are losing your friend and mentor.
I've had so few of either that I value what little I have/had...
We're fine.
then the f2f will be worth the effort. Blessings.
He says on the internet.
In "3 days of the Condor" (1975), Robert Redford threatened to take his CIA secrets to the press. Why can't a (rare) wealthy person with morals run full page ads explaining very simply what is happening now, why, and the ultimate consequences of it all? But like Redfords antagonist boss in the Movie said, "will they print it?" Well, maybe not, but Redford ends the movie with "are you sure about that? (paraphrased)
o r c k:
Ya gotta' go back to the Z/H (recent) article about consolidation of the "media" companies. This b your homework.
Full page ads? Who are you kidding?
And Redford? Who are you kidding? (either the man or the character, or the other character, or the other character)
"morals" among the rich? Hmmmmm.....
- Ned
"You poor dumb son of a bitch."
"You can take a walk, but how far if they don't print it?"
You seem to have remembered the movie wrong. Redford has no idea if they'll print it or not.
Chances are good they didn't.
Well don't you worry one little bit about those light switches Mr. Corporation man. The federal reserve bank of america and all of its member banks are here to keep the stock market humming right along even if your earnings go negative. Yup, that's right, I said it. Don't you worry about increasing your revenues or that pesky capex, just keep buying back your own shares and we'll take care of the rest. <sarc>
I don't think that equities are going to crash until either there are mushroom clouds over the East Coast, or a major company or two goes under while owing a bunch of FRNs to other major companies, who in turn get taken down.
“It feels like someone just flipped the switch to ‘off’ without any concrete reasoning,” one of the executives commented.
"Without any concrete reasoning". That's because no one has any money, you stupid jerk. No one except the government, that is, and they are printing it. For themselves, and the banks, and no one else. So if you're not selling to the government, or the MIC, you're basically fucked. Ask Caterpillar. Maybe CAT sholuld start making tanks or planes.
CAT did that back when as did the Food Machinery Company and other.
Gillette made the first bazooka (eat your heart out Bennie) for the US based on the German panzerfaust.
So what about us poor little fuckers out here that already "own our own stock"?
"So what about us poor little fuckers out here that already "own our own stock"? "
Some petty Oligarch or Bureaucrat will decided they want whatever you hare eventually: then You have the 'it's just bizness' Bust Out or the 'shared responsibility' expropriation to look forward to.
in short: you, Sir, are fucked.
I think when the FED was expected to raise rates and then they didn't,
sent a message to everyone that even they think the situation is bad.
Confidence went down the toilet.
Right on man. So it makes absolute sense that the S&P should rip 120 handles higher on that. Bravo Bernanke and the rest of you "educated" dingbats, you've turned a perfectly good market into an ass-backwards joke.
QE4 and the switch goes to on again.
Goes to 11 until the old tube pops.
Keep slamming the BIG BREAKER on and off all the God Damned time and one day that bitch will break in your hand and fry everything on the BIG CIRCUIT.
THEN WHAT?
"one must at the same time avoid to ascribe to the mass of market participants a degree of wisdom they simply don’t possess."
One need look no further than Gartman and Cramer to realize the validity of this statement. Trading is one of the few professions where being an idiot can be beneficial. Eric Bolling proved that.
The point at which the switch is flipped has been visible for a decade beforehand on all 3 lights-out instances.
So really, one could make the argument based on the enormous lead time of the indicators that the FED actually contributes NOTHING at all to the economy.
Actually, the switch is "ON", however, results are still negative.
All switches are on but the circuit is dead, the fuse is blown and the wire melted.
This time is different they rewired all the circuits and the lights are always on.
And removed the breakers so that the wiring causes a fire and burns the house down when something draws too much current.
ON is the new OFF
Claude Shannon's perfect machine:
https://www.youtube.com/watch?v=cZ34RDn34Ws
It is employed to interesting effect in "The Prisoner".
"Normally it is considered bullish when the market rises on ostensibly bad news – and very often, this is actually the correct interpretation of such market action"
WHAT!
Yes, it is bullish when things are confirmed to be very bad. Must be why corporations going bankrupt see their stock prices soar. BECAUSE SOMEBODY MIGHT BUY THEM. Sure, why the fuck not.
"The point is this: Although as a trader one must always respect market action, especially in the short term, one must at the same time avoid to ascribe to the mass of market participants a degree of wisdom they simply don’t possess. The market very often “knows” nothing and frequently tends to get things completely wrong. If that were not so, there would never be any buying or selling opportunities, but plenty of those obviously exist."
That is like saying you must respect a serial rapist for doing what he does.
Buying and selling opportunities are manufactured. Like the market they actually don't exist. Traders focus on wave patterns, moving averages, and price action to determine whether or not to buy a stock. NEVER have I seen a bounce off a moving average determine what I was designing, selling, or producing for a corporation. Stock fluctuations are meaningless to the true business cycle.
There is only one fundamental rule: THE MARKET ALWAYS GETS IT WRONG.
That is because the market does not exist in the real economy, and therefore can not represent even .00000001% of reality. Sorry, disagree if you want but it is the truth. The stock market's only function is to facilitate wealth transfer to a select group of people. Always has been and always will be. To participate is to give power to the manipulators. The only way to stop them is to cease participation.
But there is no market anymore, not in the real sense. Algos, false information served up by supposedly independent stakeholders, nprecedented levels of insider trading and financial gamesmanship...
Then, they figure out it's NOT the light switch - it's the main circuit breaker. Uh! Oh!
you know the market is ready to implode when the fed stops feeding the hogs. it really is that simple.
"(note also, this tends to happen before any material effects on employment become evident. A sudden rise in initial claims would definitely cinch it)"
Indeed -- the 'lagging indicator'... Wait - just WAIT until the behemoth's of Silicon Valley start issuing pink slips. Talk about a real-time Facebook Fist-Fuck...
You will know the shit has really hit the fan when:
A. Government Bureaucracies contract/shrink in some ratio to the fall in the labor participation rate.
OR
B. .GOV reconstitutes the Works Progress Administration.
OR
C. WW3 complete with a DRAFT.
b 2 late
Anyone looking could see this recession coming as soon as the 4th quarter of 2012, when the rate of profit growth fell below the 7% line for the last four quarters.
So what you are saying is that zero growth and low profits are not the new norm??
CEO: "someone flipped the light switch off?"
CFO: "we haven't had electricity in a month, dumbass!"
Seriously? We're already in a DEPRESSION.
They got pills for that, and while expensive, they may be our only economic path out of this mess.
BUY MORE DRUGS
So this is a RECEDEPRESSION.
TURN THOSE MACHINES BACK ON!!!
As most technical traders know, for every manipulated action there is an equally opposite reactive action.
It's to the point now where the manipulated upside actions have stacked on one another so extremely that the only way you're going to get a counter-reaction that offsets it is a massive gap down that (a) never fills, and (b) traps the long manipulation in a manner that is equivalent to the upside manpulation that they have wrought over the past 7 years.
I think this most recent 5-day squeeze is the last straw in that upside manipulation. It's like a massive leveraged elastic that simply has to snap. Pretty much now.
So, I think we get a massive immenent gap down. It's the only possible way for the manipulation to be unwound.
Except that everyone will bet that way and the manipulators will eek out one more save, squeezing the shorts AGAIN.
Same as it ever was.
There are no saves left.
The only upside is the FRONT RUNNING of QE4, which I think we have already seen.
When QE4 is actually announced, this market is crumbling.
Can you imagine the panic that will begin when QE4 is announced and the market plummets 5%+ ?
There are NO upside catalysts left. Even QE announcements are going to be sold hard from here forward.
Wall Street is in denial: we are headed towards DEFLATION for YEARS regardless of QE. Piling on more debt during deflation = suicide. It won't happen. The market will NOT rise into deflation regardless of QE. We instead enter 1929 mode.
With the fake trading to infinity (HFT's) & thin amount of actual players; they have proven they can mitigate a severe downward movement. Add to that the limited choices for trying to get some yield and it gets that much easier. If the S&P were to drop 8-10% in a single trading day, then I would say we were headed for a Grecian Bank Holiday.
Technical analysis stopped being a thing when 'technicians' started drawing head and shoulders when there was no damn head on the chart.
"So, I think we get a massive immenent gap down. It's the only possible way for the manipulation to be unwound. "
Not a bang; but, an endless whimpering mewling sickness.
The long slow grind into the dirt.
Losing just enough every quarter/week/day for everyone to keep hanging on and buying little dips and rushing to put their Hungry Bowl under the occasional QE drips from the urinal leak at the Haunted House on the Hollow Hill.
Imagine what Negative Interest Rate erosion in Equities and Credit and Assets will do...
ALL the pensions at a nice hellish Negative something while inflation from the outstanding debts eats the seed corn like PacMan eats speed, and the Boomers will bitch and blame their kids for not meeting expectations, not rising to their promise, etc....
Negative Interest Rates and Positive Inflation in food and pharma will eat it EVERYTHING 'saved' in less than 25 years -and the debt will still be there...
Slow Asphyxiation. Japanese ZIRP Torture. The Lost Decades...
Long & slow indeed. The beast is so bloated from all the consumption and gluttony it will be much longer than any "reasonable" estimate. The culture of the Oligarchs has too much inertia for one off events to create more than a temporary blip. If missles fly in MENA a short drop followed by a spike in Northrup. Little flashy and nuage memes will keep the flow positive for the Street. Todays meme? Gosh! Liquid Nat. gas ain't so bad and well the smart guys know that Solar and Wind are better than all the fossil fuels put together!
Housing problems? Not! the Millenials will get that house-used to be an unaffordable expense but now it's 30% off.(50% off before 50% equity)
Retail investment is being entirely driven by fear and desperation that potential gain might be missed. This fear will overpower all cogent memory of previous losses. Nothing will change until it's ALL gone. So get long Band-Aid death by a thousand cuts is going to create some new demand.
Well if they allow the market to move sideways on Wednesday as today and maybe even on Thursday and a bump up on Thursday or Friday; that should be enough to "spring the trap" on either Friday or Monday (is the market open this Mon?). We'll call it "Bull Trap" as opposed to "Bull Crap".
They can't let it move too many days sideways because then people get confused; whereas volatility get the herd anxious and emotional. I do believe that Wednesday will be much like today.
I see green shoots Damnit!
The phrase that launches recessions is called mathematics.
Oh deer sees headlights...
at this point NOTHING MATTERS but money printing. zirp borrowing..it is kinda stupid to look for real tech indicators of 'something bad' and then say of its gonna hurt the fed...bull fucking shit. we collapse when infinite liquidity chokes. then we collapse literally in a couple of days.
just imagine how high the market can go with -5% interest
many straws, one camel
Here are some more signs of a coming recession.
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
http://michaelekelley.com/2015/09/27/vix-predicts-pits-while-pundits-have-fits/
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
Yum! Brands, Inc. (YUM) is taking a beating after hours:
http://finance.yahoo.com/q;_ylt=AsRWRKp6ad.bHLndL31oVZ7kNbkF;_ylu=X3oDMT...
Free lunch, no worky thats what causes a recession. Layzee fks
nope
every year spending a trillion dollars more than your tax receipts
that's what causes a recession
I've been absent for awhile, so correct me if I'm wrong. I thought the telltale phrase was "worst since Lehman."
"ALL ROADS LEAD TO ROME"
The most descriptive axiom describing the Roman Empire at the apex of its power and influence. Eventually, when Rome's power diminished, all roads did not lead there anymore.
"ALL NEWS LEADS THE (AMERICAN) MARKETS HIGHER"
Like the roads of Rome, the good news and bad news that followed 2008 and tripled the DJIA, will be affected by the Arrow of History.
Whether it is war or reality that ends this little (in the scope of time) run we've witnessed for almost 7 years, I can not say.
How long the Central banks can keep their newly printed fiat out of the hands of the hapless wretches, whose numbers grow every day and who would turn QE into hyperinflation, remains to be seen. But certainly it is the reason there is speculation about 'capital controls' and outlawing 'cash'.
Meanwhile keep buying biotech index calls like theres no tomorrow at this dip. It will be the next short term badabadaboom. Dont think too much, load on it steroidelly.
the phrase that launches recessions
turn off the lights, the party'$ over.