Weekend Reading: Breaking Markets

Tyler Durden's picture




 

Submitted by Lance Roberts via RealInvestmentAdvice.com,

AAA-Weekend-Reading-Breaking-Markets

This week has certainly been interesting with the Dow Jones Industrial Average having the worst start to a year…well…ever. Even more interesting is the culprit was primarily the collapse of financial markets in China.

Why is that interesting? Because it is exactly the issue that I wrote about during the summer of 2015:

“And this last week, we saw what happens when things go ‘inevitably wrong.’

 

The perils of margin debt should not be readily dismissed. For a real time example of financial market leverage and consequences, one needs to look no further than the Shangai Index in China. That market is in a complete collapse as plunging prices are forcing investors to sell shares. While the Chinese government has injected liquidity, suspended trading in almost half of the listed equities and encouraged pension funds to buy securities, these actions have done little to stem the decline as investors ‘panic sell’ in a rush to safety. That collapse, if history is any guide, is likely not done as shown in the chart below.”

China-SP500-010706

“Also, notice the correlation between peaks in the Shanghai Index and the S&P 500.

 

While no single indicator should be relied upon as a measure to manage a portfolio, it should be well understood by now that leverage is a ‘double-edged sword.’ While rising leverage provides the additional liquidity to drive stock prices higher on the way up, it also cuts deeply as prices fall.”

This weekend’s reading list is a collection of analysis as to the potential impact of China. Is history set to repeat itself? And, most importantly as discussed in yesterday’s post, investors may have witnessed the “ringing of the bell” for the end of the bull market that begin in 2009. While it is too early to know for certain, things are getting much more interesting. It is time to start paying attention to the risks.


1) Debt Signals Problems For Markets by Lisa Abramowicz via Bloomberg

Thanks in large part to a circuit-breaking selloff in China, stocks are already digging a hole at the start of the new year. Savvy traders know to avoid making big decisions based on a day or two of equity market histrionics, lest they look like chickens with their heads chopped off rather than skilled prognosticators. They rely on more dependable barometers to determine the longer-term direction, and what they see right now could be a big cause for concern.

 

One of the best current indicators is dollar-denominated investment-grade debt, which has been tracking U.S. stocks much more closely than high-yield bonds. High-grade bonds remained fairly steady throughout 2015’s market roller coaster, even as stocks bounced around in a rather fruitless attempt to find direction and riskier corporate debt suffered some of its biggest declines on record.”

But Also Read: China’s Market Won’t Be Halted Anymore by Myles Udland via Business Insider

 

2) Markets Aren’t Cooperating With Fed Rate Hike by Jeffrey Snider via Alhambra Partners

When the FOMC voted on December 16 to raise rates, they did so with reservations, some expressed publicly, that maybe they didn’t really have the ability to do it. There is a reason that we refer to money markets in the plural, since there are, as the “s” at the end indicates, more than one. At one point in financial history, they all worked very well together, though the manner in which that harmony developed appears entirely lost on policymakers. They just assumed and continued to do so; they still do today, though with much less certainty attached.

 

In the little more than two weeks since the FOMC’s move, money markets have not behaved.”

But Also Read: Federal Reserve Is Giant Weapon With No Ammo Left by Myles Udland via Business Insider

Opposing View: Fed’s Lacker Suggest 4-More Hikes In 2016 by Jason Lange via Reuters

 

3) 5 Facts About The Market Sell-Off by Mohamed El-Erian via Bloomberg

“Here are the five things to know about the implications of the sell-off for 2016 and beyond:

1. Geopolitics

2. Risk Taking

3. Liquidity – Fed vs. Everyone Else

4. Global Economy

5. Future Policy Decisions”

But Also Read: Brace For A Rare Recession In Profits by Matt Egan via CNN Money


VIEWS & OPINIONS ON THE CORRECTION


MUST READS


“Some people are never too old to find new ways to lose money.” – Anon

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Fri, 01/08/2016 - 16:38 | 7018913 Kprime
Kprime's picture

wooooooo hooooooooo,  feels like base jumping.  Watch Out for the cliffs.

Fri, 01/08/2016 - 16:41 | 7018924 HedgeAccordingly
Sat, 01/09/2016 - 06:54 | 7021007 old naughty
old naughty's picture

"Watch out for the cliff."

What cliff.

I see (dead ants) mound here/

Fri, 01/08/2016 - 17:04 | 7019003 RockRiver
RockRiver's picture

The bull trend in the S&P 500 has been ongoing since March 2009. From an Elliott perspective, this is a large correction that alternates with the 2011 low. Look at a monthly chart and compare the size of this correction with others, particularly the May 11 to Oct 11 pullback.

 

Having said that, if we sail down through 1813 in an accelerated fashion, all bets are off and 50% retracement becomes probable.

 

 

One more thing....fuck a bunch of one minute charts......

Fri, 01/08/2016 - 16:40 | 7018925 Seasmoke
Seasmoke's picture

It's only a flesh wound. No worries. Still well above the 1000 point drop lows. Granted another 1000 drop puts us below. But everyone REMAIN CALM !!!!!!!!!!!

Fri, 01/08/2016 - 16:41 | 7018929 buzzsaw99
buzzsaw99's picture

The decline will probably be extremely long. I doubt it will get back to a level where I feel comfortable buying in my lifetime. Couple that with the pervasive corruption that will never be remedied and I'm out. I don't even know why I follow these so-called markets anymore to be honest.

Fri, 01/08/2016 - 16:49 | 7018976 techpriest
techpriest's picture

It's like watching the demolition of an old building.

Fri, 01/08/2016 - 16:54 | 7019004 buzzsaw99
buzzsaw99's picture

it's like watching it rot

Fri, 01/08/2016 - 17:04 | 7019052 12357111317
12357111317's picture

It's like watching a flood slowly carve away the river banks, and the old buildings fall in one by one.  :-)

Fri, 01/08/2016 - 17:20 | 7019138 Ghost of Porky
Ghost of Porky's picture

It's like watching yourself get raped repeatedly by a large pig.

Fri, 01/08/2016 - 18:31 | 7019403 Yen Cross
Yen Cross's picture

You need to dig up a few Silver Dollars from your " boat wreck" and find a nice piece of ass...  Female Human

Fri, 01/08/2016 - 18:28 | 7019392 Yen Cross
Yen Cross's picture

long and protracted. Sell the rips...

Fri, 01/08/2016 - 18:58 | 7019485 vesna
vesna's picture

How old are you?

Fri, 01/08/2016 - 16:44 | 7018948 stumbLebum
stumbLebum's picture

The newest parlor game is what level the Fed swoops back in to save the day. My guess is if we drop below Dow 14,000.

Fri, 01/08/2016 - 16:47 | 7018963 buzzsaw99
buzzsaw99's picture

that's just it. they know. you're just guessing.

Sat, 01/09/2016 - 01:03 | 7020691 mkkby
mkkby's picture

In 2009, the bear market ended when FASB lifted the mark to market requirement, allowing the major banks to "pretend" to be solvent. 

I think it's worth thinking about what happens this time.  China happens to be newsworthy this month, but spain, italy and japan are also on the cliff edge.  I'm thinking the end this time is when a major economy or 2 are forced to devalue.

 

Fri, 01/08/2016 - 16:46 | 7018958 besnook
besnook's picture

higher highs and higher lows means btfd! you first.

Fri, 01/08/2016 - 16:56 | 7018992 alexcojones
alexcojones's picture

I Don't Watch "Breaking Bad' but-

I READ Zerohedge and Breaking Good-

Fri, 01/08/2016 - 16:57 | 7019025 fxpmtrader
fxpmtrader's picture

Nothing new under the sun.

Nothing changed since 10,000 years or so - since Stone age.

Humans are still greedy, dumb and mostly ignorant and short memoried Neanderthal sheeple.

Fri, 01/08/2016 - 17:02 | 7019059 12357111317
12357111317's picture

Amen.  Only technology changes.

Fri, 01/08/2016 - 17:17 | 7019126 Seasmoke
Seasmoke's picture

So your forefathers got burnt on Tulips too ?

Fri, 01/08/2016 - 17:40 | 7019186 tc06rtw
tc06rtw's picture

   
 …  How can anyone have  4  fathers ??
  

Sat, 01/09/2016 - 10:56 | 7020826 Arthur Schopenhauer
Arthur Schopenhauer's picture

My Fivefathers were all lieuelevents in the United States Air Fiven.

Fri, 01/08/2016 - 16:59 | 7019037 12357111317
12357111317's picture

Some brokers scoff at market timing (trend-following).  It never buys at the bottom or sells at the top, but it does get you out before you lose everything.

Fri, 01/08/2016 - 17:03 | 7019062 __Usury__
__Usury__'s picture

'Expand>Peak>Fail To Expand>Collapse>Liquidation of the Non-performing Liabilities>Choice:Up till now Rinse and Repeat'......Mako

all you need to know

Fri, 01/08/2016 - 17:05 | 7019070 12357111317
12357111317's picture

I will be very interested to see whether China does anything different from what western nations do. This has got to be getting annoying to Chinese rulers.

Fri, 01/08/2016 - 17:06 | 7019071 The Dogs of Moar
The Dogs of Moar's picture

One of the great lines in zerohedge

the end of the bull market that begin in 2009. 

We can all see now that behind the 'wall of worry' that the bull market of 2009 climbed, is a higher, steeper 'wall of self deception' that the Federal Reserve System now expects the bull market to climb.


 

Fri, 01/08/2016 - 17:19 | 7019128 lester1
lester1's picture

This market is turning bearish really fast. It's best to sell stocks and move to cash positions. That way when the market plunges and is at the bottom you can buy back in at a much lower price. You will actually do better long term if you do that.

 

There's nothing wrong with moving the cash to protect your wealth !!

Fri, 01/08/2016 - 19:24 | 7019572 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

and you should do it now while there is ample liqudity aka HFT bots taking the other sides!

Fri, 01/08/2016 - 19:41 | 7019656 Flying Wombat
Flying Wombat's picture

The Global Bubble Is Popping – SGT Report Podcast w/ Dave Kranzler

http://thenewsdoctors.com/the-global-bubble-is-popping-sgt-report-podcast-w-dave-kranzler/

Fri, 01/08/2016 - 20:04 | 7019775 ZombieHuntclub
ZombieHuntclub's picture

Yes you wrote about it but you write some doom porn every day. Self fulfilling prophesying isn't all that impressive when you call for some calamity or other. 

Here, ill do one. Chart, squiggly line chart, it will be so hot in the next 6-months, some people will die and there will be water shortages in the desert. 

Now, let's sit back and see if Zombiedamus is right. 

Fri, 01/08/2016 - 21:39 | 7020148 honestann
honestann's picture

The federal reserve always has infinite ammo remaining... if "ammo" == "debt" (which is what the federal reserve claims).

The fact that Fischer said they have no more ammo may be a signal "us banksters already bought tons of shorts, are causing this crash and burn now to fleece the sheeple, and when the bottom is in, will buy up productive assets for pennies on the dollar".

That seems most likely to me.

Fri, 01/08/2016 - 22:59 | 7020390 Sorry_about_Dresden
Sorry_about_Dresden's picture

Cashed out of my 401k on 12/30/2015 (~):)>

Just in the nick of time!

 

Sat, 01/09/2016 - 08:02 | 7021107 AbbeBrel
AbbeBrel's picture

What the hello code-speak is this from El-Erian:

"They also were a reminder that markets are vulnerable to geopolitical stresses that extend well beyond nation-states and can involve non-state actors whose disruptive behavior is hard to predict, let alone control."

What "non-state actors" is he talking about? OK I get it - he is talking about asymmetric warfare types... without using the "T" word.

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