Bill Blain: "This Time It Really Is Different! The Machines Have Taken Over And They Will Never Sell"

Tyler Durden's picture

Submitted by Bill Blain of Mint Partners

Forget the Known Unknows, its the shocking surprises that are going to get us

“Bubbles don’t grow out of thin air, they have a solid basis in reality. But, reality is distorted by misconception..”

And it’s a bad start to the week as my Bloomberg obliquely gave the finger by refusing to log me on.

Markets don’t care about my travails. They continue on their unstoppable upward trajectory. (Remember that word – trajectory, often parabolic. Look it up.) Lots of folks warning about complacency, but markets pay no heed. They prefer the global unlimited growth vibe..

Now, I know I sound like a broken record with my boring repeated warnings the market has gone overly frothy. I could counter with arguments about low volatility and short-tops painting a weakening technical picture. I could make arguments about how the short-term and long term business cycles all converge on weak indicators – I could even give you a lengthy discussion on how the Kondratieff ultra-long cycle says “run-away!” I could refer to volume of money issues, or QE concerns. I could even point you to some astrological stuff… 

Or I could point out what a worrying place the markets are. After reading through all the news this morning it strikes me we’re in thrall to a host of known unknowns.

If you want to worry, then pick your choice: it’s a delightful smorgasbord of things to go bump from the anniversary of the Hurricane and Crash of 87, the right-wing in Austria, noise about Tax reform in the US, Norte Korea, Kurds vs Iraq/Turkey, Catalunya vs Spain, UK vs Everyone, Trump vs the Universe, and everything in between. (In my own case, tomorrow is exactly a year since the unpleasantness with my primary pump – just doesn’t feel like it’s going to be a lucky week!). 

These things we know, and can predict how toxic they might be. The market is shrugging most of them off.. confident they’ll be resolved in a less bad than the worse-case scenario. Why worry?

However, it’s the unknown unknowns, the shocking surprises, the Black Swans events, that catalyze the tipping point moments.

These moments of doubt create consequences that literally cascade through markets causing dislocation, uncertainty and discombobulation on the Grand Scale. Like the failure of a couple of structured debt product funds in 2007 exposing the fundamental weakness underlying Florida sub-prime lending triggering a shutdown in money markets causing the failure of a UK building society in Newcastle – look where that led! Or the dramatic bankruptcy of Orange County in 1994 and shocked realization treasurer Robert Citron had been dealing way out his depth, triggering a cascade of panic across markets as municipalities and banks tried to work out exposures.

It’s the cascade of unintended consequences that cause moments to spiral into doubt and panics to deepen into crashes – surprise and a desperate scramble to front run the consequences!

At this point, I’ll think I’ll give over the porridge to my colleague Steve Previs, who wrote this morning:

“The equity market has sucked in over $300 billion so far in 2017. And that’s just money that has gone into ETFs and passive index funds.


And everything, at the moment, is just great for investors as the market keeps going up. And the more the market goes up, the more confident investors become. Why heck, the market might just keep going up because there is no other place to put your money. Why would anyone want to sell?


You see, you probably don’t know this, but this time, it really is different! Forget about human nature. The algos, AI and the machines have taken over. They have been programmed to buy and buy and buy. And they will never sell.


So stocks can only go up, never down. This is the new paradigm so you better get used to it and hop on board this runaway express train that’s headed straight for Moneyville!


Ahem……if you really believe any of the rubbish above, we suggest you take two aspirins and lie down for a couple of hours. For we firmly believe that the longer the market continues it gravity defying rally, the more severe the eventual downturn will be.”

Steve goes on to predict another no-see-em unknown unknown – the bubble that is “the size and amount of bets against volatility.” He and others reckon the amount of money shorting vol through various approaches and instruments is ultimately going to spell trouble in line with 1987 and subsequent crashes.  

I’m travelling the rest of this week, so if it does go bad, then don’t say I didn’t warn you. If it all blithely continues upwards, keep telling yourself I’m an idiot and don’t worry about what could possibly go wrong next week.

As for the Hurricane bearing down on my favourite part of Ireland, I wish them good luck. Of course the fact this looks the worst storm in 50 years, is the first one-in-200 year storm since 1987, and is the first proper hurricane this side of the Atlantic ever, definitely doesn’t mean anything is changing about the global climate. (It does make me giggle how every global corporate tells its customers about how much they care about the environment, and how their latest must-buy product is polar-bear friendly… why legions of capitalists justify their actions by saying Global Warming is a con-trick… something don’t stack up..)

Have a great week

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LawsofPhysics's picture

Correct.  Many have recognized this for a long time now.  Everyone is going to be a fucking billionaire!!!

Of course, there are hundred of trillions of paper/digital claims floating around, not to mention hundreds of trillions in unfunded liabilities. Going to be fun when all those claims start seeking out real assets...

In the meantime...

"Full Faith and Credit"

Ghost of PartysOver's picture

Blain finally catches on to what a bunch of us already know.  Welcome to the party.

thesonandheir's picture

Fed needs to start buying volatility to calm this shit down.

JimmyJones's picture

Global warming via CO2 is a scam.  However there is very unusual Solar activity going on and the Earths Magnetic Poles are doing some funky stuff.  Its interesting that the MSM isn't covering it but many Scientist are.  I guess they are so vested in the CO2 rubbish they cannot admit that other forces affect our climate.

RudolPHDs's picture

Cows give off more CO2 than man made machines. 

peekster's picture

Cow burbs are methane which is more dmamaging to the ozone that CO2. 

Mans desire for the burger will be his downfall :)

svayambhu108's picture

So is us against the AI in the end, or rather AI against us. Money is food, energy, pussy, etc... and all those machines are squandering like nothing...

canisdirus's picture

More potent greenhouse gasses, not damaging to ozone. Ozone is damaging to basically everything because it's a strong ozidizer.

TheAnswerIs42's picture

The day Al Gore was born, there were 130,000 glaciers on Earth.

Today, only 130,000 glaciers remain.


RudolPHDs's picture

Are you losing on your vIX positoins againl.  

1 Alabama's picture

Hey, full faith and, default

LawsofPhysics's picture

Correct.  There really are only four choices now.

1) Global Jubilee

2) Global Hyperinflation

3) Global Default

4) Global War

Follow the "money" fuckers...

All of this continues so long as people accept bullshit paper/digital PROMISES in exchange for their very real WORK/LABOR.

1 Alabama's picture

5) global time

6)global consequences

7)the list goes on and on

LawsofPhysics's picture

Bullshit.  Eventually the herd gets thinned.  It's the manner of thining and the timing that is unpredictable.

ParkAveFlasher's picture

To your point, it's predictable to someone...just not you and me.

shizzledizzle's picture

Yea... because 87 went a long ways to preventing 2000 and 2000 went a long ways to preventing 2008. 

LawsofPhysics's picture

Indeed, SO WHAT?

Place your fucking BET, but do not call it "investing".

Antifaschistische's picture

it's interesting to analyze the mellinials and the Chinese.   They have completely built stock-ramp-prices into their own personal financial model.   I can't deny, it's worked out pretty good for them so far.   But, to justify their massive leverage in homes and CC usage, they have to assume a dow at 30k or 40k....they live in the mental mindframe of everything forever and always goes up....that's why they bought a bitcoin on their credit card last week...I'm watching certain neighborhoods in Houston going full retard on if we were in Santa Barbara.  it's nuts

it's interesting to watch.

Pausebreak's picture

When the machines start selling and then shorting they will be rentless and remoreless. BTFD!

toady's picture

AI is gonna crash the markets and kill us all?

spanish inquisition's picture

If the machines start selling the market has been programmed to have an unexpected interruption.

Grandad Grumps's picture

The machines do not sell. They just raise and lower price.

ParkAveFlasher's picture

When the time for picking the winners from the losers is reached, there will be selling by the computers.

taketheredpill's picture

For a Robot the investment horizon is...INFINITY AND BEYOND!!!!

1stepcloser's picture

Then, all at once, the machines went no bid!  

Buck Johnson's picture

Yea, it's different this time.  LOLOLOLOLOLOLOLOL.



The Count's picture

And the Titanic was unsinkable.

Giant Meteor's picture

Why God Himself couldn't sink this ship !

Let it Go's picture

Sooner or later reality will take over. Time has a way of revealing certain realities but does so at its own choosing. The economy is far from a well-oiled and designed machine and in the end, we may find that it is not really completely under the control of those who have been placed in the driver's seat.

In a world where central banks have become so deeply involved in manipulating and distorting markets we find true price discovery no longer exist. The question remains how best to prepare for a economic meltdown. Expect both luck and caution to play a big role on our individual fortunes as we move through the financially violent period before us. More on this subject below.

 Catalyst Of Our Economic Demise Yet ToBe Determined

NoWayJose's picture

Every ‘buy’ algorithm also has a ‘sell’ Algorithm

NoDebt's picture

It's just that the sell algorithm has never been tested.  God only knows what will happen the first time they turn it on.


I woke up's picture

Wait until the Fed turns theirs on.  Anyone in the stock market will get a stealth tax on their earnings.

a Smudge by any other name's picture

I'm sorry Dave I can't do that...

buzzsaw99's picture

he knows less about earth climate than he does about the market which is a feat.

supernintendosegagenesis's picture

Why should it be that way? whats to be afraid of, if you can money both ways?

fulliautomatix's picture

Cautious people look after their knees - you know, they flex when they jump down. This is looking like a jump from a balloon fifty feet up - so yeah, it's vertigo, fer sure. but the jump isn't survivable and we're not built to fly.

The myth of being paid out by the losers on your bet: we gave that a good old shove in 2008 when the taxpayer bailed out the system. As a matter of common law, the taxpayer owns the whole system, it being held in a constructive trust by the financial (and political) managers of the world. Unfortunately, they're all still around, no-one went to jail.

So, banksters and politicians have been selling state (taxpayer) owned assets to themselves, with contracts that stipulate mandated returns: i.e. legislated pricing policies (plenty of examples where I live. Dozens.) The neat bit is that if you're a politician with bankster connections, you can arrange to lend the money to the state to build the asset, collect the interest from that money, then buy the asset back from the state at the cost of the interest earned (no money needed so far, but the bankster now owns an asset that was built with funding by the taxpayer.) The politician gets his when the sale of the state asset goes through: here it has been the practice to mandate a return from the asset (I'm talking about monopolies) and the politicians' "superannuation fund" owns shares in the asset. Where it starts to break down is where a management team decides that it can afford to not spend it's maintenance budget on maintenance: that decision cost 283 people their lives in our last lot of big fires. Instead of management being jailed (or even tried) for culpable negligence, an alteration to the contract of sale is passed that grants extra funds to the asset manager to cover their maintenence, thse funds coming from the taxpayer (again) through a legislated priciing change.

What's to be afraid of?

innertrader's picture

ABSOLUTELY nothing new here.... don't waist your time.





sudzee's picture

The purchasing power of fiat is dying due to printing by c/b's, overwelming of debt and and unreported inflation of 7%. People reaching for anything that may maintain value. Stocks are  denominated in fiat so they can continue to rise exponentially forever. Fiat is dying, stock markets are NOT rising. 

post turtle saver's picture

I'll take all that fiat off your hands if you don't want it... seeing as how it's dying and all...

Grandad Grumps's picture

The only thing I can say is that it is all fake and a game. And, even though the markets are now run by computers, not all equities are treated equally and all investors are not treated equally.

Lastly, there is a power behind the markets that decides how the computers will be programmed. At any time they can decide to stop raising price and instead to drop price. This is what people are really worried about... and should be if they are dependent on the markets.

Who is the power that decides price direction? I don't know.

Liberaldisdain's picture

Finally one of you short selling since 2010 Zerohedge morons is starting to get it. 

itstippy's picture


The equity market has sucked in over $300 billion so far in 2017. And that’s just money that has gone into ETFs and passive index funds."

Global QE from the Western banks, China, and Japan has been running at about $200 billion per month all year.  The U.S. equity market has gotten its share of the largesse.  The economy isn't expanding; the money supply is.  Economic growth is stagnant, yet asset values are on a tear and have been for almost 10 years now throughout the developed world.  

 Easter 1920 found Keynes vacationing in Rome. He learned that his open currency trades had made him a profit of £22,000 on francs and a loss of £8,000 on U.S. dollars. A jubilant Keynes wrote to his mother from Italy on April 16 to say that he was, “indulging in an orgy of shopping… I think we have bought about a ton so far…”

Keynes soon learned that short-term currency trading on high margin, using only his long-term economic predictions as a guide, was foolhardy. By late May, despite his belief that the U.S. dollar should rise, it didn’t. And the Deutschmark, which Keynes had bet against, refused to fall. To Keynes’s dismay, the Deutschmark began a three-month rally.

Keynes was wiped out. Whereas in April he had been sitting on net profits of £14,000, by the end of May these had reversed into losses of £13,125. His brokers asked Keynes for £7,000 to keep his account open. A well known, but anonymous, financier provided him with a loan of £5,000. Sales of Keynes’s recently published book The Economic Consequences of Peace had turned out to be healthy and a letter to his publisher asking for an advance elicited a cheque for £1,500.

Keynes was thus able to scrape together the money he needed to continue trading. He had learned a valuable but painful lesson – markets can act perversely in the short-term. Of this, he later famously commented:

“The market can stay irrational longer than you can stay solvent.”

“The equity market has sucked in over $300 billion so far in 2017. And that’s just money that has gone into ETFs and passive index funds."
fulliautomatix's picture

That line is the only bit of news in this piece. But it was fun to read.

screw face's picture

....does this mean boats only floot?

innertrader's picture

JUST FOR FUN!!!  What if we passed the FAIRTAX?  ALL the MONEY and ALL the BUSINESSES that have left this country for the last 30 years could, and most likely would, come back to America!!!  This would be so extremely bullish that it would be hard to imagine!  Also, ALL THE LEACH businesses that have been sucking the blood out of America would vanish!  All the TAX BUSINESS PLANNING, TAX STRATEGY, TAX ACCOUNTANTS, the IRS ITSELF WOULD BE GONE and all the blood sucking employees and related businesses!!!!!!!!!  Just imagine all that work being turned into something productive as opposed to COUNTER-PRODUCTIVE!!!


Now that is so bullish its hard to imagine!!



In an empire of lies; the truth is treason.
America is not a democracy, it's a Constitutional Republic.
Once you fully understand what that means, everything falls into place.

The word "democracy" is not found in any of the founding documents: not in The Declaration of Independence, not in The Bill of Rights, not in The Constitution.

The lights are starting to shine on the cockroaches!!!  Now it's time to destroy them!