As we said regarding yesterday's coordinated commodity dump, there was nothing sinister going on beneath the surface: it was merely a liquidation step in advance of margin calls by various asset managers seeking to lock in profits. And as we will show in a second courtesy of GOFO, the liquidation may be over. But here, explaining things in his patented simple words, is Art Cashin to summarize yesterday's move.
Oil, which had rallied for several days on rumors about the Strait of Hormuz, suddenly shifted to the downside, plunging more than 5%. Apparently margin clerks are a bigger threat than the Iranians.
The carnage in the commodity sector was positively stunning. Gold caught lots of attention falling nearly $100. That had the gold bugs and other conspiracy theorists blaming central bank selling. It was a nice theory and fit handily with the current sovereign squeeze. But, if central banks were the culprit, why were other commodities down even more than gold?
To us old timers, it looked like a liquidation squeeze. It seemed to be a perfect example of the old Wall Street adage that when you can’t sell whatever you want, you sell whatever you can - even your grandmother’s necklace.
There were several guesses at factors exacerbating the severity of the action in commodities. The MF Global mess continues to keep some players on the sideline. The Dodd/Frank negatives on proprietary trading has also thinned the trading community and cut liquidity. At any rate, it was downright ugly.
The bulls will need a Tim Tebow fourth quarter performance if they are going to protect the December Expiration Week bullish tradition. Could be interesting.
You Look Rather Familiar - Matt Lynn had an interesting piece on MarketWatch last evening. Here’s how it began:
"LONDON (MarketWatch) — In retrospect, it wasn’t hard to see that the markets were becoming dangerously unstable. Germany had just adopted a new monetary system, and Europe was being flooded with cheap German money. Greece had signed up to a monetary union with Italy and France but was struggling to hold it together.
Financial markets had been deregulated. New technologies were transforming production and communications, allowing money to move across borders at lightening speed.
And a massive new industrial power was flooding the world with cheap manufactured goods, blowing apart old industries.
When it all fell apart in an almighty crash, it was only to be expected.
A prophesy for London, New York or Berlin in 2012? Not exactly. It is a description of Vienna in 1873. In that year, in one of the great crashes of all time, the Austrian markets triggered collapses across Europe, swiftly followed by an equally spectacular collapse in New York. It was the start of what economic historians call the Long Depression, a prolonged period of volatility, unemployment and slumps that lasted an epic 23 years, only coming to an end in 1896.
I have been researching that episode for my new e-book ”The Long Depression: The Slump of 2008 to 2031.” The parallels with our own time are fascinating. German unification, and the adoption of the gold standard, had led to a boom in that country, and cheap German money had flooded Europe. Greece had just joined the Latin Currency Union, an ill-fated attempt to merge currencies across Europe. Banking had been deregulated, which was partly why so much German money was invested on the Vienna bourse. The telegraph created instant communications, allowing the European crash to spread to New York. The U.S. was industrializing, transforming the global economy as much as China has transformed the present era’s economy in the past decade.
All those factors came together to create an almighty bubble, followed by an even worse crash. The slump that followed — although it is hard to measure these things precisely — lasted more than two decades. If the slump following the crash of 2008 is anything like that one, then this one is going to last until 2031."
Matt goes on to make several other comparisons between then and now. I have written several times on the analogies with 1873 but Matt picks a couple of points I missed. If you get a chance, pull up the article.