Guest Post: Calling All Crash Test Dummies: Big Crash Ahead

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Calling All Crash Test Dummies: Big Crash Ahead

If the stock market can never crash again due to the Bernanke Put, then why have all the crash test dummies been ordered up?

I know, I know: the stock market will never go down because Ben Bernanke and the other central bankers won't let it. It's funny how the "Bernanke/European Central Bank Put" is ranked alongside gravity as a rule of Nature until markets roll over; then talk shifts from purring adulation of central bankers' godlike powers to panicky calls for another flood of liquidity/free money to "save" the market from the harsh reality of global recession.

The crash test dummies know better: they've been called up for a humongous crash.

The basic mechanism that is being overlooked is Liquidity Resistance. This is akin to insulin resistance, where insulin becomes less effective at lowering blood sugars. The amount of insulin required to maintain normal blood sugar levels increases as resistance rises until even massive doses of insulin no longer have the desired effect and the system crashes.

Liquidity has the same dynamic. Back in the good old days of 2008-09, a $1 trillion tsunami of liquidity was enough to save the global debt machine from implosion and spark an enduring global stock market rally.

The current rally since late December required (by some estimates) over $3 trillion in global liquidity injections from central banks. In four years, the market's resistance has skyrocketed: where $1 trillion launched a multi-year global rally (goosed along with QE2 and Operation Twist when it began to falter), now $3 trillion yielded a 100-day rally that is already coming apart at the seams.

You see where this is going. To maintain the veneer of normalcy, i.e. a continuing Bull market, the next liquidity injection will have to be $5 trillion, and it will spawn a rally of perhaps 50 days. That $5 trillion will probably break the global market; if it doesn't, then the next tidal wave of $7 trillion (or whatever the market needs to trigger another high) most certainly will.

At some point, the liquidity injection will fail to boost the market at all, and that will trigger a panicky rush for the exits.

None of this is new or surprising. One technical tool of interest is the Coppock curve; this chart is courtesy of frequent contributor B.C.:

Those who argue that "this time it's different," i.e. that markets can inflate essentially forever on the "juice" of liquidity, are conveniently overlooking Liquidity Resistance. The crash test dummies have been ordered up, and not because "this time it's different:" they've been ordered up because central bank manipulation is not a law of Nature, it is an artifice of increasingly marginal effectiveness.

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JW n FL's picture



we dont need a correction to realize QE - 3!

SheepRevolution's picture

Oh what a lovely picture of Jamie Dimon and Lloyd Blankfein!

johnu1978's picture

We should use all the banksters as crash test dummies!!!


Self-sufficiency Classes - Wild Edible Tours

flacon's picture

Other than being in precious metals, how else can we protect ourselves? Short the S&P? (

Be long cash (paper money)?


BlandJoe24's picture

I've asked similar questions on ZH, with no answer so far. 

For general recommendations, check out the "How to Build a Lifeboat" section on The Automatic Earth:


Good luck! :-)

Stares straight ahead's picture

I gave up on this link after the first three recommendations because they are all wrong.

Hold no debt?  Bullshit!  The fed is making your debt cheaper everyday. 

Hold cash?  Bullshit!  Your cash in the bank is losing purchase power every day.  Unless you want to buy bargains after a stock market crash (use your own judgement, here).

Owning precious metals has been the only strategy for protecting oneself during Stagflationary times.  That is why it is the only thing offered here.

If you want more options, buy everything now that you might want later.

Thats it.  No rocket science.  Don't fight the Fed.  And I ain't saying the Fed is fair.

rotagen's picture

What are you "staring straight" alternate reality?

Stares straight ahead's picture

You've been listening to too much Dave Ramsey, I see.

hmmtellmemore's picture

Won't repaying debt be harder to do in leantimes, which will cause many mortgage "owners" to have their homes repossesed?

MeelionDollerBogus's picture

see my comment on strangle, options, fas, vxx.

hmmtellmemore's picture

The biggest pain will come from the dilution of your share of Social Security and Medicare, and I don't think there is much you can do about that.  I wonder if there are Western nations with no Social Security or Medicare type mandates.  Anyone know?

One piece of easy advice is to roll over (or liquidate and eat the penalty) your 401k and put it into a bullion IRA.

MeelionDollerBogus's picture

options > 90 days time remaining

stangle so you are insured in case of magical PPT upside


these are great multipliers vs SPY that is linear-proportional to s&p500

this ought to get you some profits > 20% each in that time-frame

if you're more daring for a lower cost you can get FAS put & vxx call BUT... if you bias yourself ONLY to that direction of the market don't be surprised if the Bernana King rips you off.

Essential Nexus's picture

You probably should use a double or triple short, though they can be capricious sometimes.

HD's picture

Indeed. Note the absence of both brains and balls.

ElvisDog's picture

Completely tangential question: why do they have female crash dummies with breasts? Along the same lines, why doe Batman's armor have nipples when Robin's does not?

smiler03's picture

And why do you never see an obese crash test dummy. Is it because obese people either bounce or burst?

WhyDoesItHurtWhen iPee's picture

jamie demond and lloyd blankenstein

Carl Spackler's picture

"Oh what a lovely picture of Jamie Dimon and Lloyd Blankfein!"


I beg to differ. 

The likes of Dimon and Blankfein are far more likely to be the engineers driving the crash test dummies (a/k/a Muppets) into the wall, than they are to be the crash test dummies.

More likely, Geither and Bernanke are the real engineers testing how things behave when everyone hits the wall at speed !

Obama willbe the face and mouth saying that there is no wall, the speed is Bush's fault, and the crash test dummies had it coming to them for 200 years of believing in capitalism. 



MillionDollarBonus_'s picture

... Meanwhile the VIX is calmly trading below 20, in line with the global economic recovery. I am truly saddened by the inability of doomer rednecks to see the green shoots in the global economy. Almost every economic indicator is pointing towards increased growth and a solid recovery, but doomer libertarians are too blind to see this.

Stoploss's picture

Look no further than the euro area right now which is down a combined 10% between three indexes.

You fucking hairless retard.

vast-dom's picture

Yes, "....because central bank manipulation is not a law of Nature, it is an artifice of increasingly marginal effectiveness." 

Cast Iron Skillet's picture

HaHaHaHaHaHaHa!!! ... comic relief - thanks, I needed that!

krispkritter's picture

You never owned a helmet as a child, did you?

SilverFish's picture

I dont get it.


Why would he need a helmet to eat paint chips off his momma's window sill?

Howdan's picture

"...Calmly trading below 20"  What drugs are you on MDB?! Are you RobotTrader's evil twin brother or something? Vix is up more than 25% from 15.5 to over 20 and you're saying "everything's fine" ??

MeelionDollerBogus's picture

SPY drop to 126, vxx rise to 35 or 40, vix will be near that level too.

shutupnsing's picture

"I am truly saddened by the inability of doomer rednecks to see the green shoots in the global economy"...Hear that boys? The Million Dollar Genius and Pleasant Valley Prognosticator has predicted the end of Big Ben's Miracle Grow!! I am Green with Envy MDB! Comrade Obama will make you the Garden Czar fer sure!

lasvegaspersona's picture

MDB we know the MSM line, we come here to get the truth. If I got my interpretation of financial data from CNBC I'd make the same kinds of statements you do. With a bit of 'further analysis' however we see that the employment data is actually FAR worse than what we are told to believe. The same can be said for most of the economy. Only if one can see through the outright lies being fed to a trusting public can one hope to save themselves from the coming economic collapse. For me that is the purpose of hours of reading daily, not to come here and read your unexamined repeat of government propaganda. Save yourself, consider 'critical thinking'.

jomama's picture

in line with the global economic recovery.


oh yeah? where's those fucking jobs, numbnuts? any why are my groceries so gotdamned expensive?

thanks for teh lulz.

SheepDog-One's picture

Id rather be a 'doomer redneck' than any of these bigwig PHD fuktard shitnecks!

MeelionDollerBogus's picture

At this point if you don't have a vxx Call with more than 90 days on it ... you're blind & an idiot.

By all means, get yourself a vxx Put or SPY call as well but the market's topped, you're just getting some insurance at this point.

dow price prediction based on ivars chart on zerohedge and tfmetals

Jake88's picture

Calmly trading below 20?  The VXX is treating me well. And I expect much better to come.

ruffian's picture

Statemet or Question ? seems like a statement, but I ASK THE QUESTION, Do We Need An Equity Selloff As Political Cover For QE3? replies appreciated....

dow2000's picture

Time to sharpen the pitchforks!

Jim in MN's picture


NHK News Japan:: US aegis destroyer seen off southwestern island


Two days ahead of North Korea's announced window for a rocket launch, countries are deploying vessels and planes to address the situation.

An NHK helicopter on Tuesday spotted a US aegis cruiser near a southwestern island in Okinawa Prefecture.

The USS Shiloh was stationary at about 80 kilometers northeast of Miyako Island. The area is near the projected flight path of what the North calls "a satellite", a de facto missile.

Aegis vessels are equipped with interceptor missiles and radars capable of tracking ballistic missiles.

The USS Shiloh belongs to the US Navy 7th Fleet, based in Yokosuka near Tokyo. But the naval command has declined to comment to NHK on the vessel.

The USS Shiloh was also on duty at sea the last time North Korea launched a rocket in 2009.

Japan's Self-Defense Forces have deployed 3 aegis destroyers -- 2 near Okinawan islands and 1 in the Sea of Japan. Japan says it will intercept any debris from the missile if it falls into its territory.

Tuesday, April 10, 2012 19:04 +0900 (JST)

rufusbird's picture

Nice chart. Rings true. Made with Sine waves, good stuff, they are the best.

Aquiloaster's picture

The markets mirror available liquidity better than they reflect actual value. . . .until everyone realizes that exact thing. Then we get closer to actual values.

Coldsun's picture

Pffft. You mean Cosine... n00b.

But seriously, sine/cosine patterns represent the cyclical nature and diminishing effects of the stimulant. Looks like we are starting to detox from the hopium. The Bernank is hitting Ctrl + P while Obama is bribing the wastelands of USSA to get another term. After all, he needs time to learn how to play the fiddle. Can’t blame him, he’s been too busy working on his golf swing and raping the productive.

hmmtellmemore's picture

Sine waves are the gold-standard of the chart world.  Cosines are poor man's waves.

q99x2's picture

Tired of Bernank now. I'm looking for a religious experience. A sublime one. Like the one they had a ways back in Dresden.

Aquiloaster's picture

I think the chemical process was more like burning plasma than sublimation.

hmmtellmemore's picture

Do you mean the WW2 religious experience of Dresden?

El Oregonian's picture
Money swore an oath that nobody who did not love it should ever have it. Irish Proverb
l1b3rty's picture

sounds like a good time to buy physical silver...while there is still physical silver..

Dr. Engali's picture

I agree with buying silver but ,my best performing asset right now is ammo.

Cursive's picture

I've already planted my Spring garden. Planted 10 fruit trees this Winter, too. I've also got a supply of FAZ and plan to add to that stash.

Metalredneck's picture

Planting this weekend.  Going long on tubers & root veggies for the cellar, checking the chokecherry tree blossoms for wine-making season.  Rhubarb is up & looking good.