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Guest Post: Increasing Volatility: Prelude To a Crash?

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

Increasing Volatility: Prelude To a Crash?  

The megaphone pattern in the U.S. stock market typically presages a major decline or full-blown crash.

Market observers have long noted that increasing volatility presages market crashes. If you glance at a chart of September-October 1929, just before the crash that started the Great Depression, you will note the same sort of manic swings of euphoria and fear that have characterized the U.S. stock market over the past few months.

Not only are the swings increasing in amplitude, the time between each move up or down is decreasing. Think of a series of wind storms that grow increasingly more violent even as the time between storms diminishes.

In stock charts, this widening of range traces out a megaphone pattern. The S&P 500 (SPX) has traced out a classic megaphone pattern over the past few months:

Note the eleven wild swings up and down in a mere two months. Does anyone seriously believe this sort of schizophrenia typifies a healthy Bull market?

From a technical point of view, the recent euphoric three-week rally is nothing but a last-gasp attempt to regain the critical 200-day moving average (MA), another classic sign of a market about to roll over big-time.

On the weekly chart, we can clearly see how the timespan between official "fixes" and renewed declines has shrunk from six months from the first "fix" in May 2010 to two days after the last "grand fix." Market participants are losing faith in the Status Quo's ability to effect a coherent, lasting "fix," especially as the rules governing hedges such as CDS are changed at will.

Last week I reprinted this chart from The Chart Store of the uncanny similarity of the current market to the 1907 crash. Notice the "secondary" crash that occurred right about now in the 1907 chart; history doesn't repeat exactly, and analog charts are not predictions, but it is certainly interesting how recent action has closely matched the 1907 price movements. Were the present to continue following the basic outlines of the older chart, this targets an SPX level around 900.

In the real long-term, one target for the SPX is around 600. "Impossible," Bullish observers say. Perhaps. But all sorts of "impossible" things seem to have happened in the past four years, and the line between what's "impossible" and possible has blurred.

Technically, a re-test of the March 2009 lows around 666 is certainly possible, despite protestations to the contrary.


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Tue, 11/01/2011 - 11:00 | 1832279 GeneMarchbanks
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'Guest Post: Increasing Volatility: Prelude To a Crash?'

No don't be ridiculous when has that ever been the case?

Tue, 11/01/2011 - 11:05 | 1832314 HelluvaEngineer
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Has the market ever crashed?  Sorry, I have no memory past the last football season.

Tue, 11/01/2011 - 11:10 | 1832339 redpill
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Shh, Rachael Ray is on soon.  And I'm streaming my favorite MagicJack infomercial on Youtube.

Tue, 11/01/2011 - 11:13 | 1832363 rosex229
rosex229's picture

time to load up on tvix. if you'd done it two days ago you'd already be up 100 percent. if this market crash happens soon you can take your several hundred percent gain, and throw it all inphysical gold and silver. the market price of gold and silver wil crash just like in 2008, but the rise after the crash will make the price rise since 2008 look like peanuts.

Tue, 11/01/2011 - 11:14 | 1832373 rosex229
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time to load up on tvix. if you'd done it two days ago you'd already be up 100 percent. if this market crash happens soon you can take your several hundred percent gain, and throw it all inphysical gold and silver. the market price of gold and silver wil crash just like in 2008, but the rise after the crash will make the price rise since 2008 look like peanuts.

Tue, 11/01/2011 - 10:59 | 1832281 bernorange
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I've got a bad feeling about this. /Star Wars

Tue, 11/01/2011 - 11:02 | 1832301 redpill
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That's not a's a debt bomb!

Tue, 11/01/2011 - 11:08 | 1832333 TruthHunter
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"That's not a's a debt bomb!"


Your not being mooned, thats debt's Bum!


The dyslexic right brain reads very well thank you

Tue, 11/01/2011 - 11:10 | 1832350 redpill
redpill's picture

Well, in a shutnell, fear wucked :)

Tue, 11/01/2011 - 11:08 | 1832334 marcusfenix
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"zero,zero,"- captian Kirk entering the final code to destroy the Enterprise...


Tue, 11/01/2011 - 10:59 | 1832282 Newsboy
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Soon, very soon...

Tue, 11/01/2011 - 11:43 | 1832538 common_sense
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Tue, 11/01/2011 - 11:00 | 1832287 homersimpson
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Someone let uber-intellgensia folks like No Mas know that we need his steady leadership and guidance during these turbulent times since he's so much smarter than all of us ZH readers.. *snickers*

Tue, 11/01/2011 - 11:01 | 1832295 DogSlime
DogSlime's picture

Do we really need charts to tell us that it's all fucked and could collapse any moment?

The collapse is inevitable.  The guessing-game is precisely when it happens.

Did the charts predict that G Pap would suddenly announce a referendum?


Tue, 11/01/2011 - 11:09 | 1832342 Bill Lumbergh
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"Did the charts predict that G Pap would suddenly announce a referendum?"

No but they did predict a pullback was inevitable sooner rather than later.

Tue, 11/01/2011 - 11:09 | 1832344 Abitdodgie
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Surf's please go back to working for taxes nothing is going to happen, just give it up

Tue, 11/01/2011 - 11:23 | 1832425 Spastica Rex
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My I Ching said exactly that, just hours before he did. And my tea leaves, too. And my wife's astrologer.

Tue, 11/01/2011 - 11:01 | 1832296 Stax Edwards
Stax Edwards's picture

Markets got hair on it fo sho!

Tue, 11/01/2011 - 11:01 | 1832297 jtmo3
jtmo3's picture

No...prelude to a ramp maybe.

Tue, 11/01/2011 - 11:07 | 1832325 homersimpson
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Yea.. a ramp off a cliff..

Tue, 11/01/2011 - 11:24 | 1832429 HelluvaEngineer
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Yeah. Ben's got your back.  He truly cares about you.

Tue, 11/01/2011 - 11:01 | 1832298 YesWeKahn
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I am sure that Bernanke will do everything in hist power, including licking someone's dick to avoid another crash.

Tue, 11/01/2011 - 11:08 | 1832329 baby_BLYTHE
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exactly, for if he were to allow a repeat of the Great Depression (which he dedicated his academic life studying), he knows he'll be the last FED chairman.

Tue, 11/01/2011 - 11:11 | 1832348 SheepDog-One
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What people seem to be missing is Bernank was chosen to ENSURE the Greatest Depression.

Tue, 11/01/2011 - 11:17 | 1832388 Randall Cabot
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His name is Ben Bernanke

He's the head of the Federal Banky

He loves thin air

He prints money from there

And from Nathan he gets a big thanky.

Tue, 11/01/2011 - 13:25 | 1832408 redpill
redpill's picture

There once was a guy named Bernank

Destroys the world with dollars not tanks

One day he turned gay

And looked for a lay

And wound up with one Barney Frank

Tue, 11/01/2011 - 11:28 | 1832447 Oxytan
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Good points baby_Blyth and SheepDog.  Could you both be right?  In other words reset the system, but only appear to be the last chairperson, while maintaining ultimate control?

Tue, 11/01/2011 - 12:20 | 1832738 viahj
viahj's picture

if and when they own most of the land and gold, then the "system" has served their purpose.  they can then let it crash and buy steal the rest.

Tue, 11/01/2011 - 11:10 | 1832308 DormRoom
DormRoom's picture

It's no longer a market but a global poker table.  That's the main problem with modern finance.  It is no longer pairing buyers with sellers.  Instead it pairs strong hands with weak hands.


government bank bailouts incentivizes this pernicious structural mutation.



Tue, 11/01/2011 - 11:25 | 1832436 Spastica Rex
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Really pithy observation. +1

Tue, 11/01/2011 - 11:27 | 1832442 common_sense
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- some 250 points up in Dow.... NOT RULE AT ALL.  We can be all stupid we want and buy MF Global stocks.

- some 200 points down in Dow...Rule 48, rule 49, all the books-rule in place.  Ohhh may be you can no go short in banks because political leaders are afraid of markets speculators.

So, SYSTEM IS CORRUPTED IN THE BASE. MF global is in bankruptcy althought some banks recommended to buy... WHY FED ACCEPT THIS ?  WELL, I can imagine...they are thinking global economy is a BIG CASINO and they are the owners, good, very good, BUT the casino owners are not GOD.

Now China, USA, Europe...they think they are GOD. But they aren't, oh yes. How much time they are going to play this fucking game?


Tue, 11/01/2011 - 21:21 | 1835176 fnord88
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Bullshit, when I play poker there is a house ( government), that ensures winning bets are paid, and the rules (laws) are followed to the tee.


This is more like playing poker where the house (government) shows your cards to his friends (banks), refuses to let you leave the table as long as you have money left, and if you catch runner runner flush on the turn and river, changes the rules so 7 2 offsuit beats everything.

Tue, 11/01/2011 - 11:03 | 1832310 Nawaralsaadi
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Based on that logic after the August/Sept massive down and upward volatility, Ocotober should have witnessed an epic crash, instead we had the best October in decades, I am not saying a crash wouldn't happen, but predicting such events ia crap shot at best.





Tue, 11/01/2011 - 11:03 | 1832311 Nawaralsaadi
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Based on that logic after the August/Sept massive down and upward volatility, Ocotober should have witnessed an epic crash, instead we had the best October in decades, I am not saying a crash wouldn't happen, but predicting such events ia crap shot at best.





Tue, 11/01/2011 - 11:20 | 1832313 SheepDog-One
SheepDog-One's picture

Full-blown crash, bitchez. 

OH and 1 more thing, I dont know if you all caught this but in a few days the govt takes control of all internet thru 'black boxes' Chinese style...good luck and happy trade-timing!!

Huge Internet Power Grab November 9th 2011 By Fema/FCC - YouTube

Tue, 11/01/2011 - 11:21 | 1832412 rdenner
rdenner's picture

I have not heard the Internet portion of this..

The EMERGENCY BROADCAST SYSTEM is to take control of the nation's airwaves on Nov 9th 2011.. All radio and TV and Cable/Sat broadcasts will be pre-empted by this 3 minute long test...

The internet aspect is HUGE if true.. The above is ABSOLUTELY happening. The internet portion I have not heard from anyone but this You tube video..


Tue, 11/01/2011 - 11:36 | 1832491 SheepDog-One
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Ive heard it several other places as well.

Tue, 11/01/2011 - 12:27 | 1832767 DosZap
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rdenner, Here ya straight from the hdqtrs.
Tue, 11/01/2011 - 12:40 | 1832818 rdenner
rdenner's picture

Saw nothing about black boxes and internet providers.. This is strictly broadcast...


Not saying it isn't so, but want to have a difinitive yes or no, beside a you tube guy.



Tue, 11/01/2011 - 11:56 | 1832617 tamboo
tamboo's picture

coincidentally some other things occur on 11-9 (or 9-11-11 if you live in europe):

Massive Tsunami Drill Coincides With Continent Killer Asteroids

sooner or later we'll get an east coast tsunami as well:

Mega Tsunami and catastrophic effects if CUMBRE VIEJA

toss in a new madrid quake and any market activity fades to the back pages.

Tue, 11/01/2011 - 13:24 | 1832947 earleflorida
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not sure if this helps - you decide?

"Shock Report___the Known Unknowns"

Ref: "PrisonPlanet - Steve Watson & Paul Watson___12/16/08

ps. rumsfeld/ cheney from famed nixonian era, and the "Kiss-of-death-inger" have made "Marshall Law" a sure bet, via, Bush#41/ Clinton#42/Bush#43 & Obama#44,... 

Tue, 11/01/2011 - 11:06 | 1832319 Dealer
Dealer's picture

Rule 1: Stocks only go up.

Rule 2: Rates will remain low forever.

Tue, 11/01/2011 - 11:14 | 1832371 prains
prains's picture

Rule 3 corn always goes in your hole

Tue, 11/01/2011 - 11:21 | 1832410 SheepDog-One
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In the pie hole? Or corn hole.

Tue, 11/01/2011 - 11:07 | 1832321 Dr. Engali
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S&P 400 here we come.

Tue, 11/01/2011 - 11:13 | 1832354 Bill Lumbergh
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There is a very good case to be made for that on multiple fronts...but being too bearish in the midst of TALF, TARP, TWIST, QE1, QE2, and maybe QE3 can be dangerous.

Tue, 11/01/2011 - 11:12 | 1832357 baby_BLYTHE
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30 years living standards about to come apart within a few month time frame

Tue, 11/01/2011 - 11:22 | 1832415 SheepDog-One
SheepDog-One's picture

World War is their best diversion at this point.

Tue, 11/01/2011 - 11:31 | 1832468 Spastica Rex
Spastica Rex's picture

Yes - but HOW?

I don't buy the idea that nukes are part of some master plan, and that the 1% are going to live for a couple of years in hamster tubes under the ground to avoid fallout.

Tue, 11/01/2011 - 11:34 | 1832486 SheepDog-One
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Why did they build them then?

Tue, 11/01/2011 - 12:45 | 1832845 Spastica Rex
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Did somebody make money in their construction? 

Tue, 11/01/2011 - 14:06 | 1833252 Silver Dreamer
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I mean no offense by this comment, but "a couple of years?"  Nuclear war is very survivable.  You just cannot be within the immediate blast effects, and then you cannot be in the open during the fallout period.  It does not take that long for surrounding areas to be inhabitable again either.  People would be able to come out of shelters within a matter of weeks for the most part depending on their exact location, prevailing winds, and risk of secondary attacks.  Speaking of secondary attacks, a lot of people assume multiple strikes would all occur rapidly and then be over.  It's simply not true.  If your city is spared at first, you would immediately want to exit.  Secondary strikes will occur, and sometimes they will take up to weeks to happen.

Tue, 11/01/2011 - 17:24 | 1834373 Spastica Rex
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Really? Full scale thermonuclear war is really not such a big deal? I did not know that. Of course I've heard similar before; I live 20 miles from the Hanford Nuclear Reservation (they created the plutonium for the Nagasaki bomb).

Do you ever feel as if your mind has started to erode?

Likewise - no offense.

Tue, 11/01/2011 - 11:30 | 1832460 Spastica Rex
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Already happened to this mo-fo, baby.

Tue, 11/01/2011 - 11:07 | 1832322 FranSix
FranSix's picture

Ppl. would rather have their steak and eat it too.

Tue, 11/01/2011 - 11:07 | 1832324 haskelslocal
haskelslocal's picture

Tail wagging the dog...


Tue, 11/01/2011 - 11:07 | 1832326 vegas
vegas's picture

Get rid of the charts and the megaphone argument, substitute Gold for SP500, and ask yourself if gold is ready to collapse? Nice 70 minute 30 handle rally in xauusd should be sufficient for definition of volatility.

Tue, 11/01/2011 - 11:13 | 1832361 SheepDog-One
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Is gold ready to collapse, in what, USDollar denomination? Or relative to stocks.

Tue, 11/01/2011 - 11:26 | 1832441 vegas
vegas's picture

I'm not saying gold is going to collapse. My point is simply that you can take any market and say the same things he is saying about stocks. Replace stocks with gold in his article and you can make the same case. I'm saying that if you can do that, your argument isn't worth much if anything.

Tue, 11/01/2011 - 11:28 | 1832449 SheepDog-One
SheepDog-One's picture

Right, well I look at all these articles and remember the 2 choices are ante up, or fold and safely be the first one out before the cards fall out of someones sleeve and the shooting starts.

Someones about to get a bullet in the mellon here real soon.

Tue, 11/01/2011 - 11:08 | 1832331 TradingJoe
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We'll see a ramp into year end then....the big woooshhh!

Tue, 11/01/2011 - 11:08 | 1832337 bnbdnb
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Fear is healthy, however we have increasing crisis fatigue (I fucking give up!). Its is the only thing thats going to bring this thing down.

Tue, 11/01/2011 - 12:16 | 1832728 DosZap
DosZap's picture


however we have increasing crisis fatigue (I fucking give up!).

Some do, but the majority has gone past FEAR, and into OUTRAGE mode.More to come .........................

The level of corruption, at EVERY level of our Fin system, has me more angry than I have ever been.

I am sure I am not alone.

I am sick and tired of getting screwed, and the main characters of the play are our supposedly MAINSTAY of confidence,I HAVE no confidence in anyone in  the .gub.banking sectors.

Tue, 11/01/2011 - 11:08 | 1832338 Tsar Pointless
Tsar Pointless's picture

I like it.

That 1907-2011 chart allows us to set a new yearly low sometime later this month, then get our regularly-scheduled "Santa Claus rally" into the New Year, then all hell breaks loose in January.

Fits in nicely with 2008-2009, as well.

Tue, 11/01/2011 - 11:10 | 1832346 HITMAN56
HITMAN56's picture

VIX bitchez

Tue, 11/01/2011 - 11:12 | 1832356 ultimate warrior
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Nice charts.  The funny thing is we were in much better shape in the early 1900's compared to today.  This collapse is going to be epic. 

Tue, 11/01/2011 - 11:15 | 1832375 SheepDog-One
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Good point, in the early 1900's, most people already provided for themselves, grew their own there has to be 'an app for that' or people are helpless.

Tue, 11/01/2011 - 11:13 | 1832367 MFL8240
MFL8240's picture

This is all the byproduct of the Bernanke printing machine, the Greenspan insanity and a total lack of experience on how free market work. 

Tue, 11/01/2011 - 11:17 | 1832383 SheepDog-One
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I say it was all by design. I mean, does any SANE person really think 'HELICOPTER BEN' was put there to FIX the economy? lol.

'I'll fix it, by dropping dollars from helicopters'...only lunatics would have put such a maniac in to FIX anything.

Tue, 11/01/2011 - 11:35 | 1832487 Spastica Rex
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The alternative hypothesis is mass megalomania.

Seems plausible to me.

Plenty of historical examples.

Tue, 11/01/2011 - 11:14 | 1832369 The Count
The Count's picture

Hey, why aren't the FEDS arresting Corzine? At least to question him where the F**** all the money is and why it wasn't segregated. And while we are at it, round up the people who were supposed to make sure cusomter money was safe. Oops, I forgot that we now live in the bizarro world where there are no consequences as long as you screw people for over 100 million.

I have come to the conclusion we all deserve the armageddon upon us.

Tue, 11/01/2011 - 11:24 | 1832428 Ralph Spoilsport
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Before the FEDS arrest anybody, some manufactured event will overwhelm the media to take everyone's mind off the guilty parties. Hearing anything about the phony Iranian plot to blow up the Saudi Embassy these days? That was what, 2 weeks ago? The short attention span of the average citizen assures they can get away with almost anything. And they are, obviously.

Tue, 11/01/2011 - 11:33 | 1832473 SheepDog-One
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Yep, like a huge market crash and panic. Maybe even dirty nukes going off in a few major US cities, blamed on Iran of course. See? It was all THEIR sign your draft papers and get onboard WW3, americans.

Tue, 11/01/2011 - 14:09 | 1833272 Silver Dreamer
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A nuclear Pearl Harbor would get people lined up.  They would commit suicide for being told they were not fit for duty in fact.  Farm animals will remain farm animals for the most part.

Tue, 11/01/2011 - 12:21 | 1832742 DosZap
DosZap's picture

The Count


if they do not prosecute him, and seend hom to jail, they should release MADOFF.

Enough of this #%&*!!!!!!!!!!!

Tue, 11/01/2011 - 11:14 | 1832372 Racer
Racer's picture

The banksters and the Leeches have been trying to prevent the unpreventable and at levels that are not sensible for far too long.


Tue, 11/01/2011 - 11:15 | 1832377 campag
campag's picture

ZH overplaying the bearish argument again. Greece will leave the Euro Italy wont .Stocks move onwards and upwards - firm close to end of the year . Then we start looking at US debt.

Tue, 11/01/2011 - 11:18 | 1832391 SheepDog-One
SheepDog-One's picture

OH I see....a rather more orderly civilized collapse of civilization into full blown depression...uh huh.

Tue, 11/01/2011 - 11:15 | 1832379 Shizzmoney
Shizzmoney's picture

1/18/2013?  That's waayyyy to long.

I say this thing falls off a cliff earlier that that, mostly b/c gov't debt is going to be the anchor instead of your standard "market tilt" that occured in recent years past.

Tue, 11/01/2011 - 11:15 | 1832381 shazbotz
shazbotz's picture

The smart people are the ones stockpiling food using dollars or credit, ahead of the coming global shortages

Tue, 11/01/2011 - 13:43 | 1833072 Raging Debate
Raging Debate's picture

I think I'll pick up some Yuan in early 2012 too. Forex is advised if you live in the US in 2013. About $20k should do nicely. But food, ammo, water, medicine will be needed for at least three months. The Russkies told me to buy board games and have cards. Boredom and energy rationing were their biggest complaints and it seems we're landing just like the Russian Federation circa 1998.

Tue, 11/01/2011 - 11:16 | 1832385 Ralph Spoilsport
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It's the Chrome Plated Megaphone of Destiny - Who are the Brain Police? - Zappa

Tue, 11/01/2011 - 11:23 | 1832420 Snakeeyes
Snakeeyes's picture

Missing is the ISM Price collapse. Deflation?

This is getting scary! AGAIN!

Tue, 11/01/2011 - 11:26 | 1832438 Quinvarius
Quinvarius's picture

To have a real crash, you need the banks to panic.  That isn't going to happen with the Fed giving them free money--Not to the TBTFs anyway.  Hyperinflation of the USD is still the main course on today's menu.  The Dollar is still the weakest link, and it will take everyone down with it who tries to peg.  That being said, you are insane to even try and trade currencies when central banks are trying to peg.

Tue, 11/01/2011 - 11:31 | 1832465 SheepDog-One
SheepDog-One's picture

'Free money' only as good as suckers belief in it and I dont know anyone still believing in diluting currencies helps anything at all. 

Halflife of all interventions now 24-48 hours max.

Tue, 11/01/2011 - 11:30 | 1832453 devo
devo's picture

I live in California. I know we'll get a massive earthquake at some point, but I go on living...

It's the same thing, really. Sure, this will crash, but politicians and HFT won't let it happen easily.

Tue, 11/01/2011 - 11:31 | 1832467 SheepDog-One
SheepDog-One's picture

Until they want it to happen.

Tue, 11/01/2011 - 11:39 | 1832500 devo
devo's picture

Yeah, I agree. If you have any intuition you can feel the sickness.

I guess my point is this could continue a long time before we get the crash.

Tue, 11/01/2011 - 11:48 | 1832578 BurningBetty
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This is risky business..I do believe that we are facing a crash in the near future, but people def. need to be cautious. IF, and I am saying if, Germany agrees to ECBs moneyprinting plan to bail out PIIGS, we will have a rally in the stockmarkets which will last for a few months. Which means that shortterm, if you position yourself for a major decline in the markets, you might get really burned. 

Tue, 11/01/2011 - 12:12 | 1832703 Oxytan
Oxytan's picture

TBTB still control the vertical and the horizontal.  May not be a smooth ride for us, but the ride is theirs and they only care superficially (but why expect else?).  Notice that the Weimar collapse, WWII (throw whatever major event you want), never really changed their control.  That's the lesson to keep in mind eye suppose.

Tue, 11/01/2011 - 11:57 | 1832631 writingsonthewall
writingsonthewall's picture

"Not only are the swings increasing in amplitude, the time between each move up or down is decreasing"


That is EXACTLY what Marx said about Capitalism and it's crises.

Current picture shows this to be true - only time will tell if this is a longer term trend.


2 crises in 3 years - is pretty unusual - especially when you consider the size and scope of these crises.


I bet you wished you read your Marx and didn't spend the time checking out that girls legs in class.


repent at leisure folks.

Tue, 11/01/2011 - 12:06 | 1832667 zonkie
zonkie's picture

This market is completely crazy and clueless, just on Fri the VIX futures plunged and Bloomberg reported that "VIX futures collapsed" on 10/28.  It just takes 72 hours and loon talk by G-Pap to get VIX up...30%. The funny thing is bulls and bears are taking turns with the headlines too. Is it just a freaking co-incidence that on the day/night when Merkozy announce the deal we had great reports on economy, including China helping them news and so on. 

Now when the ticker has taken a U-turn we get a close to contraction China PMI. Is this all a big scheme between institutional investors and media moguls (the 1%) to suck dry what is left of the 99%?  Or am I just being paranoid?

Tue, 11/01/2011 - 12:31 | 1832785 soopy
soopy's picture

Impossible is nothing.

Tue, 11/01/2011 - 15:51 | 1833845 ivars
ivars's picture

Fully agree and little bit expand on this comparison:


The first hostilities start in 2017-2019, full scale WWIII  2024-2028. Not nice.

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