Market Is More Fragile Now Than Pre-Lehman

Tyler Durden's picture

The significant rise in global systemic risk that occurred in 2008 remained until mid 2010 when it began to subside a little as Jackson Hole and QE2 seemed to allay fears somewhat. However, in the last year or so, BofA's market fragility index has soared higher alarmingly signaling higher systemic risks than in the peak pre-Lehman era. This confirms the massively elevated signal for global systemic risk that credit markets are also sending.

Systemic Risk inferred from equity market variance decomposition...

 

and Global Systemic Risk from the credit market...

 

But it appears we have become Pavlovian in our learned response to any systemic risk as the chart below shows. The Fed has acted each time 5Y5Y forward inflation expectations drop below 2%. We were well on our way to this just a week or two ago (red arrow) only to have our own reflexive expectations of a Fed-Save drive inflation expectations back up (green arrow) and thus removing the possibility of QE in the short-term.

 

 

It would appear that while systemic risks are at peak levels, the Fed needs the 'public' to believe it is not always there to save the day in order that when it does save the day, its effect is more than transitory.

Finally, for those curious just how it is possible that even with trillions in implicit backstops the market is now less stable than with AIG, Lehman, Merrill and all the soon to be failed banks, the answer is simple: back then the market was in the hands of the, well, market. Now it is solely controlled by a few politicians and a even fewer academics. In other words, whatever can go wrong, will.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
RyanW525's picture

But the TV told me this morning we are in a "recovery"?

LULZBank's picture

They meant in a recovery room, with condition still critical.

Chris Jusset's picture

The Fed has painted itself into a corner, and now it's almost out of options ... and the marginal return for the remaining options is becoming increasingly infinitesimal.  It's been a fun ride, but the endgame is approaching.

Stackers's picture

Only question is, is the Fed going to print before or after the crash. I'm betting on after.

Paul Atreides's picture

The only recovery I've seen in the last 4 years is after a night of heavy drinking.

Leopold B. Scotch's picture

Don't forget your towel. 

 

Anyone wanna get high?

Jack Napier's picture

Everybody else is smoking so much hopium I'm already contact high.

Cognitive Dissonance's picture

There is no question. The Fed will print. The only question is when and how much during this round of easing.

"Dear God. Will someone stop me from writing bad checks?"

Village Smithy's picture

Yes budget cuts required CNBS and Sesame Street to merge and the overlap is still being worked out.

Missiondweller's picture

Steve Liesman to be replaced by Big Bird.

Cadavre's picture

I think they meant to say "But the TV told me this morning we are in a "re-cover-up"?

It may mean now is a good time for individual investors to get back into the market.

In other news:

Gen Mullen shortened his whirlwind European tour to meet with a rag tag gag bag of Mossad and Military floozies and usually suspected Tel Avivian Zogladytes and told them that there will be no more USS Liberty False Flags, or similar lethal ponzis, like the communications foot prints the chosen ones laid on Egypt and Syria pre-cursing the glorious 6 days kill fest of self defense pretense, or attacks on US assets  made to look like Iran did it.

Thanks to WRH, 3 time jet plane crasher son of a defense industrialist and crooner of songs that got him an early out from the Hanoi Hilton and then married to second wife, who has no time for Liberty's whiners, and also beer heiress and rumored associated with the car bombing a reporter who know too much about an AZ beverage commission ruling regarding vendor contracts at a horse race venue and the pregnant jowls from slugging down a wad of Keation 5's boss hog, Charles Keaton, dragon lotion, not forgetting he was also sailing the Gulf of Tompkins the day that little false flag was let loose, was also single handedly responsible for the fire explosions and 168 deaths on the USS Forestalls.

Kept secret since April 20 2012 is the arsenic DOA-d coroner who did the forensics on the Jan 2012 death of another Palfresque kill of conservative activist Brieitbart who told a C{AC audience he had videos that would prove our pimp wanna prez was involved in a a murder (we all know the prez's mummy worked for tim geithener's daddy)

BTW, NASA has written a patent for cold fusion

Flame, Stuxnet were MSI software injections admittedly implemented by the US and her best friend in the Middle east (really, her only friend). The morning, Sen. Boxerfien, whose hubby's claim to fame is the sell of Israeli bonds to the Indiana State Public Service Employees retirement plan, when asked by a reporter, if she considered "Flame" and "Stuxnet" cyber attacks (or IMW: cyber murder death genocide kill-fare), told the reporter she wouldn't answer than question because she did like the way it was asked. Well now the military is worried, not only about the use of M$ back door keys to inject things like flame, but also rightly concerned that data extractors are being etched (not programmable chips, like PALs) into their chips. Lest we forget, M$ owns a 10% stake in the Bath Ship Yard and a couple of years back M$ techs pulled all the SUN CICS systems and replaced them with Intel based M$ OS systems and the navy brass blew there collective lids and had M$ pull their shit off. We all should be aware the MS core operating system and security kernels are manufactured in the lands where dominion heresy is the spiritual bling of choice, and, BTW, same goes for Intel stuff. half the firmware sales for MS Intel systems are manufactured in the honey pot lands inherited directly from g*d!

Speaking of Indiana, stories are ablaze with meter busting radiation readings and explosions and blackout zones and military units and military planes. it is prophetically apocalyptic to some. either flame bit its creators, or, and more likely, military drill prepping our NDDA empowered military brass and the GI's we buy for them on the fine art of mass civil attitude adjustment. when they tell ya not to worry, you should begin to worry. their primetime pleas to not worry seem more frequent and of increasingly fatter decibles. the house is on fire and we are told to stay indoor, hmmmmmm .... at least its warm?  prepare thy selves. recommended downloads  "when there is no doctor" "when there is no dentist". download - have `em printed and bound.

Gee - why ahould anybody be concerned about the divinely shielded from false anti-crimites accusations regarding the manufacturing going on in MilkAndHoneyVille. Forget checkpoint. Forget Flame, RootKit, Stuxnet, Zeroday Adobe Java Script. Forget `em all.  Forget all those update patches that M$ releases after some uppity geeks pisses them off when M$'s admitted intentional exploits are exposed. Just cause of flame and all the other stuff, it was a fluke, they didn't change for the bus, the tire was flat, everybody hated them because they were better than everybody else.

(note 1: to wannabe hackers - if you want to be a computer criminal and have not yet endured the luxury of working Redmond's back rooms and need some really cool back door keys do this (ya need at least a DSL - run it direct from adapter to modem and the modem to the wall outlet - set the router aside. Format an XP Pro HD. Has to be at least one SP installed cause pre SP XP is too secure so make sure to have an SP1 or later pack installed. Leave IIS on the disk, but not set on cause if your lucky you'll be able to harvest some keys that will allw it to be turned on without permission. You can turn off, or not turn off, updates and error reporting and the remote assistant sh*t. It's password agnostic. Make sure your event log is started, Disable the on board MS firewall, Dial into your ISP and go watch TV or spoon the old lady. Sleep. If your really lucky your ISP will have turned off your account because your box is emailing a zillion hard on pill emails - and you'll see fake blue screens or obvious scam virus scanners on your screen. Before you dispose of the drive, print out the contents of your entire event log. - in the logs you'll see logins by User's with seemingly randomized 9 digit "keys" with a description of the processes the funky user started or ran or installed).

(note 2: to users - it's not enough to just turn off automatic updates, error reporting and remote assistance. you got to go into the group policy editor and "blank out" the remote assistant and access ports. Use a router. unless you need IIS for a project, remove it from the disk. the on board firewall is all you need. turn off adobe flash java script - or do as adobe advises on its web site - use a 3rd party "light" PDF reader. a good "hosts" file should have at least 1200 entries by now. why are a lot of big brick and mortars still using xp?)

Noticed the Media timings for the prez and the ben seem to correspond to the ftse close - about time they figured that out.

Somethin's gonna go "pop" really really soon.

eclectic syncretist's picture

Time to get together a secret meeting at Jeckyll island.

Bastiat's picture

. . . and call in an airstrike.

francis_sawyer's picture

Admirable, but too easy...

I'd vote for hemming it in as some kind of Papillion style prison camp... Make 'em eat centipedes for a couple of years... The only way out is a coconut shell raft in shark infested waters... Pretty much the same treatment that they're inflicting on the ROW at the moment...

Umh's picture

Unfortunately you can walk off of Jekyll Island.

battle axe's picture

They will do QE3, Because it is an election year, and  Israel is  going to nail Iran. Notice how that story has not been talked about in the last couple of days. The lull before the storm...

LULZBank's picture

My feeling is the whole drama with Iran was to give China access to cheap oil or else China was thinking about dumping USD denominated assets.

Actual war with Iran would be WW3, the whole region being already tense and volatile. It just wont be Iran.

ThirdWorldDude's picture

I wouldn't agree on your Iran - China statement, but you're right about the magnitude of such a conflict.

 

The fuse that is the Middle East is lit, now it's only a matter of time:

(http://stratrisks.com/geostrat/6385

http://stratrisks.com/geostrat/6392)

 

edit: I didn't junk you...

francis_sawyer's picture

Munich '72 ~ London '12 (don't think that somebody upstairs hasn't thought of it)...

Stoploss's picture

Timmy G's pushing Euro tarp.

LOL!!! They're stupid enough to do it!!

Dr. Engali's picture

I hate always feelig like we are on the edge....then poof..nothing happens. Get it over with already.

Spastica Rex's picture

I see you quiver with antici............................................................pation.

But maybe the rain isn't really to blame,

So I'll remove the cause - Heh... Heh... Heh...

But not the SYMPTOM!

canardo's picture

Same here. I wish this bloated zombie of a global system would finally fall apart, so we would know where we stand and we can start anew. Also, there are some open accounts with various bankers and politicians that urgently need settling.

JPM Hater001's picture

Great...this time we're trying the balancing at 16 trillion since the fail at 12 trillion only managed to break some bones.  Now, let's try this ALL IN.

Conman's picture

Markets fine, jsut have the PPT  push up the market on low volume days and well be to Dow 20000 in no time.

Hohum's picture

Just a check:  How much is the DOW up this year?

Answer: between 2% and 3%

El Oregonian's picture

No, Joe said it is "The Summer of Recovery"... oh wait, that was last year... never mind...

XtraBullish's picture

CTRL-P is the only solution...mark my words...gold and silver up fivefold is preferable to civil/social disobedience and bloodshed...

LawsofPhysics's picture

History is not on your side.

oddjob's picture

History is written by the victors.

LawsofPhysics's picture

Precisely, and it always involves social unrest and bloodshed.

GMadScientist's picture

So, ipso facto, history is always written by those willing to engage in bloodshed who happen to be doomed to repeat what they've not understood.

 

Bastiat's picture

I'm inclined to agree but don't forget those 450 million rounds of hollow point 40 cal recently ordered by DHS:  http://www.theblaze.com/stories/why-is-homeland-security-buying-450-mill...

canardo's picture

Wasn't that for "target practice"?

BlueStreet's picture

If BofA says it, it must be true.  

junkyardjack's picture

Markets are fine.  There's only one direction that they can go and that's up...

BLOTTO's picture

Drop by Drop

Drip by Drip...

-'They' carry out their illuminati agenda...we are being held captive by the old and now the new scientific-technological elite.

It gets worse every single day.

Today was worse then yesterday...but tomorrow will be worse than today.

It really is very sad that our society has been totally hijacked...and worse, the masses are in denial and dont care...

tocointhephrase's picture

They will when they wake up. Blue pills have a long lasting effect!

ThirdWorldDude's picture

Which ones - xanax or viagra?  /s

 

They will first wake up after TSHTF, when the medicines supply is cut and there's no more fluoride in the tap water.