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Smoke And Mirrors Aside, What Happens Next?
From Peter Tchir of TF Market Advisors
It is hard to find anyone who is surprised that we reached some form of compromise over the weekend. Stocks have dutifully responded by starting the day higher, but I think that is from a few people lifting relatively small hedges, a few investors pushing their longs, and some investors who crawled out from under a rock and think this weekend's events will actually surprise some people.
We may get one more rally once the deal is actually approved, but I think that almost all of this has been priced into the market. I think after the vote, we will see a lot of investors waiting for someone new to take them out of their long positions, only to find that there is no new money. Everyone is already longer or less short than they would otherwise be. There has been a lot of talk about how the uncertainty of a deal has impacted the U.S. You might be able to convince me that the uncertainty had an impact on the real economy, but that would take some work. For the markets, the uncertainty has been supportive in my opinion. Far more money has been scared of the relief rally than was willing to bet against some form of debt ceiling limit increase. Investors were scared to go short because it seemed obvious some deal would get negotiated and that would spark a rally. Once the debt ceiling rally is over, what is the next spark?
While the market was largely focused on the debt ceiling and inevitable rally, we managed to ignore a few things. The latest European bailout rally has been fading. We still have some gains from the lows, but we are well of the tights reached on July 22nd. If that latest program unwinds or continues to disappoint it will be difficult for the U.S. to ignore it. The data has been generally weak, and the GDP data was downright horrific. The market would have sold off much harder on Friday if it wasn't for the anticipation of the debt ceiling resolution. Investors will now have time to figure out what it means that the data is showing an economy worse than most people thought. Earnings have been mixed, but not as supportive for stocks as in the prior few quarters.
One big question is what will we do if the data continues to deteriorate? Another stimulus package seems like it would be hard to get done given we allegedly just agreed to keep spending in check. After the latest bits of data, even the most staunch supporters of QE must have some doubts as to its effectiveness. The Bernanke Put and the Obama Put may be difficult to implement going forward. The market has relied so much on government intervention that it will be interesting to see how strong it can be if investors lose faith in the government's ability to provide a strong backstop on any bit of weakness.
On a separate note, the government may want to review our participation in the IMF? The head of the IMF is critical about most things we are doing, yet seems more than happy to accept our money to indirectly bailout her beloved banks. Talk about biting the hand that feeds you.
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What happens next?
market will go red
Only until S&P announces they've invented a whole new category, called AAAA, for super-safe American debt (or else!).
Instead of downgrading, Moody's, S&P, and Fitch will just place the USA on "double-secret probation!"
European markets are already tanking. At least they started green today :)
give it another hour or so and the US markets will tank also.
DJIA now @ 30.
It will be interesting to see if the PPT were given the day off.
USD/JPY @ 76.5
*BAM* DJIA now @ -26
"Another stimulus (package?) seems like it would be hard to get done given we ALLEGEDLY just agreed to keep spending in check"
there it is
You labor under the false belief that they actually give a shit about what we think.
markets will go red once the daytraders get scared, because they are highly, highly leverage, and any downturn in the equity market forces them to liquidate positions to meet margin calls, thus begins the vicious downward spiral.
Credit bubbles are not all gone. It exists in the daytrading world. Equities go up. Borrow more.
what happens next??? we serously need to ask? ...
More CREDIT, bychez!!
The parts are still flying off, it will burst into flames.
Don't worry, it's running on vapor. It won't be more than a few sparks when it comes down.
There is no relationship between equity valuations and economic findamentals. Stocks can be manipulated ad infinitum, and they will be. Price keeping is integral to the matrix.
DING! We have a winner. The lesson of the last 3 years is that the Fed trumps all fundamental and technical analysis, period. You can still use these things to try to get into the mind of the manipulators, but anyone who tries to use technical or fundamental analysis to try to get into the mind of the market participants is thinking like the prey, not like the predators.
Anybody Watching JPY and CHF???
What an absurd :))) USD will hit ZERO against those
within a week with such speed of decline. Especially
Japanese Yen absurd, with even higher Debt and nuclear
Land..
Love my FXF. Swissie backed by gold - black gold, that is, i.e. Nestles chocolate bars, worth more than their weight in tungsten.
I notice that the economist Shaun Richards think that it is only a matter of time before we get more monetary easing in the US.
However the title of his blog post gives us a clue as to his views on how likely this is to be effective.
I think he has a point don't you what did happen to all those claims of economic growth following QE?
QE3 is coming. It doesn't matter that it isn't effective for the economy in general. QE was never about the economy in general. It was about keeping the banks liquid for a little while longer.
Of course it is. The ramblings on this side of the pond (UK) are getting louder for further QE programs. But then, the BoE *only* owns about a third of all British gilts. When will sophisticated investors realize they will keep inching that closer to 100%?
Agree and disagree. Unfortunately, keeping the banks liquid is "about the economy". It's a sort of finance fascism. When the Ponzi scheme collapses, so does the economy. Not that the motives were anything other than self preservation and can kicking, but the MAD card is real, in my opinion. Be thankful for this kick if you are not yet prepared for life during the currency implosion yet to come.
I hope we all are at least somehow prepared for the collapse at this point...
The dillemma is... even if you are not well prepared you should wish for a collapse NOW.
It will only get much more painful the longer the governments kick the can down the road.
The mathematical formula is: preparation-bonus x ^ 2 <= increase-in-collapse-potential y ^ 3
You see, increase in collapse potential is far more dangerous then the little better prepared you will be (more gold?, more guns?, more foodstorage?)
Why would the collapse get worse the longer it's delayed? Either the wind down could still be handled gracefully ... or the defaults will be so widespread that everything grinds down to a halt and the debt simply dissolves regardless of how much there is on paper.
You think the wind down can still be graceful?
The more we inflate, the more pressure builds inside the baloon.
I prefer a loud fart now, instead of a shocking blast later.
But ofcourse... the rich will feel no pain.... so nothing will be done against this foreseeable disaster.
So the real question is, how can we share the pain better?
Umm, strafe/bomb mansions in the Hamptons?
I agree. There are few winners in what is to come. Food and PMs are essential to preparation. There were generals and former government ministers begging on the streets in post WWI Germany and Austria. People were robbed on the streets for their clothes. Many afluent people are going to lose all their paper assets, and then they will have to trade their physical possessions for food.
Hmm, I like Picasso's work -- how about a trade of 1 canvas for an ASE?
Step 1: Manufacture a crisis to scare investors out of stocks and into Treasuries
Step 2: Interactive Brokers re-invigorates "Animal Spirits" by lowering margin rates to 1.1%
Step 3: Voracious buying of Treasuries based on "fear" allows Uncle Gorilla to roll over even more debt at world record low interest rates
Step 4: Eventually, enterprising speculators cannot resist spread trade opportunities, so they rush in and buy stocks.
Wash, Rinse, Repeat cycle begins anew.
Nothing has changed on Wall Street in 50 years. Nothing will.
$100 trillion in liabilities and contingent liabilities, a $5.5 trillion government deficit (use gaap accounting) and 17% u6 is not a manufactured crisis, knucklehead. it's the real mccoy.
Sorry Robo, your observation that nothing ever changes on Wall Street is true, but your tacit assertion is nothing will therefore change outside of Wall Street is dead wrong, and has always been wrong, throughout financial history. Fifty years is not long enough to examine what always happens in the end. What always happens is a currency is broken and widespread misery and poverty results. A few speculators get tremendously wealthy during such times, but the rest go bust, because most market players are just luck gamblers, not free thinkers.
The train wreck is coming, just as it always does. The only thing that is different this time is it will be far, far worse. What is different this time is we live in a global economy that is awash in derivatives. We have billions clustered in small coastal areas that have no food supplies beyond a few days worth. All our agriculture is concentrated and industrialized. People have no cash and depend upon ATMs. In a world of just in time delivery and zero inventory, a breakdown anywhere in the system spells disaster. This is not just another Wall Street rinse and repeat.
i agree with the point that the bag holders now are waiting for some new novice to bail them out of their positions. the usa doesn't have an economy anymore. it's mostly random transactions and replacements of durable goods.
Well, I expected this wonderful rally on "all problems solved" to last about 2or 3 days, not 20 or 30 minutes. They sold them all at the open and bought the miners. Gold down 15, now down 5 bucks. I bet if this keeps up even Robot will sell LULU and buy GG.
The only explanation I have for people still playing this market is that nobody is actually using their own money!
Interesting view.
Those who are as you said "playing", m
mostly losing money anyways, no matter
what market is doing. Volatility is high though.
I don't mine if those Casino type players get the f*
out and just sit in the falling dollar.
Only the gains are.
Yes, US CDS way tighter obviously but take a look at Spain, back to all time highs; Italy near highs.. the baltics up there. How well are bond issues getting priced (EU/CEEMEA perspective)? Very poorly.
Basically: dont look at equities - credit is telling you the story.
John Mauldin managed to get 10 Senators into a room to listen to him tell them what is screwed up. He said they actually took notes and among the 10 were some heavy hitters...
Link below contains Mauldin's comments to the 10... Of interest is that Mauldin said that 'congress has warned the Fed on more lending to prop up European banks'...
All is fair in currency warefare... The Euro currency is a threat to the Fed model...
http://www.johnmauldin.com/images/uploads/pdf/mwo072911.pdf
John Mauldin's "Endgame" is an excellent book.
What happens next after red and blue team lawyers agree that doctor's have the weakest lobby?
Unemployment spike coming as doctor's offices reduces headcount to compensate for decreasing reimbursements. Providers like THC finds ultimate support at $0.00. Insureres like Humana see costs decrease and their stock prices rocket.
I predict less people trying for medical careers -- then what?
stocks goin red
Market pump fading fast....
BTFD!!
Its not a ponzi scheme, its a buy the fucking dip scheme.
...in the expectation you'll sell out to a bigger fool down the line; aka Ponzi.
maybe next Q ;)
ISM in contraction mode ...recession coming.
and they are goin red to ensure that the senate and house pass the thing
And gold is at 1,625. Man, that was fast. But I thought everything was fixed. That is what Barack told me. I mean he is the President.
Oh no, we seem to be back in that unenviable position of being asked to "trust politicans" again.
Every time we do - it ends badly - so what's different this time?
You have the laugh at the stupidity of the markets though - this morning Gold was down, because the gamblers thought a debt deal was good for the dollar.
Market works out that increased debt celiing means more borrowing and consequently a revaluing of the USD downwards in 3....2.....1......
Morons - I hope you all BTFD this morning because those suckers need to be toasted.
as mentioned last night when zh's resident genius - robotard - (aka the world's worst trader) was taking his usual victory lap before the race had begun, and of course bashing gold and silver, i mentioned we might see a gap fill. and so it is, in spades.
Would that be robot-tard bashing gold and silver up to it's record highs again?
When will he learn, he is not gifted - just because he thinks something will happen - it doesn't mean it will!
Did he by any chance recoomend a long position in USD? - looking at the scale of the fall I think this must have been a 'robot tip' in the 'contrarian lose my money' stylee he goes in for.
in his dreams he makes walter mitty seem down right reasonable.
Uber Directiv Fur Amerikaners
Barack Obama, Timmy Geitner, and Benny the Bernank
1.01: All American fortwith shall partake of the new Federal Reserve Exponent Lending Program (ELP);
1.02: All American families shall purchase at least 1 home;
1.02.1: Those who do not qualify for loans will be given one anyway
1.0.2.2: Those who cannot pay their loans will be granted emergency mortgage payment coupons
1.03: All Americans with at least one child, or otherwise who breathe shall have a vacation home as part of Michelle Obama's Healthier America Program;
1.03.1: Those who do not qualify for loans will be given one anyway
1.03.2: Those who cannot pay their loans will be granted emergency mortgage payment coupons
1.04: All Americans with more than 1 child shall have an additional vacation home for each 2 children, and those with more than 3 children shall have yet an additional vacation home for each 1 child above 3 children.
1.04.1: Those who do not qualify for loans will be given one anyway
1.04.1: Those who cannot pay their loans will be granted emergency mortgage payment coupons
1.05: Children deserve to have what they want. If a child wants something, the parent[s] shall purchase it.
1.05.1: Those who cannot afford the item shall be granted credit to purchase it.
1.05.1.1: Those who do not qualify for loans will be given one anyway
1.05.1.2: Those who cannot pay their loans will be granted emergency loan payment coupons
1.06: Diktated this August 2nd, year of Lord Obama 50 (+/- any offsets due to actual birth certificate numbers)
...and look at this shit...
http://finance.yahoo.com/echarts?s=USDJPY=X+Interactive#chart1:symbol=us...
http://finance.yahoo.com/echarts?s=USDCHF=X+Interactive#chart1:symbol=us...
Downward trend resumes....it's very very bad - think of all the FX traders getting smoked? I'm watching out the window for the coffins....
Interest rates just collapsed here. Man, this is getting interesting. And I have 0 shorts.
After the latest bits of data, even the most staunch supporters of QE must have some doubts as to its effectiveness.
QE never was about the economy. It's about keeping DC and Wall Street going. So yes, it was effective. Very effective.
Without QE DC and Wall Street would collapse ...like the economy is collapsing.
What happens next?
"The Guns of August" happen next
...what happens next?
..whyThe Devi of course. http://www.myspace.com/urbandancesquadmusic/music/songs/the-devil-57466543
I have not been able to verify this but just heard on the Boortz show that the 'new' debt deal tables any repeal of Obamacare. If true, the smoke and mirrors just keep on coming.
Well, well... last night Obama spoke about a "deal" that had been reached.
CNN "BREAKING NEWS" all night long on a "deal" that was imminent. Asian markets shooting straight up.
Now where's the deal?
There's propaganda and manipulation and then there's complete fucking insanity.
To speculate the US is now growing faster and creating jobs just because Daddy's credit card company is raising the credit limit, is pure and simple insanity.
Oh what a tangled web of lies and deception they've weaved over the last 3 weeks.
Much bigger news is the fact that HSBC is closing 3000 branches and cutting 30,000 jobs worldwide.
Wait! Where's the recovery? Where is the global growth again?
Implosion shall ensue. Buckle up.
No rally this time. The short interest is too low and there's no covering spree.
What happens next?
Print.
They always print. That's all you need to know. They always print.
Prepare accordingly.
Prepare for the day when your money buys nothing.
Agreed.
What a nightmare that will be. Hard to even imagine.
S/B: "Prepare for the day when your FRNs buy nothing."
The Seven Essential Rules of Tyranny...
http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/07/seven-essenti...
OT: Hilarious "Upside Down" Video...
http://www.youtube.com/watch?v=W0Uju3tYS2s
"You might be able to convince me that the uncertainty had an impact on the real economy, but that would take some work."
Truer words have never been spoken. I had the "opportunity" to spend most of the last weekend in a hospital ICU waiting room. After nearly going blind with Oprah reruns and fluff news network, I started swapping between CNN and Fox News to keep abreast of the debt extension debate. I queried some around me, and most could care less. I did meet some who were opposed to any debt extension though. The one family member (whose husband was in the ICU) had a dog in the fight - she is an accountant at NASA. She wasn't implicitly for the extension, but didn't like the uncertainty of not knowing the status of her job (and health insurance, BCBS - employees contribution is 25%) with her husband in an ICU ward while they were visiting from out of state.
History is clear what happens next. Let's review a few short passages from When Money Dies, an account of Germany, Austria and Hungry in post WWI:
"It remains so that once an inflation is well under way (as Schmb'lders has it) 'it develops a powerful lobby that has no interest in rational arguments.' This was as true for Austria and Hungary as for Germany."
Next, the author describes how the inflationary slope gets so slippery, there is a point of no return:
"What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point therefore was not a financial but a moral one; and the political excuse was despicable, for no imaginable political circumstances could have been more unsuited to the imposition of a new financial order than those pertaining in November 1923, when inflation was no longer an option. The Rentenmark was itself hardly more than an expedient then, and could scarcely have been introduced successfully had not the mark lost its entire meaning. Stability came only when the abyss had been plumbed, when the credible mark could fall no more, when everything that four years of financial cowardice, wrong-headedness and mismanagement had been fashioned to avoid had in fact taken place, when the inconceivable had ineluct-ably arrived. "
We have already passed the point of no return. There will be no short term fix because there can't even be a long term fix. The nature of these things is we have to ride it into the ground until everything is in complete smoking ruins.
I agree but would add two facts:
1. Past collapses were not of a world reserve currency
2. Past collapses did not occur with a banking system that is, by design, one which assures mutual destruction.
The coming financial collapse will make previous currency collapses look like child's play. It will be the greatest culling of the herd in recorded history.
Absolutely. Why this collapse will be the worst in history:
All the life boats are chained together. People think they can hide in the Swissy, but there is no place to hide from this. Financially you can hide in PMs, but physically? The necessities of life are going to be hard to come by.
Would you recommend the book? Looking at it now on Amazon. Interestingly, I was going to ask the question of what people view as the best book to describe that timeframe. Amazon has a few titles to choose from.
"Would you recommend the book? "
Hey Tyler - this is a great question. Maybe we could have a subsection (in the forums?) where readers rate and/or recommend books that are ON TOPIC, and relevant to the issues we are facing today.
I have a personal favotite now:
"The Great Depression: A Diary" by Benjamin Roth
ISBN 978-1-58648-799-7
I would recommend the book. It is available for free in PDF format on the web. Audible also has an audio version for MP3.
Russia or China could do the World a favor and lob a few MIRVs onto D.C.!
I left out some important points in that little list of why this time is different.
The breakup of the extended family is bad news for weathering crisis
People move around a lot today, and don't even know their neighbors, let along have relatives nearby to rely upon. Small, close knit towns are the exception.
A social welfare state that didn't exist during the Great Depression. People are completely dependant upon empty promises, militantly so.
During the Great Depression, money was hard to come by. Even if people had it, they couldn't get their hands on it. My grandfather was a grocer in Massachusetts. He lost his store in extending credit to his customers who had no other way of feeding themselves. Good luck getting Walmart to extend you credit. Even if the store manager knows you are going to die, he won't have the authority to help you.
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