Market Crash

You're about to hear a big boom come from across the Atlantic, but I've yet to hear a peep from the rating agencies. And many of you guys think they were delinquent during the other credit bubble!!!????

GGP part deux, as the hopium high sold by US regulators that allowed banks and borrowers to pretend bad loans were good wears off and reality sets in..

So, who're you gonna believe, your NYC broker or your lyin' eyes???? Another Reggie Middleton "I told 'ya so" exclusive...

We have now entered the fifth year of this Fourth Turning Crisis. George Washington and his troops were barely holding on at Valley Forge during the fifth year of the American Revolution Fourth Turning. By year five of the Civil War Fourth Turning 700,000 Americans were dead, the South left in ruins, a President assassinated and a military victory attained that felt like defeat. By the fifth year of the Great Depression/World War II Fourth Turning, FDR’s New Deal was in place and Adolf Hitler had been democratically elected and was formulating big plans for his Third Reich. The insight from prior Fourth Turnings that applies to 2012 is that things will not improve. They call it a Crisis because the risk of calamity is constant. There is zero percent chance that 2012 will result in a recovery and return to normalcy. Not one of the issues that caused our economic collapse has been solved. The “solutions” implemented since 2008 have exacerbated the problems of debt, civic decay and global disorder. The choices we make as a nation in 2012 will determine the future course of this Fourth Turning. If we fail in our duty, this Fourth Turning could go catastrophically wrong. I pray we choose wisely. Have a great 2012.

Flashy Crashy. Is History repeating itself, or is this time different?

I fully believe that we may in fact be on the verge of a Crash in the markets. All the Red Flags are there. Europe’s entire banking system is on the verge of systemic collapse. Take a look at European banks and you’ll see what I mean.

In keeping with the tradition of always blaming something for everything that doesn't do quite as expected, be it the rain, the heat, the cold, the snow, (henceforth known as "the climate"), the earthquakes, the tsunamis, the nuclear power plant explosions (henceforth known as "the life"), or simple things (no pun intended) such as former presidents (henceforth known as the "Bush"), even when the current one is campaigning hard for this second term, we now have identified the one and only culprit for the market collapse: Europe. As the following chart from John Lohman demonstrates, just like back in 2009/2010 the entire market move higher was due to POMO days and the "first Monday" phenomenon (between these two events alone, they accounted for about 120% of the entire market move higher) in the past two years, so now we have the inverse situation, whereby almost the entire drop in stock can be blamed on Europe. Specifically, well over twice the market decline since the beginning of July can be traced to market hours in which Europe is open, while the drop in hours when Europe sleeps is completely unremarkable. For the arb-minded, this means that selling the Europe close to Europe open and buying the Europe open to Europe close boundaries will result in outsided returns. Then again, this has been known for a while: as we tweeted today at 11:30 am Eastern when Europe close, we expected the melt up to proceed. Sure enough, 150 DJIA points later, this was the only catalyst that was required. However, a caveat: these simplistic trades usually work amazingly well, until they don't and someone ends up getting badly hurt.

What makes this so interesting is that this bank is sitting under everybody's nose yet no one suspects it. KaBoom!!! Nuclear chain reaction thoughout Europe based on panic, greed, avarice and fear? Oh well, back to the trade at hand...

We are currently witnessing a pattern in the stock markets that has occurred multiple times in the last century. This pattern has occurred in 1907, 1929, 1931, 1987, 2000 and 2008. And every time it ended in misery.

Three days after the Flash Crash of Thursday, May 6, 2010 I posted a fictional story on Zero Hedge describing what might have happened. To commemorate the anniversary I have rewritten, novelized and illustrated that posting and present it below for your reading pleasure.

This could get ugly, prepare to go 'old school'!

Somewhat ironically, up until the Texas Instruments news hit, NYSE market volume today was 3.2 billion shares. This is on par with the lowest non-holiday market volume since just before the market crash in September 2008. It seems not even algos and robots care to trade this market anymore. Any banks that may have been hoping to make some commission-based profits on a mythical jump in trading this uear will have to shelve such plans and continue to rely on the only proven money-making model: massively leveraged prop trading.

I said it! Bill Gross said it (and put his money where his mouth was by selling off all US treasuries)! Common sense says it... Central Bank manipulated interest rates are too low. They will rise. What happens when they rise during a supply glut of real estate, foreclosure issues and a slow economy??? Put it this way... What made the markets crash in 2008: unemployment, slow economy, snow... Or real estate prices getting in touch with reality?

There is a real sense of the “calm before the storm” in markets globally. Complacency reigns, despite signs that the sovereign debt crisis in Europe is deepening and that Japanese and US bond markets also look very vulnerable due to rising inflation, very large deficits and massive public debt. US Treasuries have been sold by some of the largest investors (both private and sovereign) in the world recently (see news). These include large creditor nations Russia and China but also PIMCO, the largest bond fund in the world. A global sovereign debt crisis is now quite possible. At the very least, we are likely to have a long period of rising interest rates which will depress economic growth. Contrary to some misguided commentary, rising interest rates will benefit gold as was seen when interest rates rose sharply in the 1970s. It was only towards the end of the interest rate tightening cycle in 1980, when interest rates were higher than inflation, that gold prices began to fall.

It was ten short days ago that the Bangaldesh stock exchange was closed for the 2nd time in a month, after it plunged by almost double digits in the span of minutes. Subsequently, it pulled as US-type flash crash, PPT-sponsored HFT recovery.... only to make third time the charm: BBC reports that earlier today the Bangladesh index fell 8.5%, or 587 points, which forced regulators to suspend trading.This is the third suspension in a about month and the second free fall plunge in January. Everyone in Asia is getting spooked by China's lack of liquidity. But not the US. We are all hoooou kay. But that's not all. The chery on top is that the Bangladesh regulator, which more than anything is in dire need of its own plunge protection team, or least GETCO to serve as "DMM" (wink wink) for the entire exchange, has suspended brokers for having the temerity to sell into today's collapse. In other words: next time someone tries to sell into a market plunge, tough luck.