I do not toss around the idea of a market crash lightly. If you've been following me long enough, you know that only in very rare instances do I issue a cautionary Alert (I've only issued four since my website launched in 2008), and I am generally not given to hyperbole. Let's be clear: I'm not issuing an Alert at this time. But I am concerned that a materially adverse disruption to the financial markets is increasingly likely in the near future. Perhaps a definition will be helpful as we begin. A 'market crash' is an event where there are no bids to meet a wall of selling. The actual amount of the percentage decline is less important to note than the amount of chaos, or loss of control, that a given market experiences. Some like to say that a market downdraft requires a decline of 10%, or maybe even 15% or 20% (or more), in order to qualify as a 'crash.' For me, the key factor is not so much the amount of the decline, but the pace of the decline. With perhaps a quadrillion US dollars of hyper-interconnected derivatives outstanding -- that's the notional value, but who really knows what the real number is? -- an orderly market is essential for knowing whether or not the counterparty to one's trade is solvent. During periods of intense price swings in the market, such things are simply not knowable, and spawn the fear and paralysis that really define a market crash.
Chaos theory states than in complex systems, a butterfly flapping its wings in Japan can cause tornadoes in California. Whether or not that is true, a Banker in Belgium buying Greek bonds can impact the lives of factory workers in Germany. Europe continues to head down the path of making the system more complex than ever and ensuring that no bad lending, investing, or borrowing decision is ever punished.
Marc Faber To America: "Listen You Lazy Bugger, You Need To Tighten Your Belts, You Need To Work More For Lower Salaries"Submitted by Tyler Durden on 10/11/2011 14:51 -0400
Once again, the latest fire and brimstone sermon by Marc Faber is absolutely spot on, starting and ending with his "policy" recommendation for what the US needs: "I will tell you what the US needs. The US needs a Lee Kwan Yew who stands in front of the US and tells them, listen you lazy bugger, now you have to tighten your belts, you have to save more, work more for lower salaries and only through that will we get out of the current dilemma that essentially prevents the economy from growing." No money printing, no extensive protests, no excuses. Of course, this would have to accompany a global overhaul of the system, something Zero Hedge has been advocating since day one, as it is impossible to reform this broken system from within: "The problem i have with the investment universe is that i find it difficult to envision how the US and western Europe can return to healthy sustainable growth without a complete purge of the financial system and some type of catalyst. Something that restores some measure of social cohesion among people; it could be hyperinflation, a complete credit market collapse, widespread sovereign defaults, civil strife, major military confrontation.” Alas, in that he is also correct, and as we said back in early 2010, when the current episode of extend and pretend ends and the can kicking exercise finally fails, next up is war.
- New bankruptcy ripples may emerge in tough economy (Reuters)
- Europe’s banks may get €200bn bailout (Independent)
- US to unveil criteria for picking “systemic” firms (Reuters)
- China Props Up Bank Shares (WSJ) as reported yesterday
- Europe warned of systemic crisis over debt (Reuters)
- US Voters Will Weigh Ballots Focused on Budgets, Higher Taxes (Bloomberg)
- Regulators stand up for new capital rules (FT)
- Jobs Panel Pushes Help for Start-Ups (WSJ)
- Dutch favour tough stance for Eurozone (FT)
- BIS Report Aims to Debunk Banks’ Criticisms on Capital Rules (WSJ)
3 big questions for anyone supporting the China Currency Bill
Dire numbers prove that running up deficits and printing trillions can't create a healthy economy. Yet, inexplicably, it's what the status-quo media continue to propagate.
Key Market Events In The Coming Week: More Promises, Headlines And Rumors; And A Very Critical Vote In SlovakiaSubmitted by Tyler Durden on 10/09/2011 21:39 -0400
Key this week will be the final missing EFSF votes, in particular Slovakia. The latest headlines over the weekend suggest the governing coalition has still not found a compromise and will meet on Monday again. The votes of 22 MPs for the SaS party in the 150-member Slovakian government are now the main stumbling block to bringing the effective EFSF lending capacity to EUR440bn and to increase the EFSF’s flexibility. The parliamentary EFSF vote is scheduled for Tuesday. On Monday, the second-to-last vote on the EFSF will be held in Malta. Still linked to the Eurozone crisis, President Sarkozy and Chancellor Merkel agreed over the weekend on the need for bank recapitalisations and the need to find a “durable” solution for Greece. There has also been talk about a “vision” for the Eurozone and a promise for a plan by the November 3 G20 summit. Markets will likely focus on any additional details regarding the bank recapitalisation plan. Of course, Greek issues will remain important as well, in particular after Troika officials have been quoted in the media as criticizing the Greek Government’s determination to implement structural reforms. The results from the Italian bond auction on Thursday may increase the pressure on the Italian government to undertake more growth-enhancing structural reforms, as again demanded over the weekend from the next ECB President Draghi.
- It’s Too Hard to Know Who Is Too Big to Fail (Bloomberg)
- China Currency Bill Passes US Senate Test (FT)
- China Labor Costs Push Jobs Back to US (FT)... one week behind Zero Hedge
- Credit Swaps on Chinese Debt Surge on Slowdown Fears (FT)... three weeks behind Zero Hedge
- America’s Six Key Lessons for a ‘Euro Tarp’ (FT)
- EU Pressured for Bank Rescue Plan Before G-20 (Bloomberg)
- Whitehall Fears New Bail-out for RBS (FT)
- Bank of Japan Keeps Policy on Hold (Reuters)
- Euro-Indebted Emerging Currencies Have Further to Fall on Growth (Bloomberg)
- Moody’s Lowers Its Senior Debt, Deposit Ratings for Nine Portugal Banks (Bloomberg)
Even a traditionally optimistic Michael Darda, of MKM Partners, is having trouble discovering the silver lining among the flotsam and jetsam that is the global macro-economic ocean currently. The Japanification theme continues with five charts offering too-correlated-to-be-ignored perspectives on equities, money supply/velocity, valuations/multiples, and demographics.
BBC Does It Again: "In The Absence Of A Credible Plan We Will Have A Global Financial Meltdown In Two To Three Weeks" - IMF AdvisorSubmitted by Tyler Durden on 10/06/2011 16:40 -0400
A week after the BBC exploded Alessio Rastani to the stage, it has just done it all over again. In an interview with IMF advisor Robert Shapiro, the bailout expert has pretty much said what, once again, is on everyone's mind: "If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system. We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serrious than the crisis in 2008.... What we don't know the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems."
There are only two ways for Apple to proceed (as) successfully in the medium term: 1) cut prices or 2) raise the technological bar. Either way, margins get hit. This is the first time Apple has released a smart product to boos from expectations set by the Android camp!!!
- Merkel Says Euro Bonds no Endgame for EU Woes (Bloomberg)
- China on Course to Squeeze Property Bubble (China Daily)
- Moody’s Sees More European Downgrades (Bloomberg)
- Athens Able to Pay Public Sector Wages (FT)
- Ireland Still Faces Bailout Challenges (WSJ)
- Death of Euro Seen Exaggerated Amid Non-Pimco Political Will (Bloomberg)
- Buchanan: With High-Speed Trading, Market Cannot Hold (Bloomberg)
- China to Subsidize Sales of Building Materials (China Daily)