by David Haggith, The Great Recession Blog:
Make no mistake about it, there’s real fear and panic out there as markets are dislocating to the downside…. But note that on many charts we are showing 2008/2009 like conditions, something that is entirely inconsistent with the earnings and economic data we’re still seeing: It’s almost as if markets are pricing in a financial crisis that has yet to occur.… I see slowing growth and concerns about a coming recession, all of which is true, but I’ve yet to see evidence of a financial crisis. ( Zero Hedge )
Now there is a spooky line. Yes, it is looking like 2008 looked after it was obvious we were entering a financial crisis in that Stearn Bear market when Lehman Bros died like a dinosaur in an extinction event. At least, then we had the nasty, corrupting carcasses of behemoth banks lying around to blame for the market’s stinky behavior; but our banks we are told now are all sound as Sterling. It is almost as if the markets now are pricing in the fear that the Fed’s Great Recovery Rewind is going to take us back into the same recession that their Great Recovery attempted to take us out of. (And, of course, it is!)
The Dow lost 1,655 points, or 6.8 percent, last week. That was the Dow’s worst week of trading since October 2008 during the financial crisis. The S&P 500 also lost 7 percent for the week and is now down 17.8 percent from its record reached earlier in the year, putting it on the brink of a bear market. The Nasdaq Composite Index is now 22 percent below its record reached in August and is in a bear market. (CNBC)
Stocks are heading for the worst month and year in a decade right on Christmas Eve. Yes, the market’s are pricing in something the economic data doesn’t fully support — yet — because investors see the shadow of something wicked coming their way. Santa isn’t just bringing lumps of coal; he’s bringing a coal-eating, petrol-drinking, fire-breathing dragon.
“What’s all the running about everyone?” the little boy asked as the shadow of the great dragon slid over him from behind. “It’s a bright sunny Christmas Eve day! We can still play!”
Or as the revised motto (tag line) on this site now says,
“It was such a Great Recession, we’re heading back for more.”
I attended a holiday gathering for one of my advisor clients on Friday evening. While everyone appeared to be in the spirit of the season, when the conversation eventually turned to the market action, the mood quickly changed. In talking with fellow financial professionals throughout the evening, the theme of the conversations was consistent. To a man, everyone agreed that (a) this was the worst market they’d seen in a VERY long time, (b) the action “felt” like an old-school bear (relentless selling, no lift, no obvious catalysts), and perhaps more importantly, (c) there is more going on here than meets the eye. The latter is a lesson we learned from the 2007-09 financial crisis…. Today, we all know that “forced selling” (fund blowups, margin calls, and a myriad of programmatic systems) can cause markets to collapse into a vacuum as buyers simply stand aside when the algos begin to roll and/or folks “need” to sell at any price. But, on Friday evening, everyone agreed that this market definitely feels different…. As the group said in unison, “there is NO LIFT at all….” Since December 3rd, the market has indeed moved in a straight line, becoming what is referred to as a “waterfall decline” in the process. But, there are no headlines to trigger the moves. No, something else appears to be at work here. And the real problem is no one is really sure what that “something” is. (TalkMarkets)
Make no mistake about it, something wicked this way comes; and if you don’t eat it, it’ll eat you. However, that something wicked is more than just the crazed establishment players I listed in the title; it is the monster these menaces are creating with all their squalid, slimy, filthy, shabby, seedy, wretched, broken-down, decaying, skeevy ideas and their peculiar interactions with each other.
The Fed’s great tradeoff
The stock market will stop going down when the Federal Reserve gets bright enough to realize their dragon-shaped, hot-air balloon ride over Jurassic World, known lightly as “the Everything Bubble,” will only fly as high as the Fed’s burner allows. Less heat, equals lower flight. Actually sucking the hot air out of the balloon equals rapidly lower flight. Until the Fed gets smart enough to comprehend how its own bubble flight works, their balloon ride is going to end down in a land with lots of bity things. Right now, the Fed is flying into cold dark skies, and the scary music is coming from Steven Mnuchin’s weekend missive to America, which indicates the pilots of our economy clearly don’t know how to fly their own balloon!
My belief has always been that the Fed is overconfident. Like all central planners, this consortium of banksters believes it can run the world better than a free market can. The Fed believes it has magically created a recovery that will endure — a balloon that can fly over all troubles without continued bursts of fuel. That means the Fed will do the wrong thing until the downward momentum of the market’s decent is enough to destroy the whole fake economy the Fed has built around the stock market, which the Fed referred to as “a wealth effect,” meaning pump up stocks and everything will follow.
The question that remains is, “When they turn the burner back on, will the downward momentum toward the glooming trees already be so great that the Fed’s balloon will be flapping like a flag until the gondola crashes into the forest before the balloon has time to reflate? Call it “reflation trade.”
Apparently Steven Mnuchin, Trump’s Secretary of the Treasury, is also afraid the Fed is overconfident and has lost control of its long flight out of recession because he just leaped in on Sunday in a major and unsettling way. I just came across the following, which I put in a comment to my last article, “This Bear Ain’t Playin’ Games with the Bulls,” and then decided it merits its own article here.
Here is how close we are to the day of reckoning I’ve been saying would start this year. Think about these emergency calls made by the Chief Treasurer (on a Sunday when he is on vacation, no less) to what is casually known as the “Plunge Protection Team (PPT)” and to many CEOs outside the team and even to the FDIC, and it will send a Crichtonesque shiver up your spine:
“Update: With everyone suddenly freaking out over whether (and why) Mnuchin really made the kind of “liquidity test” call to bank CEOsthat was reserved for the depth of the financial crisis, moments ago Mnuchin himself tweeted out details of his Sunday call (from Cabo), the gist of which is that Mnuchin was checking bank liquidity levels for “loans and other market operations” with the CEOs of the 6 largest banks, and even more importantly, on Monday Mnuchin will hold a call with the President’s Working Group Financial Markets, better known as the Plunge Protection Team. In other words, what was expected to be a sleepy Monday half-day session, is about to get a lot more violent.” ( https://www.zerohedge.com/n… )
Apparently, the downward momentum is so severe the Secretary of the Treasury is taking time from his Cabo vacation to rally all hands on deck and try to prevent the crash … on a Sunday, apparently to avoid a possible Christmas-Eve-Day run on the banks on Monday:
“Tomorrow [Monday], the Secretary will convene a call with the President’s Working Group on financial markets, which he chairs. This includes the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, and the Commodities Futures Trading Commission. He has also invited the office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation to participate as well. These key regulators will discuss coordination efforts to assure normal market operations.“
And why would there not be “normal market operations?”
Some market participants … questioned why Mnuchin answered a question that no one was asking. Even after recent market losses, a liquidity squeeze or fresh financial crisis hadn’t been on the market’s mind. Mnuchin’s assertion of ample liquidity risked raising doubts…. Even with U.S. stock markets on the skids for weeks, and the federal government in a partial shutdown since Saturday, many market-watchers wondered whether there’s something more systemic going on….
“My initial instinct is this isn’t necessarily a positive thing, because it portrays that there’s worries that there is a bigger, broader issue than what I think is just typical re-positioning toward the end of the year,” said Nathan Thooft, Manulife Asset Management’s head of global asset allocation. (Bloomberg)
So, the national treasurer is calling in the PPT, after he has already called the CEO’s of the nation’s largest banks on Sunday to get a liquidity update. Calling in the PPT after a terrifying day like Friday is something I anticipated, but what I have also anticipated is that the downdraft is likely to be too great for the PPT to accomplish its usual task. Apparently Mnuchin fears it could be too great, too, given his unusual wrangling of the banksters ahead of the PPT conference and his peculiarly worrisome note to the public that he is doing this so we can all know “everything is fine! The banks are liquid. Nothing to see here, People.”
Maybe Munchkin has just been hitting the piña coladas a little hard on his vacation because for some reason he even tweeted that Trump has no plans of firing Fed Chair Jerome Powell when no news had come the White House that he was going to fire Powell.
“Mnuchin isn’t helping,” said Mayra Rodriguez Valladares, a former foreign-exchange analyst for the Federal Reserve Bank of New York. “For him to come out and explain what Trump is expressing is bizarre. It adds to the nervousness.” Rodriguez Valladares, who also conducts training for bankers and regulators through her consulting firm MRV Associates Inc., said the suggestion of Trump firing Powell is unprecedented. “This is really making us look like a very underdeveloped market where the president is telling the central bank what to do,” she said.
Some saw the Treasury’s response as adding to a sense of crisis. “The Secretary of Treasury calling the nation’s top bankers on a Sunday to confirm they have cash to lend. Not exactly confidence inspiring,” said Ian Bremmer, president of the Eurasia Group.
In the very least, you have to say, “If these central-bankster types are so smart, why is this guy letting all the world know in his tweets that he is calling all the major banks to make sure they’re OK?” I’d like to wonder why Munchkin thought we were concerned they might not be liquid or why Munchkin was concerned. His sudden flurry of activity certainly gives the impression he believes the situation is too dire at this point to just leave it all up to the Fed to give its usual hints to key players that routinely cause those key players to bid up markets. That indicates to me the the Secretary of the Treasury believes there is a high risk that this situation in the markets is already out of the Fed’s control. Time for major proactive intervention with the full force of government behind it, including the government-backed FDIC. This sounds like the days just before the big bankster bailouts if anyone remembers those days.