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2018-02-09 05:00 by Karl Denninger
in Market Musings , 385 references Ignore this thread
Yes, This DOES Make Sense
[Comments enabled]

You think you can run another $300 billion+ worth of government spending this year and not have the market blow up?

Guess what -- you're wrong.

Is it going to bounce somewhere?  You bet.

Probably furiously, and maybe right now.

In fact, on a technical basis and looking back 20 years or so, where the market is right now has been a very reliable short-term buy. So if you're a trader this looks like a fat pitch -- on the long side.  But only if you're a trader, because just as in 2007 these "no-notice" sorts of collapses into what looks like strong fundamentals means you've been lied to by damn near everyone and critical damage has been done that is now being hidden.

Thus the markets will probably bounce north -- hard.

And then it will all go to crap.  All of it -- interest rates, stock prices, house prices, commercial real estate and the broader economy, since almost everything in asset markets is now levered to a degree that is close to double what it was in 2007, with some of the worst of that leverage on government balance sheets - including ours.

I have pointed out for years that if you keep blowing bubbles while stealing over a trillion a year in the medical system, which someone has to pay for and which governments have basically written off through deficit spending, eventually you would produce an exhaustion trade and all of the bubble crap in asset markets will reverse -- violently.

Well, it has begun.

And it will continue unless President Trump and Congress both cut the crap, which they will not because neither thinks they have to stop spending money the government does not have.  As in 2007 when I warned that if Congress and the President did not cut the **** the markets were going to go straight down the toilet, and about a year later they sure as hell did, this time the same pattern is setting up -- except worse, because we've added ten trillion in government debt over the last decade and thus the ability of government to "issue its way out of it" without causing a wholesale blowup in the Treasury market is no longer a bet either the government or Fed can take.

This crap must stop now because there is a time limit on patience in the market and the ability to cover up the truth.  The market is now in the mode where it will continue to push until Congress and Trump respond and cut it out.  If they do not stop their horse**** then once that knee point is reached the markets will not "correct", they will crash.

Your "tax cuts" just came right back out of your 401k, and that's just getting started.

A huge number of names were hammered by 5% yesterday alone.

Good luck, for I know you're going to need it since you won't get off your ass and demand that Congress and Trump cut the crap.  As a result I fully expect that just like in 2007 when nobody listened when the opportunity to interrupt the pattern was there, and I was in fact sending faxes to all 535 members of Congress full of data, charts and facts, nobody will this time either -- and this time around when it all blows up the outcome will be much worse than it was in '08.

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Faust
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> interest rates, stock prices, house prices, commercial real estate and the broader economy

So what are you holding Karl. Where will you hide your assets.
Seadog
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Desert Southwest
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We need a serious ass-kicking. All the Barbies and Kens will be busy interviewing people who are long, ostensibly promoting a buy the dip mentality/strategy, while, realistically, they are trolling for uneducated buyers to offload their holdings. Might be time to check the inventory...

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Quik49
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It's happening already seadog.... Doug kass piping in on it.

Bunker down.

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Long Vaseline....

Tickerguy
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A True American Patriot!
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Oh I expect a FURIOUS bounce, and seriously, as I noted in the Ticker here, which I wrote yesterday near the close, the technicals said that YESTERDAY was likely to be a nice tradeable bottom.

Key: TRADEABLE. If you try to buy it as an INVESTMENT and don't pay attention you're going to lose half or even 80% of your money. No ****.

But -- if you shorted the close yesterday you're probably going to get your face ripped off. I would not even be SLIGHTLY surprised to see 100 or 150 handles go on the SPX over the next few days to a couple of weeks.

If you are of the ursine persuasion that rip is likely to be THE opportunity to exploit, but not here and not now. In a couple of weeks to a few months hence, yes. But not RIGHT NOW.

The odds of Trump and Congress cutting the ****, especially considering the "budget deal" signed last night and which Trump just put ink to, are ZERO. They're going to try to crank issuance by $300 billion THIS YEAR. It's going to go to ****, but it'll take a bit before it shows up in the equity markets.

THIS IS NOT "GOING TO ****". 2008 was "going to ****" and this time will be WORSE because the systemic leverage is MUCH higher than it was then.

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Winding it down.
Ktrosper
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TG wrote..
This crap must stop now because there is a time limit on patience in the market and the ability to cover up the truth, and the market is now in the mode where it will continue to push until Congress and Trump respond and cut it out.
What is the "market"? We saw the other day that when the machines are turned off there's a total of 7 real human beings left trading. smiley

In my mind, the market is a handful of market-makers who've paid insane amounts of money for speed so their algos can steal from anyone who is not them while whipping up this froth that makes it looks like a butt load of trading is going on..

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D
Tickerguy
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Yes, but the machines are owned by people who can and will turn them off.

And you saw what happens when they do.

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Winding it down.
Flappingeagle
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Quote:
Where will you hide your assets.


Ah, the $64 question.

To me it is like asking: how to I get off the Titanic and stay dry. To me the answer is you cannot. Personally, I am thinking of my assets in two categories: those I will use and those I might trade.

Use means house, food, tools,... Items I probably would not trade/sell whether there was a crash or not. Then there are those like money, stocks, bonds, land, gold & silver, whatever.

To me, I've got that last category in T-bill (short-term treasuries) and a tiny fraction (<<1%) in long-term (Jan 2020) put options on a variety of stocks.

Other than that, I think you keep your eyes open and play it as it unfolds. There's no telling what the multiple levels of government that we are subject to might try when it hits the fan. Just look for things that give you several courses of action so that you can be flexible.

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Flappingeagle
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Quote:
Yes, but the machines are owned by people who can and will turn them off.

That makes me wonder if many of those machine owners have included panic code since 2008. By panic code I mean a way to tell the machine to close all positions and stop or some sort of action(s).

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Asimov
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East Tennessee Eastern Time
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Flapping: They all do, unless they're fools.

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Tickerguy
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@Faust
Quote:
So what are you holding Karl. Where will you hide your assets.


As I said in 2007, and will repeat exactly once since you're new around here:

There is no "hiding" game here. The only solution is political, and either you and everyone else finds their pitchfork and torch, and makes clear they will USE IT, or you're going to get ****ED.

Hard.

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Winding it down.
Click
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I just finished my morning read on a number of alternative sites, including David Stockman's ... I might disagree with David on immigration, but I've always liked the guy and his acutely keen mind. And I agree with many of his opinions even going as far back as the Reagan years. David may not always have been right ( or even close) but every morning when I look in the mirror I have to admit that that guy has been wrong many times, too. So just because David was wrong on his timing of a budget explosion doesn't mean it ain't ever happenin'.

Like Karl did this morning, David also excoriated the budget deal and the stock and bond markets. And I must say that David's math is pretty damn good. For example, he writes: "the most recent handiwork of Mitchels & Chuckles will balloon the 10-year deficit to $15 trillion and thereby guarantee that the public debt will top $35 trillion by 2027----a level that we estimate would amount to about 135% of GDP"...

Personally, I believe David's 135% debt to GDP is what both the House and Senate demo-publican party thinks is a manageable number for a great empire like The American Empire. And maybe it is, because, after all, Japan has a higher debt-to-GDP ratio. And Japan is still able to function.

It looks like the President, Congress and the Senate are going to run a massive borrow-and-spend budget (just like China has done for years) and hope that the David Stockmans of the world will have to eat crow ....

Me thinks we are all about to find out just how many trillions can be borrowed and spent. And it sure looks like Trump is actually going to beat Obama in the race to run up the national debt...

Buckle up! Because the 27 trillion dollar question now is: can Donald, Mitch, Chuck, Nancy and Paul and the other 535 maintain and manage the budget and hold together The American Empire or not?

David doesn't think so...






Supertruckertom
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Wondering how many trucking companies get wiped out this next downturn.

Perhaps freight tonnage will be a leading indicator.

Thankfully the place I work is privately held and debt free. 87 years in business.

They had never had a general layoff until 2009.
Still managed to make a profit that year too.

Getting everyone I know mentally prepared.
One custom gun build I want to get finished and then pile up more cash.
Working 6 days a week now and as long as possible.

Thanks for the Gale/ Hurricane warning.


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Preparing to go Hunting.
Zappafan
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Atlanta
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Has bondzilla finally woken up? The anal douches in Congress just added more fuel to the fire.

If that doesn't finally provoke a currency meltdown, I give up and will be moving to Ecuador with my family, I have had about enough.

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Ich bin der Tankendau!
Tickerguy
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I don't expect it to provoke a currency meltdown. That looked like it was going to happen in '07, I wrote on it, but it didn't. When it didn't I looked into why, and figured it out. It's VERY unlikely you will get that.

BUT -- they won't be able to hold rates under control, and The Fed is very short on dry powder. In fact they have basically zero maneuvering room, and if they try to go back to zero they're likely to provoke some extremely ugly reactions in the market.

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Winding it down.
Whitehat
Posts: 310
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The People's Republic of New York
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during the tech dump many of my contacts in the financial world were all impressed that the system had the ability to stop things if the drops were too severe, the so-called "circuit breakers." my take that this was a restriction on trade and should not be allowed. they called me a sadist, oh well. this next coming incident could be something very unique as a significant reduction in volume moving is a lockup. please tell me if i am off the reservation here, but this has never been tested in history and is well above my pay grade as to its implications. a market with a significant amount of players just doing nothing has no price discovery. where does value derive unless it is a super crash where the only remaining purchasers bid fractions of a penny. i am applying something that i once did in the real world when there was no movement. desperate sellers had to give their product to me just to get out from under the merchandise.

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There are two ways to be rich: One is by acquiring much, and the other is by desiring little.
snow, seasons, distance and dirt roads: SSDD
"Be not deceived; God is not mocked; for whatsoever a man soweth, that shall he also reap" (Gal. 6:7)
Zappafan
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Karl I am curious as to the why, if you can share. For all intents and purposes, Congress (with Trump's blessing of course) has decided to go full MMT-retard.

Wouldn't that eventually turn the dollar into a useful tool for lining your pet hamster cage, and not much else? At some point there is not enough organic demand for all the bond supply, and either the Fed buys it all up or it is goodnight.

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Ich bin der Tankendau!
Tickerguy
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For the probably-50th time @Zappafan? No thanks.

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Winding it down.
Zappafan
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I just saw your reply on the Bondilla thread in the bar. Fair enough.

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Ich bin der Tankendau!
Theothershoe
Posts: 6
Incept: 2009-12-18

Baton Rouge, LA
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Frequent visitor but hardly ever post. However this warning does remind me of your posts in 07 and '08. You created a post that I don't see anymore. It was dealing with the 7 or 8 things you must do to survive the crash. It discussed types of bank account you should have, etc. I wish you would post it again. I think we will need it.
Tickerguy
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The system no longer permits access to the archives on a general basis. Select articles are exempt from the roll-off but I have to flag them. That change was made roughly the same time I penned "In closing", which IS available here: https://market-ticker.org/akcs-www?post=....

I doubt I'll go back and look for that one, given that without something to key on such as specific words, phrases, or a fairly specific date range it's a rather laborious process (there are over 10,000 articles actually present here!)

Never mind that nobody gave a **** then, and won't this time either, since the solution in both cases was political and an effective NOBODY got off their ass then -- nor will they now.

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Winding it down.

Zappafan
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Atlanta
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Whatever the hell form of the destroyer we get, it is our collective fault as a nation.

Last night Rand Paul tried to filibuster the spending bill. A pointless gesture, probably. But where were the others? Did anyone stop to bother to send a letter or call their congress freak ... not that it even matters, but to Karl's point, we own this ****-show now.


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Ich bin der Tankendau!
Whitehat
Posts: 310
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The People's Republic of New York
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after an equities blowup we have seen real estate become the next big thing as people see it as a safer bet and others as a place to get some return. this often fuels a vicious fraud filled speculation. hopefully this crash will crush housing as well. it would be preferable to lose unearned equity but have a future for our children that they can afford. somehow, someway this will probably be prevented as it is a last retirement store for the older folk.

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There are two ways to be rich: One is by acquiring much, and the other is by desiring little.
snow, seasons, distance and dirt roads: SSDD
"Be not deceived; God is not mocked; for whatsoever a man soweth, that shall he also reap" (Gal. 6:7)
Tickerguy
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Without ALSO killing the property taxes associated with said real estate the effective leverage ratio on real estate actually GOES UP, which is EXTRAORDINARILY destructive.

Unfortunately you may need to nuke the state and county governments to fix that problem.

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Winding it down.
Supertruckertom
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We can nuke our county governments here in rural areas.
In the more populated areas, good luck.

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Preparing to go Hunting.
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