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2018-02-10 07:00 by Karl Denninger
in Market Musings , 196 references Ignore this thread
Now What: Ursidae or Bos Taurus?
[Comments enabled]

Right on the 200, and with the oversold indicator I watch flashing bright red, the market bounced.

And bounced pretty good too.

Of course we had to taste that 200DMA, even though last night we were well into the oversold range.  Just to screw the most people who were shorting the hole yesterday morning and right into noon, at which point you got your faced ripped off with a 70ish handle SPX rally and roughly 700 points on the DOW.

Am I surprised?  Not a bit.  As I noted very early in the morning on Friday, with a post written Thursday, this was expected.  And it's probably not over either.  I fully expect there will be some more of this, and in fact if you're a trader there's probably plenty more money to be made on the upside in the next couple of weeks.  It's going to be tough to do with leveraged instruments though because option vol will collapse and so will premiums, which means if you buy them now you're overpaying compared against what they'll look like in a week or two.

With that said as I also noted I'm absolutely certain that critical damage was done somewhere in market structure, in financial firms, and in actual broad economic factors.  As in 2000 and 2007 I'm not sure where it has happened, but that it has happened is something you can take to the bank.

You can also take to the bank the fact that all the market "crooners" will not tell you where the damage is -- if they know -- and in fact everyone who got gangraped are going to do their level best to not tell you that their businesses are about to collapse.

It will take weeks or even months before that damage becomes impossible to hide and cascades through those impacted by their failures.  I suspect the most-serious of these problems is in both instruments and firms that cannot survive even a modest rise in interest rates or a withdrawal of additional central bank liquidity adds -- never mind drains.

Well, you're going to get drains.  I'm sure of it.  I'm also sure rates are going to continue to go up with the US Government "choosing" to spend another $200 billion this year alone last night, cranking deficits into a long-in-the-tooth "recovery" where we ought to be running a material, even if only on paper (without the Social Security fund thefts) surplus.

The "all clear" will soon be sounded, and the people who bought into the ramp in late January, only to lose 5% or more immediately, literally within days, and then who sold into the bottom, are going to cry.  A lot.  Then they will rush back in, just in time for the 50, 60, 70 or even 80% collapse.

Can the larger blowup be avoided?  Yes, just as it could have been in 2007, when I wrote and faxed to Congress exactly where they were headed with their profligate policies.  While the dollar did not collapse the asset markets sure did.  The dollar will not collapse this time either -- but the asset markets sure will.

How did I know this wasn't "the big one"?  Because there are certain asset families that barely moved or even went up a bit, and they went to hell in 2008.  Further, this move down was extraordinarily ugly in that liquidity just disappeared outright as all the robot traders were shut off, exposing the nasty truth: There are damn few actual people left in the markets; they've all been driven out by robots trading against robots.  In other words there is no "value" measurement performed in the market any more; it is all an algorithmic game of hot potato and has driven prices dramatically higher.

But the same sort of warning signs that were in the market in '07 are here right now, and as a result in another few months.....

Don't bother asking "where do I hide" (other than in cash, of course), because there is no answer to that question that will work well, where "well" is a positive rate of return.  Being short things might work, if you get the timing right, but that's tricky.

As in 2007 the answer is political; the people of this country need to find their pitchfork and torch, and demand a stop to the scams and frauds that are destroying the federal and state balance sheets and therefore forcing the deficit higher which, when coupled with a Fed that cannot turn the spigot back on will ultimately force a re-rating of leverage down by a factor of several times.

When that happens asset prices will fall to meet that new baseline -- which is way below where they are now.

Like by half on average -- which means, in many cases, more.

Just as in 2007 nobody will lift a damn finger or get off their ass this time either, and as such I fully expect that in a relatively short period of time I'm going to be hoisting this sign once again:

smiley

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Zappafan
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Incept: 2007-11-30

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There is one major difference between now and 2007/08 I can think of.

Last time around, when the economy tanked and the markets crashed, the trillion+ deficits didn't come until after the market bottomed (Obama stimulus, TARP, etc.)

This time around the trillion+ deficits will be happening before the real fun even begins. If the market leads the economy by 6 months or so, then we may be at or near the final stage of the 2009-2018 (?) "expansion" which we all know is based on fraud.

I can only imagine what the dickheads in Congress (and Trump) will come up with if the economy starts to tank right before 2018 mid-terms. The blowout in spending combined with a cornered Fed might make a halving of market valuations a conservative estimate.

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Ich bin der Tankendau!

Click
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"Being short things might work, if you get the timing right, but that's tricky".

It's not only "tricky", it's a pain in the ass unless you like that sort of ****. I was buying the dip and selling the whip back in the summer and fall of 2002... That was an ideal period even for day trading. If that sort of market action occurs again, I might bet some chips... The problem I had was, after such a great year back in 2002, was a subsequent IRS audit. Going back over thousands of trades and proving to the IRS I was right and they were wrong was a real pisser.

What a person has to calculate before they start trading is if all of the risk and effort is worth it or not? --- even if your bets pay off and you win bigly, the government will probably be asking you to account for everything --- which means every last cent and every way in which you profited or lost... In my case the IRS was attempting to WAY overcharge me. And they erroneously claimed I owed capital gains on not just my trading profits, but the principal amount of capital that I initially deposited with Scottrade. These lump sums of money were already taxed and paid, but the IRS counted the funds as pure profits.

It took me months to straighten it all out. I've been audited three times since 2002, and in every case I knew more about the law and trading than the auditors; and knowing the tax law takes effort...

I haven't looked into the details of the new tax laws that were just passed, but my point is unless you think you can score big, it might not be worth playing the game because of all the **** that has to be put up with...

I'm still happily sitting on the sidelines.... I've been through enough of this **** to know that it is sometimes better to wait until I'm sure that I can harpoon a trophy bottom fish rather than try and catch a falling knife...

"The dollar will not collapse this time either -- but the asset markets sure will"

In my opinion, there is going to be a currency crisis, but the dollar won't be the currency that dies. Other currencies are going to come under pressure --- perhaps collapse. The next BIG crisis will actually drive both capital and rich people into the US... Yeah, the US markets will drop bigly, but they will be catapulted back up... And that's the Big Whale I'm waiting to harpoon... And that Big Whale is going to swim all the way past Dow 30,000...

Finally, the best case senario ( in my opinion) for the current market is that the stock market makes the adjustment to an environment of higher interest rates. It really could be that simple, i.e., the market makes the adjustment to higher rates and the uptrend then continues...

Tickerguy
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Nope. Remove crack pipe, replace brain.

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Winding it down.
Killben
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Will the Euro survive the next crisis? Also will the EU break up?
Radiosity
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Killben - the collapse of both are inevitable. But they'll do everything they can, including outright war (hence why they're currently planning an EU army), to ensure it goes for as long as possible. Europe is basically hosed at this point, what with unlimited immigration of medieval barbarians, the rampant debt, most countries being pegged to the failed Euro, and all the other problems of the region.

It's going to be one hell of a **** show, and I fully intend to watch it from outside. Which is why all my efforts right now are going into getting the **** out of the UK. ESPECIALLY as the Brexit 'deal' will do little more than turn us into a vassal state of the EU with no say or veto or vote in anything. Worst possible outcome short of actual war.
Tickerguy
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We handled that in 1776.

Did you folks lose your balls?

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Winding it down.
Attilahooper
Posts: 2787
Incept: 2007-08-28

New York, by way of Montreal Canada.
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That was a nut-shot KD :) But yeah, the marxists must be culled.

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I've retired and bought Shecky's - Welcome, have fun, **** **** up, let's get this party started
https://www.youtube.com/watch?v=ykZbxFub....

Click
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"Will the Euro survive the next crisis? Also will the EU break up"?

After taking another long toke on my pipe, my answer is the EU will definitely break up and the euro was doomed from the very start because of how national debt is not shared between member nations....

... The currency crisis I'm waiting for is when capital flees Euroland and the Euro as we now know it itself either ends or something like a modern day Bretton Woods takes place in order to rescue both the EU and the Euro. And when the historic collapse and rescue of Euroland that I think sooner or later happens, where do you think the big money will run to? ---The dollar and U.S. Stocks... That's where.

Nothing, however, is a sure bet, so that's why I have a SHTF stockpile as insurance... Moreover, I always try and ask myself what if the U.S. suffers an act of nuclear war or an act of God? And what if Karl is right? That within a few months something is going to give resulting in a massive collapse worse than 2008?

I got "guns, gold and a getaway plan" just in case, and I hope every reasonable man has the same...

In the months ahead I think it's very important to stay tuned into sites like this one... And I hope Karl doesn't get so pissed off and quit altogether, because there are a lot of people ( e.g., readers of The Financial Survival Network) who closely follow his work...
Goforbroke
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A True American Patriot!
Time to feed the chickens.
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Quote:
As in 2007 the answer is political


Off topic but related ... from http://www.dispatch.com/news/20180208/au....

Quote:
Franklin County Auditor Clarence Mingo wants Ohio lawmakers to give a $50,000 property tax exemption per year to surviving spouses of police officers, paramedics and firefighters killed on the job.

Mingo, a Republican who was appointed county auditor in 2009 and won elections in 2010 and 2014, announced his proposal a day after the deadline to file to run for his job. He has two challengers.
Quote:


So taxpayers are in essence involuntarily contributing to his campaign.

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Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our Light, and not our Darkness, that most frightens us. -- Marianne Williamson
Radiosity
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Karl - pretty much. We handed those in at the same time as our musket balls ;p
Tickerguy
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Well then, my best suggestion is to lay in a case of Vasoline and assume the position.

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Winding it down.
Trinityalpsgal
Posts: 36
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Weaverville, CA
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You will LOVE the outcomes documented/illustrated in the article linked here. The title is limiting so try to go beyond it. This piece is not political; too bad our political representatives have no ability to approach a subject from this point-of-view (or from the view you have firmly owned all these years).

The Market. The Marketplace. All broken beyond repair.

Every effort to build awareness should be considered a point of light in the dark. Karl, as always we thank you for your clarity and passion. Your commentary matters. I read you every day and can not resist the kitty/travel videos.

The Merger Manias 1890-2015 chart in the article is especially fun. Off you go down the rabbit hole....

http://jonathan-tepper.com/why-american-....
Killben
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"The story of this nine-year bull market is a story of extreme market intervention by central bankers. The Federal Reserve, the European Central Bank, the Bank of Japan, and the Peoples Bank of China have all executed innumerable dirty deeds in their efforts to improve the future. Some central banks, like the Bank of Japan, actually used the money they conjured into existence to buy stocks." (more here... http://www.acting-man.com/?p=52191

Hopefully when (not if) the market cracks and the "small potatoes" becomes "big hot potatoes" and the central banksters intervene, I hope people recognize them for the wolf in sheep's clothing that they are and give them the rope and lamp post treatment that they deserve. Add to this the gall of the central banksters in saying that it is done for common man as they would be worse off otherwise.
They have been allowed to get away with murder for the last 30 years (since 1987 -using their ability over money and interest rate as they please) and hopefully it will stop this time.
Bjonsson
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@Trinityalpsgal

Fascinating piece. Makes me surmise that government has replaced its mantra of encouraging economic competition, and is instead actively playing a role of using its powers to DISCOURAGE competition.

Total regulatory capture. Banana Republic.

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"If you don't have borders... if you don't have laws... you don't have a country."
Bjonsson
Posts: 1106
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Quote:
After taking another long toke on my pipe, my answer is the EU will definitely break up and the euro was doomed from the very start because of how national debt is not shared between member nations....

I disagree.

The downfall of the Euro was systemically pre-wired to blow due to the fact that it straps countries that are perennial trade surplus nations into a common currency with perennial trade deficit nations. Normally, when a nation runs perennial trade surpluses, like Germany, its currency will rise in value as a result of other nations looking to purchase Deutschmarks in order to buy the goods they are exporting.

Conversely, nations that run perennial trade deficits see their currencies fall in value. The Euro has been a godsend to Germany, allowing it to perennially run trade surpluses, but because it's strapped to a currency that includes trade deficit countries, there's been no upward pressure on its currency of sale, allowing them to keep their export pricing down.

In short, because of the Euro, Germany is pricing its economic activity in a currency that is weaker, and lower, than it should be... and countries like Greece and Spain are pricing their economic activity in a currency that is stronger, and higher, than it should be... and as a result, it's decimating their industry, and their economies.

The Euro was a dumb**** idea from day one of its inception. Absent full political and fiscal union, there is ZERO economic utility from its introduction... but there is POLITICAL utility from doing so. And that raises some insidious prospects.

At some point, for the Euro, the rock is going to meet the "hard place", and the REAL priorities of European oligarchy are going to put to a test.

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"If you don't have borders... if you don't have laws... you don't have a country."
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