I look forward to a few words at some point on events around the world and in markets, but I have indicated I am busy wrapping things up and selling anything of value I still own as I prepare for being totally mobile. An SUV filled with my computers, clothing and my two Labradoodles and heading out to Montana and adjacent states, where hopefully I will re-energize my life. Of course, it helps that these are places that I am more confident can ride out the coming chaos and civil unrest, at least to emerge in better condition than either coasts.
I will only make one point today and that is that the financial markets are just starting their downward spiral and that the resumption of the depression which really never ended is going to be far more disruptive than most can remotely imagine. It is going to get very, very ugly in America and Europe. Nationalism, populism, more militant forms of our “milder” 21st century form of fascism will arise and with it religious, ethnic and racial violence of a scale not seen since the 1930’s and with this, inevitable wars are almost certainly in the worlds future.
This being said the market swoon of the past week reminds me a bit more of 87 then 08, at least in behavior unrelated to general global economic fundamentals. In 1987, the pressures built on an overvalued market starting with a currency battle which resulted in a very significant deterioration in the Japanese rate markets, a repatriation of leveraged Japanese capital from overseas following the bankruptcy of an innocuous Japanese company, Tateho Chemicals, and the stage was set for the October Wall Street crash. With the help of the American financial tool described as “portfolio insurance”, which turned out to be more like portfolio destruction, the swift market collapse in 87 became an almost unstoppable force the Monday following the prior weeks bloodbath from the forced selling of the associated programs, perhaps not too dissimilar to the high frequency computer driven selling that likely took place yesterday now termed a “flash crash.” Though there are similarities in the pattern of events so far, there likely are others we cannot see.
The day following the mind freezing Monday panic, the major investment houses, in a very coordinated fashion each took a number of the leading “bell cow” stocks during the delayed NYSE opening and focused on making certain that when they resumed trading these stocks would be bid up. Using firm capital, no doubt subtly guaranteed by the Federal Reserve, Dick Fisher, then CEO of Morgan Stanley and his associates stood next to the position desk where firm capital was placed at risk to facilitate large block trades as did other senior officers at all of the large Wall Street firms and changed the mood and the direction of markets.
With central banks now well known to be players in the manipulation of equities markets around the world, the Chinese central banks failure to stem the tide in their domestic markets will likely be shown to be that of inexperience, not will. Bidding up the futures markets overnight can be done with a few calls to the now extremely concentrated few firms with the immense financial power to make a difference.
There is only one major difference with the comparison of the Japanese led liquidity implosion of 1987 with the Chinese rout, though clearly both were a major overdue catalyst to a very quick bear market in global equities, this time, unlike then, the worlds economy is living on the fumes of central bank liquidity injections that have gone on since the spring of 2009 with decreasing marginal utility. This time the global economy, with or without China as the catalyst, is going to implode and along with this, Sovereign risks will become overpowering and safe havens will become a death trap.
Always an important read:
There’s an ill will blowing across the country. The economy is tanking. The people are directionless, and politics provides no answer. And like former regimes, the militarized police have stepped up to provide a façade of law and order manifested by an overt violence against the citizenry. Despite the revelations of the past several years, nothing has changed to push back against the American police state. Our freedoms—especially the Fourth Amendment—continue to be choked out by a prevailing view among government bureaucrats that they have the right to search, seize, strip, scan, spy on, probe, pat down, taser, and arrest any individual at any time and for the slightest provocation. –