Here we are one year later almost to the day from the proverbial “Flash Crash” that rocked Wall St., and its beginning to look very similar today.
I wrote back then the “Flash Crash” was far more sinister in nature than what was being touted across the financial networks. If you can’t remember that day, the audio in my article should help remind you why I stress my points to anyone who asks. One of the points I stressed was, if it was a so-called “mistake,” why wasn’t anyone buying at what would now be considered discount prices? If anyone remembers back to that time (1 year ago) the stock market was trading LOWER than the lowest point of that down spike. Many were worried of another leg down after we just seemingly recovered from the abyss. But have no fear…Mr. Bernake is here! That was when Bubblicious Ben gave his now infamous “Jackson Hole Speech” stating he was going to buy $600 BILLION worth of bonds (that’s paying 1 credit card with another, but that’s for another column) and we were once again off to the races. So Ladies and Gentlemen, place all your bets on Benny’s number one horse “Leverage.” He’s the one sporting the red white, and blue silks! It sure has looked like Benny bred a winner over the past year, but he’s now looking quite frail.
Back then I had also been stating that the Euro Zone was in the beginning stages of disrepair. I felt, and argued that it was only a matter of time before the Euro fell apart. People called me crazy, I was told by some in the financial world that I had no idea of what I was talking about, and used the last 12 months trying to pound my thoughts into submission. Just for the record, 12 months to the day the UK Guardian reports, “Euro plunges after reports Greece could leave currency.” Will it happen? Who knows, but were you one of the ones saying never? Or did you just figure the so-called “Smart Crowd” would know first, and alert you.
The stock market as I said earlier has been running a race that even Secretariat would wince at. But its seemingly more like groundhog day than a derby. And once again nobody thinks the unthinkable could ever happen again. I wrote earlier in a column titled “Bubblicious Bernake” just what was taking place, and the consequences of such manipulations. Well in what seems like again almost on cue of the anniversary, warning signs are to be seen by all who care to look. And there are no clearer details expressed of what may happen than in the silver markets this past week. Welcome to the wonderful world of “Margin.” (also known as Leverage) The exact same process that caused the plunge on Wall St. in 2008 is taking place in the commodity markets. This genius of chasing higher, and higher yielding “investments” backed by leverage are once again front and center because everyone, and I mean everyone thinks that was in the past, and it couldn’t, or wouldn’t possibly happen again because that’s what the “Smart Crowd” has been saying. How’s that working out with today’s news?
If one truly stops to think (fewer, and fewer can actually critically think these days) how can one reconcile the data from the releases of Government statistics that are touted across all the major news outlets, and financial channels with the reverence as if they’re quoting the Rosetta Stone. GDP as just one example was supposed to be 3.5 to 4%, and some were stating even higher numbers. It came in under 1.8%. Folks, that’s less than half! Oh, and by the way, these same brainiac’s are stating we’re going to make up for the loss in the next quarter. Welcome to the “Smart Crowd” is all I can say.
The real problem that underlies this dilemma is the fact we’ve already maxed out the proverbial credit cards. This is where things begin to look very dicey everywhere one looks, If you’ll look!
Consumer spending once again is being reported as “Great News” because it’s showing an increase. But a while back when the Government Data reported a drop in outstanding consumer debt they were touting then it was “Great News” because consumers were getting their households in order by paying off debt. What they weren’t telling was the drop came not because people paid off, but that banks wrote off 93% of the amount reported as “Noncollectable.” That’s not the same as paid off in any common sense language. If you owe me a dollar, and don’t pay me back, and I chalk it up as “I’ll never loan you a dime again!” the Government will tout that as you being more fiscally responsible. (Yep, I would re-read that line myself.)
If we are now in the beginnings of a back swing from the proverbial pendulum, I feel most will be taken off guard far worse than before. The problem with a pendulum is not that it swings. It’s that once you’ve been hit, it’s not the first strike that will get you, it’s forgetting there’s inevitably another swing to come, and you had better be ready to duck.
And yes, I wrote about that possibility also when everyone said there is no pendulum.
© 2011 Mark St.Cyr All Rights Reserved