Thursday, February 13, 2020

The Violent Collision of Market Fantasy and Viral Reality

When the stampede tumbles off the cliff, buyers vanish and markets go bidless.
The shock wave unleashed in China on January 23 is about to hit the U.S. economy and shatter everything that is fragile and fantasy, starting with the U.S. stock market. The shock wave is still reverberating through the vulnerable Chinese economy, toppling all that is fragile: auto sales, sales of empty flats in Ghost Cities, shadow banking loans that cannot be paid, workers' wages that won't be paid, businesses that won't re-open, supply chains dependent on marginal enterprises and most saliently, the faith of the people in their hubris-soaked, self-serving leadership.
The fantasy in the U.S. is that the shock wave doesn't exist. Since the shock wave has been hurtling with undimmed force toward the shores of all-mighty American complacency beneath the Pacific, unseen, America's laughable fantasy has spread through the thundering stampede triggered by the fools in the Federal Reserve in early October.
Not only is America's economy invulnerable, so is its stock market. This fantasy has fueled a blow-off-top bubble of such classic proportions that even the fools in the Fed recognize it as a bubble. And even the fools in the Fed know blow-off-top bubbles always burst, and with rough symmetry: if the bubble rocketed higher in six weeks, it will crash to Earth in about six weeks.
If we look at the Fed's balance sheet, we can discern the Fed fools' implicit attempt to engineer a "soft landing," i.e. stocks will remain at a permanently high plateau. The Fed balance sheet has gone nowhere for six weeks while the stampede in stocks gathered momentum:
12/25/19 $4.165 trillion
1/1/20 $4.173 trillion
1/8/20 $4.149 trillion
1/15/20 $4.175 trillion
1/22/20 $4.145 trillion
1/29/20 $4.151 trillion
2/5/20 $4.166 trillion
Head Fed Fool Powell is desperate to avoid the responsibility for blowing a bubble that will inevitably burst with devastating consequences for everyone in the thundering herd, but sorry Mr. Powell: you broke it, you own it. The Powell Fed instigated the stampede and blow-off-top bubble by blowing up the Fed balance sheet by over $400 billion in a matter of weeks, causing trading bots and punters alike to join the stampede front-running the Fed's bubble-blowing.
Front-running the Fed's bubble-blowing inflated the bubble, the classic dynamic of self-reinforcing feedback.
There is a unique euphoric joy in running with the herd: the thundering herd seems so powerful, so irresistible, so right--how could the herd be wrong?
Even as each individual in the stampede thrills to the power of the herd, they retain a prideful fantasy of their own uniqueness and rationality: I am only running with the herd because it's incredibly profitable to do so. Once it's no longer profitable, I will move to the edge, slow down and peel away from the herd, carrying away my magnificent gains.
This is the fantasy mindset of every individual in the herd until their hooves leave the Earth and flail in mid-air: trapped by the power of the herd and an overweening pride in their individuality, everyone in the herd tumbles off the cliff, unable to escape.
The agonizing screams of the fatally wounded rend the air, but the herd cannot be stopped: the broken bodies pile up at the rock-strewn bottom of the cliff, and the last thoughts of the expiring are: how could this happen? The herd was so powerful and so right. Why didn't I leave when there was still time?
But few leave the herd in time. Each prideful individual in the stampede is fated to tumble onto the sharp rocks below.
Blow-off-top bubbles tend to take around 100 calendar days to reach their euphoric peak. The current blow-off-top bubble is already long in tooth at 130 days.
Blow-off-top bubbles tend to have a last chance to leave the thundering herd second peak. That was yesterday.
In a low-volume market dominated by trading programs/bots, the exit is very, very narrow. When the stampede tumbles off the cliff, buyers vanish and markets go bidless: every writhing, screaming victim wants to sell everything and save themselves, but there are no buyers at any price.



My recent books:
Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Brian M. ($10), for yet another most generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
Thank you, William C. ($50), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act


This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Do Not Sell My Personal Information


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP