Financial topics

[Higgenbotham]

I sent the analysis from last night to a trader friend who traded the S&P 500 in the pit at the Chicago Mercantile Exchange.

His bullet point thoughts were:

It's quite plausible that QE2 kicked the can and altered the time frames.

The probability of a crash (to much lower than 1020 I think he means) right in front of us is higher than 2%, maybe more like 7-10% just to pick a number off the top of his head.

This unwinding is bigger than 1929 and will probably last longer. The low will be later than 2013.

[Higgenbotham]

Posting this for later reference. One of the financial astrologers makes an attempt at forecasting the big picture over the next decade or so. This would be someone who combines financial astrology with other forms of analysis to make predictions. Not something I believe in.

http://www.mmacycles.com/weekly-preview ... t-8,-2011/

[vincecate]

The probability of a crash (to much lower than 1020 I think he means) right in front of us is higher than 2%, maybe more like 7-10% just to pick a number off the top of his head.

This unwinding is bigger than 1929 and will probably last longer. The low will be later than 2013.

In 1929 they did not have:
1) Cable TV
2) Cell phones
3) Internet
4) Twitter
5) Facebook
6) G+
7) Computers automatically executing stop loss orders
8) Orders entered online by users (much higher orders per second in crash than calling broker on phone)

So I expect things to move faster this time. I expect a big "flash crash". Part of why I have been buying short term puts on S&P (like 3 to 6 months) is that it did not seem like the chance of a really sharp crash was really priced in. An option of 1 year was way way more than 4 times the price of a 3 month option, but if the crash is going to be really sudden, then, it seemed to me, it was fine to buy short term options several times a year.

[Higgenbotham]

So I expect things to move faster this time. I expect a big "flash crash".

Do you have a read on that, as in "I think the S&P has an X% chance to go below Y by time Z."?

[vincecate]

So I expect things to move faster this time. I expect a big "flash crash".

Do you have a read on that, as in "I think the S&P has an X% chance to go below Y by time Z."?

I don't know. My guess would be something like 30% chance for S&P to be below 800 by Sept 18.

Markets get wild swings down and up before crashing. So I think we are close.

[Higgenbotham]

I don't know. My guess would be something like 30% chance for S&P to be below 800 by Sept 18.

Markets get wild swings down and up before crashing. So I think we are close.

That's the time I'm interested in estimating but didn't want to pin you down to a time you aren't looking at.

I see the S&P 1020 puts expiring September 16 are priced around 15 now. I don't know how to convert that to the probability the option sellers are seeing. The most obvious answer would be that at S&P 1170 they see the probability as 15/150, or 10% but that can't be right because the model would be based on a distribution of outcomes.

[aedens]

Between the opinion they miss the point that the market decides.
The spill over on both sides. Taking money from others or spending your own decisions.
GD analaysis has the imputed cost.
http://www.alternet.org/story/151960/mi ... age=entire

In the forums we conveyed political streamlining. From a GD perspective it fit IMO.

http://generationaldynamics.com/forum/v ... ning#p8828

I thank the forums members for there resolve to date.

I put this specific line in only as reference to remember what Thucydides conveyed to revenue consequences to cite later.

[OLD1953]

Wow, the oscillations broke upwards even faster than I expected. If that keeps up for a few more days, we'll have a major drop very soon, I can't remember any market when the period of major peaks and troughs (-+2%) moved into a single day without everyone pulling out and the bottom dropping out, huge hourly swings are just too nerve wracking. Dangerous waters right now, the next 500 point drop could be the one where most traders decide the cost in Maalox is more than they are making, so they yank everything to cash. Something could happen to stabilize the markets, but I can't think of anything scheduled between now and the end of the month that would do it.

Aedens, be careful reading anything by Gary North. The man is a great rationalizer, great at communication, and frankly he is a few cards short of a full deck. He is a very subtle cult leader, and I mean exactly that. I had a disagreement with some of his followers years back, and wound up with death threats and other interesting bits to remember them by. Among other things he doesn't mention in a good bit of his writing is that he's the Christian Dominionist to end all Christian Dominionists, his father in law is (was? don't really track the guy) R.J. Rushdoony, and his big disagreement with him was that Rushdoony doesn't go far enough in his ideas that all govt officials must take an oath of allegience to Christ, etc. If you were going to search for people who were most responsible for the strange movements in the US Christian Churches over the last 30 years, they'd be on the top of the list.

[mannfm11]

Quite interesting discussion going on. The astrology page was too bizarre for me to follow. There is some link to rare stuff in the sky aligning with crashes. I think eclipses have been linked, as crashes are very rare. The new and full moons, when the market turns on one, you can almost expect it to reverse on the next. Then it goes away for months at a time.

As far as this market goes? I think we are looking at 30-32 all over again, in slower motion. John posted the history of 1929 a few years ago and I found the swings very interesting. Huge down moves reversed by huge up moves. The slots in the market are starting to loosen like 2007, when you watch the Dow bug on CNBC and the flashes are 10 and 20 points difference. Then it just lies there. This is a machine traded market, geared for the market makers to screw the trading and investing public out of the maximum they can get. It would be beyond imagination 20 years ago for different outfits to be renting space as close as possible for nothing more than to have their speed of light signals beat others to the treats lying out on the exchange, to screw someone out of a cent or 2. We were better off when they had the fixed 1/8 spread between bid and ask.

This time is different than the last time. The shots have all been fired and governments are now on the financial ropes. The shots of dope from the past haven't worked this time. Japan was the #2 economy in the world and despite huge financial expansion in the West, Japan's stimulus never got it out of the hole. Economists, namely banker influenced experts like Richard Koo have sworn on the Japan solution. This is because such action funnels money into banks to keep them afloat while they loot the system. Japan fed zombie banks for years and now they are stuck with perpetual debt and perpetual deficits amounting to about 50% of their tax receipts. The retirement of their older people has been drained with ZIRP. In the meantime, the banks use the zero money to strip capital out of the existing base through free financing of stock acquisition and cash flow that is the result of the government feeding borrowed money into the system. In the real world, this is nothing more than organized crime, but we call it government.

Being the governments are going broke, the gravy train is about to end. The US banks are in as bad shape as the European banks. Bernanke has merely covered this up with excessive bank cash and the government has allowed fraudulent accounting. We are about to find out which of these banks are insolvent and once this fact comes to the surface, the capacity to generate credit on smaller and smaller capital bases is going to dry up cash. Bernanke buys assets to create cash, meaning there really isn't anything being done other than replacing one liquid asset with another that is a little more liquid. I believe the US can get away with this longer than the rest of the world, if by no other reason than they could force the banks to fund the credit needs of the government. Bankers would probably go for it because treasuries aren't anything but interest bearing cash in the first place and through the credit creating powers of banks, the money would be as cheap as Bennie the helicopter pilot would wish to make it.

Europe is another problem though and the major US companies depend on Europe for much of their profit. Europe has problems, one being their countries are broke and their banks are broke and their population is getting older and dying off. The only solution is to do away with the national governments and go into a pure and simple Eurozone monetary union with blanket debt. This is not a workable solution though, as I believe it would destroy the German economy and I doubt the Germans and the Swiss care to sink into the abyss with the rest of Europe. Plus, even if Germany pulled out of the Euro, their banks are in sorry shape as well. Plus, contrary to popular opinion, you can't inflate without credit other than stamp pictures on paper and without a tie to debt the paper is virtually worthless.

So, we are in for several years of ice slowly melting. Prechter has a target of 400 on the Dow potentially and definitely under 1000. We can all laugh, but the Dow as under 1000 just 30 years ago and what took it to above 10000 is no longer operative. GM went to zero. GE would have gone to zero without a bailout as would have Citi, AIG, Bank of America and quite possibly American Express and JP Morgan. Without credit, oil could go to single digits, as laughable as that might seem. Money in the form of debt is melting fast.

In Elliott, the third wave if the strongest. We just finished a low degree third wave, maybe 3 of 3 of 1 of 3. We ripped QE2 off the books in 2 weeks. One of you guys said 800 possible by September. I don't know, but it wouldn't surprise me to see nearly the entire 2009-2011 rally wiped out by the end of October. The problem is, under Elliott this would merely be a complete wave 1 of 3 and with a double bottom in place, the following rally would suck trillions into the market, but the fundemental backbone would be broken. 1930-1932 had many strong rallies where they thought the bottom was in and the world could get back to business. They were followed by still more declines until the market had lost nearly 90% on the Dow and who knows how much in the other indexes.

The debt disaster we are looking at is beyond my comprehension. Government has attempted to bail this out, but the players in power have merely taken the money and run corners in commodities and stripped profit out of the markets. Government has thrown tens of billions into supporting the housing bubble. What they don't know is broke people go home and live with Mom and Dad or visa versa, as the case may be. This is what a debt strangle does. Once debt starts shrinking money disappears and aggregate demand, which includes assets shrinks as well. Most people are going to keep eating and buying energy for heat and such, but they will start selling instead of buying. Being we have witnessed the largest credit bubble in history, we will also witness the biggest unwind in history.

[RDRUNR]

Amazing. I am watching it every day now (and I'm not even in it!), it's free entertainment. I also have the 1000+ point drop on PVR as well (I'd upload it but have NO IDEA how to get it off a PVR).

With these WILD swings + and - you really have to think, this is no good at all.