In my experience, markets do not just dive bomb for no reason.
Even in the face of ominous developments, like absurd debt levels for countries or citizens, toxic assets, or terrible prospects, things tend not to react until they have to.
Think about GM. That company was the bottom of the barrel for somewhere between 4 and 8 years before it finally went.
What ultimately stopped GM was not the terrible decisions, high debt load, or wobbling economy.
The day they stopped, it was because they ran out of money to spend.
So why is the market exploding like this? What development is occurring in companies with immense assets, that would bring them to start selling and not stop, even after we’ve come so far that it’s obviously a poor time to be doing so?
I hear something about French banks now. That sounds in line with other developments, like rumors of American financial institutions blackballing their European counterparts.
But that’s merely the who, where and when, not the why or how.
If French banks are failing, what is causing them to do so? Is it so pervasive that they are with their backs against the wall, no other options available?
And is this product, asset, or issue present anywhere else? I can imagine it has a lot to do with debt, but is their leverage also?
These are questions which anyone who has found their way to my office should be sufficiently curious about to ask. They are questions which, as of yet, I don’t have good enough answers for.
This is an open floor, friends; feel free to chime in.
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Wow, Cain,
you know how to ask the tough questions. It’s tumbleweeds in here.
OK, I take the bait and go first. My theory is – it’s very easy for all to cry the “m” word on the way up.
But on the way down… nobody dare speaketh the name.
So I’ll whisper it….manipulation.
Yep, I think you’re getting too fundamental in all this. It’s just plain ol’ someones agenda.
Now who might that someone be?
I don’t know if I can get behind that. You don’t take us this low without a lot of selling. The only people with that level of assets probably aren’t manipulated very easily; banks, funds, billionaires…not a list of pushovers.
I do not think this is a retail sell off. It is definitely institutional.
Doesn’t have to be a push over. Of course someone big is moving this. Are we really supposed to think it’s a million tiny little ants in unison? Or maybe an efficient market? Right, and there are unicorns at the end of the rainbow. What happens when the market tanks? Gold goes up. Bonds goes up. Some things; get cheap. So, by deduction, the mover wants that reaction to the action. Or, yes, maybe it is hft’s gone wild. They make more money when it’s volatile, right? (and “they” hft’s are big banks sometime, no? Not claiming to have figured this out. Just brainstorming.
All good points.
they did exactly what their american banker counterparts did.they all got into the losing game of cds’.some idiot banker prolly doesnt even know that the retail investor he sold johnny 6 packs’ mortgage to. and leveraged their assets to the gills like we did,and their turn to implode has arrived.lehman failed,now soc-gen fails.the darwinisim of banks’ lives are no different on this side,or the other side of the pond. money doesnt know where it wants to go,so the action we have seen in the last 5-6 or so sessions is saying so.you cant always believe every tick is manipulated.
But what are they swapping, if that’s the case?
If it’s Italian or Spanish debt, would pushing down those yields abate the problem?
there is more supply than demand.
(laughter) that may be the best answer anyone can get. I just would like to know the parameters here; where is the selling coming from and why are they selling?
The 2008 crash didn’t come to complete fruition. Bailouts, TARP, QE stopped the decline somewhere halfway to the bottom. Now everything’s run dry, there’s obviously no plan to pay off the debt (short of inflating our way out/default) and its clear that our leaders aren’t as interested in plugging the dam as getting re-elected. The debt ceiling circus was the spark. Everyone sees that the emperor is in fact naked and they’re making a run for the exits.
But making a run for the exits and selling nearly continuously for a week after two prior weeks of declines? Barely letting a bounce form to sell into?
And with the debt ceiling, I mean, yields for the US have never been lower. If any of the countries had actually stopped making payments, I could understand that. But no one has, and all the selling has been in equities.
Why not sell out of bonds if it’s a bond problem?
Grantham, Rogers, Schiller, Prechter they all understand the big picture and they are all right. The end game will come one day. But no one can take a short position today and then wait 10 years or even 1 year. What about the bounce tomorrow. Gotta take advantage of that 10 bounce in $GOOG and $AAPL. For the longest I have felt better shorting the rallies than going long the dips. But today I’m long $AAPL and $GOOG.
I have Schiller’s book sitting on my desk right now, actually.