8-25-2015 TUESDAY AFTER LUNCH MONEY MEMO
By the Financial Foghorn
“For my final exam, I’ll ask the same old questions, but I’ll change the answers.”
Sheldon Tefft, Hastings Equity Law Professor, and Foghorn teacher
I noticed that the stock markets are experiencing a tad bit of turmoil the past few days. But the endings of Bull Markets have historically looked like this. It’s a repeating story. The conditions may be different, but the outcome is always the same…unlike law school exams. But, thankfully, our balmy major media types are not going down without a fight. Jim Cramer began his show on Monday with the following placebos:
“I’d love to be able to invest in a market where the economy is recovering; unemployment is low and corporate balance sheets are in good shape. And that’s what we have today.”
Well, with all due disrespect, I disagree with those statements. The economy is not recovering. We’ve been having a “coyote recovery” following our collapse in 2008, and it’s been fed a liquid diet of QE for 7 years. The alleged corrective legislative measure, Dodd-Frank, did nothing to restrain the Vampire Squid banking fraternity, and the media pressitutes have been ignored the reality for just as long.
“Unemployment below 6%” is being counted by “surveys,” which the NY Post has written are rigged. www.shadowstats.com has said real unemployment and underemployment are above 20%.
And corporate balance sheets and income statements are not in great shape. They’re more leveraged than they’ve been in decades. Earnings are not growing. Shares have gone up through midnight arbitrage, share buy backs, and taking aboard plenty of debt.
And just to add an additional unneeded two cents, I’d say the FED hasn’t kept rates low because they see butterflies and unicorns in such a rigged circus, but because their deal with the federal government says they have to. The progressively shorter FED Chair Persons could probably couldn’t even see unicorns from their lowered height. The banks ran amuck with dot.coms, real estate and credit creation, and now Uncle FEDDIE has to bail them out.
The FED has turned from a regulator into the Plunge Protection Team, and painted itself into a scathingly silly corner. Zerohedge.com even printed the name of the chief Plunge Protector himself, Simon Potter, and his phone number: 212-720-6309. I dialed it last night. There really is a Simon there. Give him a call.
So What is The Deal with the Market?
I’m going with aliens. No, seriously, Elohim have come down in their space ships and monkeyed with our market using hand held computers. Or at least they gave us little computers years ago, and THOSE things are rigging the markets now.
OK, maybe it wasn’t aliens. How about the China Yuan devaluation? Did every investor on America decide that THEY personally were going to suffer because they buy too much stuff from China, and with higher prices, they need to sell their shares? Phooey. The Chinese devaluation means – at the very least – that there ain’t gonna be an interest rate increase by the FED anytime soon. That’s off the table, and the table has been put away til next Christmas.
And the Yuan-devaluation probably means the FED is gonna pump more QE, and that’s historically been excellent for the market. So why did the Dow drop down 1089 points yesterday at the opening. That was NOT a currency devaluation event happening…a week later.
Could it have been margin selling? I mean, customers did have $504.9 Billion in margin debt as of the end of June, 2015. The whole market collapse back in 1987 occurred when there was only $26 B in margin debt, so even a modicum of debt collecting on the part of NY firms could have serious repercussions. (Most customers meet a margin call with sales, not cash.) Perhaps the immediate downdraft at the opening was margin selling by the firms…”Before it gets any worse!” Meh.
It could have been mutual fund selling. They’re always a good candidate for villain of the month. They’ve got $5 Trillion or so in U.S. equities stashed away, and nowadays it wouldn’t take much for customers to pull the switch online.
Or maybe selling by the hilariously short term pension industry? Or the “Get Me Out Now” hedgie community?
By the way, if the economy and unemployment and the CPI and everything are so hot as Cramer says, why did this happen at all? Nobody seemed to answer that on the box yesterday or today.
In light of all the allegedly fine market conditions referred to above, I just don’t buy any of the above possibilities for this kind of instant damage. Something else, bigger, and much darker did this. Do I hear you mention Goldman Sachs?
I’m almost finished reading Matt Taibbi’s terrific book, Griftopia. http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Dstripbooks&field-keywords=matt+taibbi+griftopia&rh=n%3A283155%2Ck%3Amatt+taibbi+griftopia
Taibbi discovered that oil hit $149 a barrel in 2008 because Goldman and then other firms got secret letters from the CFTC in the early years of this century allowing them to trade without position limits…as if they were some kind of producer of soybeans or something. The fine balance between producers and speculators worked out by our government in the 1936 commodity legislation was trashed, and Goldman drove a truck through it.
Every pension plan that Goldman took on as a customer from 2003 until 2008 came in on the long side, and with mammoth money. Average money playing commodities in 2000 – $13B. Between 2003 and 2008, $317B came into the commodity pits. Think that might affect prices a bit? With a proper fee to the blood funnel people along the way.
And that real estate and credit debacle in 2008…yup, Goldman. They created CDO crap, bundled it up, sold it to unsuspecting buyers, and bragged about it in their emails. Paid $550 million to make the SEC go away.
Matt Taibbi’s article in Rolling Stone calling Goldman, “The vampire squid sticking its blood funnel into anything that smelled like money” was in 2010. http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405 And the mainstream press picked on…Taibbi. The mainstream narrative was, “Yes, well, Goldman is skanky monster, but we need them.”
NYSE volume is over 80% High Frequency Trading. Over 80% of trades are handled by a computer. Over half of those are done with nobody in the room watching the computer. It’s all electronic now, and mostly done with algorithms. Just see where a stock is going and push it further and harder to get there.
So, as to market collapses going on the past two days, yes, there was some instability due to Chinese currency maneuvers, but a couple of currency devaluations in an ongoing currency cold war couldn’t have produced the market mayhem we’ve had. It just couldn’t.
I’m betting on a desk or department at brokerage firms – led by Goldman Sachs – using an ETF desk for leverage, using dark pools and ancillary exchanges to short, and using proprietary HFT algos to rape the villagers. It’s the same totally remorselessly snide attitude the firms have displayed for decades. And as far as Goldie is concerned, their government connections will prevent their ever being punished, brought to trial, or even investigated.
We’ve now seen how our bigger, badder banks are going handle volatility going forward. A different Bull Market is ending, same smarmy behavior. As the guru in India put it, “I hope somebody is gonna clean up this cow shit.” And I hope soon. Hang in there.
—The Financial Foghorn