CRASH2: Correction2 over, onwards & downwards to Correction3


Yesterday’s new Party Lines:

COMMODITIES: “It’s a supply thing, not a demand thing”
STOCKS: “This huge correction is not warranted by the data”

The robotic unanimity was stupifying at times: like a procession of Stepford Wives, the Davos whores appeared on camera to ‘explain’ why they – halfway up a Swiss mountain and entirely up themselves – know better than those just a few shades closer to the real world in New York, London, Berlin, Paris and Shanghai who find central bank tiger-balm incredible. As for those struggling to find jobs (or even the means by which ends might meet) many shades of grey below the bright young metropolitan Things, who cares what they know? They know nothing except tedious stuff like aged relatives, the price of bus fares, how to survive until the pension kicks in, and what to do about the mortgage they can’t afford any more…not even at Zirp interest rates.

But way up there in the rarified air of Davos, there’s obviously been a mass outbreak of altitude sickness. And what it’s telling us is that lead balloons can fly. No seriously, folks: they can.
Perhaps I should start by deconstructing Thursday’s oven-fresh, half-baked analyses.

COMMODITIES: “It’s a supply thing, not a demand thing”

There is an extent to which oil’s price has been artificially depressed by geopolitical manipulation and OPEC/Iranian/fracked additions to the glut. But if we had the robust economies all these muppets talk about, why wouldn’t producers and consumers just hoover up the gluts with glee?

And why, when asked what they’re doing to cope with new market conditions, do these BSDs all say “we’re gonna reduce expenses”….by which they mean firing people? So all these fired people, they’re going to use the heat from being fired to fire up consumption, right?

Also I need someone to explain why there is a copper, timber, cement and iron ore price plunge as well. Is this perhaps to do with miners and lumberjacks working all the overtime that God sends to keep gluts high and prices low?

Pretty much every objective statistic attracting any degree of trust shows shipping, trade and global overtime at an all-time low.And by the way, did anyone notice that US unemployment benefit requests just peaked? “We’re looking into it,” said another fat talking head, “it’s a mystery we’re tryin’ to puzzle out right now.”

Give me strength.

STOCKS: “This huge correction is not warranted by the data”

What data exactly are they looking at? This is what the Bank of America CEO told us yesterday afternoon:
“Things are looking good in Europe….the PMIs are optimistic, and the EU consumer has lots of money to spend”.

That is not even worthy of being called an ex cathedra assertion. It doesn’t even qualify as spin. It is a black lie. I don’t have any truck with PMI surveys: they’re just opinions about next month, not audits lastmonth. Month after month for the last five years they have been wrong – that is, overly optimistic.

And if you can find any data anywhere showing that many mass market EU consumers have “lots of money” then I’d be happy to deconstruct it. Here in France, unemployment has risen yet again, every retailer is in recession, DIY stores are flatlining and benefits are rising. In ClubMed, Italian banks are only surviving through draconian anti-shorting legislation, Portugal is in political stasis and Spain is both angry about austerity and riddled with regional nationalism. Growth has come to a halt in Germany, the refugee situation has turned into an expensive farce, and Greece is….well, barely a Sovereign State any more.

Mr Draghi makes another promise

Mario Dragula kept rates ‘steady’ yesterday. The Italian rapscallion at last accepted that zero rates, QE and shifting ECB money around the ClubMed banking system aren’t producing the required result, viz, any real sign whatsoever of a recovery. “Clearly,” he said, “we are not hitting our targets, and we can’t just do nothing”. So taking the current package that isn’t working, he offered more of it.

From here on in his speech, the EU Kremlinologists got to work trying to figure out whatTF Draghi had in mind, the main clue being “no limits on stimulus” and the disturbing (to me) “going beyond traditional barriers”. The latter bit will get him into yet another antler-fight with the Bundesbank and perhaps the Karlsruhe Court; but even worse, it sounds like he’s heading down BankofJapan Road to the funny farm.

But it was better than nothing, and so the markets rose a little and continued the day’s minor rally following the bloodbath of earlier in the week.
Correction2 over, onwards and downwards

A mixture of past experience, feel and data suggest to me that what I call ‘Correction2’ is now more or less over. Next week – barring another set of shocks – I expect some lost ground to be regained. The smiling, morbidly obese blokes and skinny adolescents will resume the Business as Usual shtick on air, but we will still not be anywhere near the peak of early summer 2015, when the Bull run started to lose its limbs one by one.
So we’re clear about which page of the hymn sheet this is, we are at Crash2, Correction2, just past the end of the beginning that began in 2008 with Crash1.
When an historic correction gets under way, this is what one traditionally sees:

OK, it’s not exactly Live Reuters science, but it is simple. The black line starts over to the left (still in the everlasting new paradigm of growth bollocks that never ends) and we get an inititial correction….last September. That’s followed by a rally which regains quite a bit of ground, and then there’s a second drop of similar size….this week gone. Where black meets red is where we are now.

At this point, the Masters of the Universe still have lots of excusatory BS where they say it’s not a recession, it’s not a technical bear market, it’s just a blip, this is not a collapse, the economic technicals don’t support the fall, the markets are mad but of course they must prevail etc etc. However – even if only for a time – the psychological levels of The Day have been broken….the 3,000, 6,000 and 16,000 lines in our situation in Shanghai, London and New York respectively. They may be regained, but they’re no longer invincible. Think defeat of Rommel in North Africa: the Nazis are not superhuman. It’s a turning point.

From here on, the mismatch between those in the business of arse protection and those in the profession of investment gets steadily greater: the vague promises and double-standard lies are no longer believed. The falls get longer and steeper, the rallies shorter and smaller, and that domino third in line sees its centre of gravity getting higher: firms fail, economic data gets less equivocal, central bank tools have no effect.

That’s what traditionally happens, but this is a new future we’re looking at. This is a historical (and historic) reset from which there will be no turning back – but it can’t possibly be like any previous one because new variables have been introduced: QE, Zirp, globalised business, fractional reserve banking, the massive shift from income to capital power, the Brics, derivative contracts, SOL trading, dark liquidity….and that old favourite, the ‘technical glitch’.

So nobody knows how it will pan out, how long the process will take and what the exact outcome will be. What it won’t be is more of the same.

Last night at The Slog: the art of fitting in from the outside

30 thoughts on “CRASH2: Correction2 over, onwards & downwards to Correction3

  1. We are currently missing a piece in the jigsaw. Too many companies race to cut costs whenever there is a bit of a turndown so that their share price doesn’t get hammered. Then the cycle of lower consumption starts. It seems to me that if the Central Banks moved some of the money out of QE into supporting existing employment for a limited time then people keep their jobs; continue to spend; consumption goes up; demand for raw materials & energy goes up; prices rise slightly; deflation goes away and happy days are here again. But the trick is to avoid the big companies taking the money, still cutting costs and moving it to the bottom line to enhance their options and bonus payments. So much of business now is executives running companies for their own benefit rather than for the shareholders — never mind the wider public good.


  2. Pingback: CRASH2: Correction2 over, onwards & downwards to Correction3 | Machholz's Blog

  3. all these efforts to deny the obvious. Bankruptcy of the paradigm that we can continue growth with finite resources.. everything that can be manipulated has and is being done. now we must evolve quickly if we are to survive. Knowledge is a more promising route than ignoring and ignorance.


  4. Stan

    It’s not just actaully losing your job….even worse is the fear of losing your job. Or the fear of being swtched to part time. Or having a pay cut to keep your job.

    Watched one of the glitterati at Davos being interviewed on CNBC earlier this week. The Finnish Finance Minister (avec horn rimmed glasses so everyone KNEW he was intelligent) stating that Finland needed to ‘do a Germany’ and reduce wages by 15% to make Finand competitive.

    The interviewer didn’t bat an eyelid.

    This doesn’t happen by mistake, Stan. I said to a friend prior to the financial crisis in 2008 that the middle class was going to get eviscerated and we wil be forced to become, in effect, drones to the Queen Bees. I fear the average Western consumer is so (a) psychologically brainwashed, and (b) stupid to actually realise just what the end game is here.

    Very, very frightening.


  5. Mr Stocks, in your video, they keep speaking about Poland as if its borders were those the Poles had always known.

    One serious problem for Poland – and Ukraine, is Galicia and other parts of pre-war Poland. Most of what had been designated as the country of Poland under the Versailles treaty was swept away at Yalta. The Poland we are used to today has perhaps 1/4 of the original Poland’s original territory, the rest was forced from Germany – and without even a whiff of reparition.

    What was Poland is now much of the Catholic part of the Ukraine, and has been one major cause of the recent civil war. But then, this was known about sixty years ago.

    More importantly still is the concept of Poland as a nation state, where all education (for example) is in Polish. This is a clear parallel to the Alsace, where the German speaking locals preferred to be French after the First World War. Although, it has to be said, this “preference” could have been encouraged in the same way as the voters in Danzig* that is to say, they voted one way and had the preferences of the overlords (the Allies) forced upon them, in a manner redolent of the 2015 default vote in Greece that was turned around by the USA.

    A Pole is a Pole wherever they live; their culture is ingrained so deeply that it is impossible to wash off in the bath. They do not need a state to protect their identity – in the manner of Ex-Pat communities of British who fear the loss of their identity – the Polish people are Polish, wherever they live – just as Germans are German and the British, British.

    All you need are people who have a certain level of confidence in themselves, for this acts directly against the kinds of fear that Alan speaks of in the preceding comment. Without this, you leave them open to the likes of Wall Street who conjoured up the ogre of Hitler for the German people, an ogre who stood for everything the German people did not (but who, paradoxically, avowed the Anglo-Saxon point of view, namely ‘colonial’ slash and burn).

    *(now Gdansk, a place economically far less prosperous for the lack of Germans) .


  6. Of course we also have the hidden hand of Barry O’Bama and his neo-con chums fighting the new and hidden reserve currency war! The BRICs need to be taught a short sharp lesson about international trading without using the US$.


  7. .@ Alan .. exactly .. the middle classes of Europe and the USA will become poorer , effectively’ paying’ part of the cost of globalisation . The rise in low paid jobs is another consequence .@ SH : the contrarian opinion article seems more like a rant to me , some of his assertions seem false , for example if there ‘s no need for dollars because swaps can be used then dollar demand should fall and so should the price . Oil , given the collossal amount used every day on this planet , should be the most stable of commodities in price terms .It is obviously more manipulated even than Gold , and that is saying something .
    I also think that the markets will not necessarily crash , rather the current rise in unemployment and poverty will continue and growth will stagnate , prices will start to fall . Stock markets should go down but not necessarily in catastrophic fashion : falling prices can be off-set by firing people after all . The Japanese Lost Decade ( which is in fact now 2 decades or more ! ) will come to Europe . In Greece and Spain unemployment has reachedd catastrophic levels and the people have barely rebelled . The powers-that-be know this and are not worried by rising unemployment any more as Western society is far richer tha in the 1930s for example . French politicians have made no real attempt in the past 30 years to arrest the decline in jobs , in fact they have made things worse by joining the Euro and by creating the 35 hour week..


  8. The non presstitute media has been going on about the end of the Ponziopology game for quite some time now.

    Time the blogophere looks ahead to how the power that be insulate themselves from being hung and how the insulated/rich/connected have protected their money in safe havens etc.

    What distractions are comming our way….War?


  9. I see that Kevin Spacey is in Davos; perhaps the plan is to transfer the whole show to The Old Vic so that London audiences can applaud the vulture culture, having paid handsomely for the privilege.


  10. I see that the Baltic Dry Index is down to 355.
    One has to wonder why they haven’t gotten around to manipulating that yet.
    I suppose that if no one is buying the oil, it doesn’t matter a jot what price they put on it, up over 6% as I write…


  11. @Hb: He could call it “Davros – Lost in Spacey”: It would have all the right ingredients viz:

    “Davros was first encountered in the Fourth Doctor story, Genesis of the Daleks, , He was the chief scientist of the Kaleds, a mutating race contaminated by nuclear and biological weapons. The evolved mutants were weak and crippled. His solution in order for them to survive was to remove all emotions and place them in a ‘Mark III travel machine’. He named these creatures Daleks, an anagram of Kaleds. Davros became obsessed with his creation, considering them to be the ultimate form of life, superior to all other forms……..”


  12. When the WTO (World Trade Organization) held it’s conflab in Seattle years ago the place went nuts. Davos never gets this kind of attention the Swiss must have wonderful defences ………not a pitchfork can be seen. .

    Meanwhile ……… Leonardo DiCaprio flew by private jet to the annual World Economic Forum in Davos, Switzerland to attack the “greed” of the energy industry, while demanding more action on climate change.


  13. Nikkei 225 bounds up by 5.88% wha!? Eh?

    Nah…. I’m not even going to look any more, it’s strictly for the fairies. Madness. Looney toons.

    As Bollo the eclectic Gorilla from the Mighty Boosh might say “I gotta bad feelin bout dis”.


  14. In a simple message to cover the most people into grasping the world situation, i’m surprised,

    ‘62 people now own as much wealth as half of the world’s population’. hasn’t woken more people up to the idea of rigged systems! It cuts out all of the complexities and gets straight to the point.


  15. With both Bono and DiCaprio at Davos we know things of great importance are at stake. They both get a chance to preen on the world stage, while the rest of the attendees seek yet more novel ways to stitch us all up.


  16. If, the humanoids at davos are correct, their actions show panic. The consensus is that cash is king. If someone hoards cash, they can find nothing to bet on with good odds. This should be an indicator to everyone there is more risk than reward. Some people have to chase earnings at all cost, they gamble plain and simple. They need a big score because of the losses on the 10-1 bets they lost just keep adding up. I suspect it is their panic that is causing conditions resembling the radical cyclical shifts in the market of 1929. Then they lost oil to price collapse.
    They can control the toadies that do pr by interviewing them with little questions, but no mention of the reality creeping up behind. These people want cash to be flexible. They think cash will survive the market collapse. Cash is great until it equals value to wallpaper. The governments issuing the cash buy stock to keep the economy from looking too grim. The US has printed 10x the money supply early in the century.
    Study Weimar or John Law or Tulips. This has been tried before. This time it just has to work.


  17. This is worth a read. The NY Times, which serves the function of Izvestia on all things financial and economic (foreign policy too) and which has been silent on the markets plunge this year finally chimed in on Wednesday. Not with a news story or an editorial but with what is essentially a blog post under the title ‘The Upstart’ where it declares the plummeting markets make no sense.

    From there the chorus chimed in to repeat the message as here


  18. We’ll have gone full BoJ loopy when the Government drops £1000 into every adult’s bank account with the instruction to “spend this now or lose it, because stimulus”. Yes, they actually did that in Japan. A day in the sunshine for wide screen TV, cigarette and booze companies.


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