U.S. stock markets fell the most in seven weeks, while the dollar slumped with Treasuries as an uneven batch of corporate earnings reports thwarted a risk-on rally and renewed turmoil in Washington threatened to imperil the tax overhaul. Investors are looking hard at earnings and economic data for indications of broadening growth that may sustain the rallies even as the Federal Reserve and other central banks start to pull back on stimulus. The S&P 500 Index fell from near a record high, with weak results hammering shares. Ten-year Treasury yields breached 2.47 percent, their highest since March.
Initiating sell in #DOW Dec Futures below 23,428. Extreme over-bought conditions.
I may be wrong –
But feel this to be the Best Option Now.
— CommodityTradeMantra (@MONEYLINE_FCPL) October 24, 2017
I have advised & also initiated sell in the Dow Dec Futures at 23,428 yesterday. Seemed like the only sane option at these dizzy levels. Dow Dec Futures are already down to 23,203 (down 233 points from the life-time high of 23,436 hit yesterday) at the time of posting this article. Let’s wait and watch how it plays out.
Peter Schiff: Thirty years ago, the US stock markets had their worst single day in history.
On Oct. 19, 1987, now known simply as “Black Monday,” the Dow Jones Industrial Average lost 508 points. That represented 22.6% of its value.
Over the last couple of years, stock markets have enjoyed a meteoric rise. The Dow closed above 23,000 for the first time this week. But in recent months, bankers and investors around the world have started expressing concern about the rapidly inflating stock market bubble and its future impact on the world economy. Just last month, Tiger Management co-founder Julian Robertson unequivocally called the US stock markets a bubble and blamed it on the Fed’s interventionist monetary policy.
At some point, the soaring stock markets will fall back to earth, and MarketWatch columnist Howard Gold says the next crash may prove worse than Black Monday.
As Gold points out, in the aftermath of the 1987 crash, the recession didn’t officially kick off until 1990. That was nearly three years after Black Monday. As a result, a lot of people dismiss the 1987 crash as a mere blip on the radar. But Gold cites a book by Diana B. Henriques to make the case that Black Monday was more than just one bad day. Henriques argues it was a painful bear market that lasted three months and included a nearly 35% drop in the Dow Jones.
In A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History, Henriques calls Black Monday a near-systemic crisis that was a precursor for much that came later.
Black Monday was the contagious crisis that the system nearly didn’t survive. All the key fault lines that trembled in 2008 … were first exposed as hazards in 1987.”
Henriques maps out several basic causes behind black Monday, including “breakneck automation, poorly understood financial products fueled by vast amounts of borrowed money, fragmented regulation, [and] gigantic herdlike investors.”
Gold recently interviewed Henriques. She told him that not much has fundamentally changed since 1987. Based on the interview Gold offers three key reasons why the next crash in stock markets could be even worse than Black Monday.
The market is much more fragmented.
In 1987, the only two major players were the New York Stock Exchange and the Chicago Mercantile Exchange. As Gold put it, the two chairmen could institute the first “circuit breakers” giving traders “timeouts” in the midst of a sell-off with a mere handshake. Today, the stock markets are much more fragmented with multiple players. The NYSE only handles about 30% of all trades today. That compares to 90% in 1987. As Henriques points out, “we’ve got 12 regulated stock exchanges, we’ve got 30 [alternative trading systems] where stocks can trade and [who knows] how many dark pools — members-only trading venues.” She said coordinating everybody in the midst of a meltdown today would be like herding cats.
Regulators live in their own little worlds
Henriques said Dodd-Frank created rigid rules where flexibility was needed. She told Gold, “We’ve moved so far from any realistic approach to market regulation, I don’t know where you would start.” Gold wrote, “The SEC and CFTC are like tugboats passing in the fog, even as financial innovation continues apace. Efforts to rationalize the structure after the financial crisis were killed by Congress’ competing fiefdoms.”
Nearly instantaneous computerized trading is more pervasive than ever
JP Morgan estimates passive and quantitative investing accounts for 60% of stock trading, double its share a decade ago. “You have trading strategies that are algorithm-driven by giant investors using not billions but trillions of dollars,” Henriques said. Henriques told gold that the 24/7 news cycle and social media could spread panic further and faster than in 1987.
I think we’re on a knife’s edge.”
SRSroccoreport: As the Dow Jones Index hits another all-time high today, smart money is rushing to the exits. You see, smart money knows when something is too good to be true. Unfortunately for the retail investor who is suffering from acute BRAIN DAMAGE, they are doing quite the opposite. As institutions sellout on each new market price rise, retail investors are happily buying… hand over fist.
And why shouldn’t they? These are good times. Well, maybe not for Americans living in Houston, parts of Florida, California or in Puerto Rico. Whatever happened to the news on the massive flooding and hurricane damage in Houston, Florida and Puerto Rico? I remember seeing videos of Miami Beach High-Rise Condos with seawater 5-8 feet surrounding the entire area. Does anyone have an idea of what happens to electrical systems when salt water floods buildings? It’s not good.
Regardless… the amount of destruction major U.S. cities have experienced in the past three months is like nothing we have witnessed before. Regrettably, a lot of these homes and businesses will never be rebuilt. Not only don’t we have the money to do it, more importantly, we also don’t have the available energy. While the massive destruction by hurricanes, flooding and fire have not impacted the stock market currently, they will.
As I mentioned at the beginning of the article, retail investors are propping up the stock markets. However, they aren’t the only ones, or should I say, the only factor in keeping the stock markets from falling off a cliff. Thanks to Uncle Sam, total U.S. debt has increased by $590 billion in just the past month and a half. Here is a table of U.S. debt from the data published by the fine folks at TreasuryDirect.gov:
The U.S. debt ceiling was finally breached on Sept 8th as the Treasury added another $318 billion of debt in one day. Since that day, the U.S. debt has increased by another $271 billion. The addition of debt to the U.S. Government balance sheet had a wonderful impact on the stock markets:
You will notice that the Dow Jones Index was running along the 50 Month Moving Average (BLUEline). Any breach below a crucial technical support line could force selling by traders. But, when the U.S. Treasury added another $318 billion of debt on Sept 8th, this propelled the markets higher. While I don’t pay much attention to technical analysis, many professional traders most certainly do.
And… as the U.S. Treasury added another $271 billion in debt, the markets continued even higher. So, what we have propping up the stock markets are DEBT and BRAIN-DEAD RETAIL investors. This is not a good sign. While the stock markets will likely continue higher, it will only give institutional investors more opportunity to sell out:
The ORANGE line represents SMART MONEY, the institutional investors. Here we can see what a proper investment strategy should be during a rising bubble market when one doesn’t suffer from the same illness as the retail investor. Furthermore, the savvy institutional investor is also able to understand the ramifications of the following chart:
The two lines in the graph have diverged considerably since the beginning of 2016. The Economic Policy Uncertainty line represents the amount of negative news in the MainStream Media on the stock markets, governments, etc,… while the Equity Uncertainty line shows the volatility in the stock markets. Typically, these two lines parallel each other. But, as we can see, they have gone in opposite directions.
Thus, an investor not suffering from BRAIN DAMAGE, (institutional investor), would take this chart as BIG WARNING, whereas the retail investor just wants to know is how quickly he can liquidate his life insurance policy to place an even larger bet in the STOCK MARKET CASINO.
There is no telling how long the stock markets will continue to rise as underlying fundamentals deteriorate. However, all markets held up by debt and stupid money, must crash at some point. Frustrated precious metals investors need to keep their distance from BRAIN DAMAGED investors as the disease is highly contagious.
My advice…. buy the GOLD and SILVER CHIPS and leave the CASINO while you can.
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