Blood in the Streets

“Blood in the Streets” is the only way to describe last week’s market action. Even after a late 9+% surge in the equity markets on Friday, the S&P lost 1.29% on the week. But what is striking is there was no “safe haven” this week as panic selling was triggered by a basic liquidity problem in the financial market that was not helped by a $1.5 trillion money-pumping promise from the Fed on Thursday, as discussed below. My advice is don’t be fooled by the major rise in equity prices on Friday because there continues to be major systemic liquidity problems.

The blood bath is evidenced not only by the absence of any safe havens but also in my Inflation/Deflation Watch, which is starting a downward trajectory akin to 2008. Massive stimulus package and promises to spend endless amounts of money to be funded by the Fed sent stocks soaring in the final minutes of trading on Friday or the numbers would have been far worse for the week. The last time markets melted up as much as on Friday was on 10/28/08—the day TARP was announced. It then fell another 35% further from

there. Even more ominously, the NYSE Composite Index has collapsed below the 2008 highs despite trillions of additional liquidity. And in addition to ongoing strains in the Repo markets there are numerous other indications of market illiquidity including a huge rise in rates for riskier debt instruments, even as Treasury yields were rising in this very mad dash to find liquidity. To gain an appreciation for just how unglued and chaotic the markets are becoming, I recommend highly that you visit this site at Zero Hedge where there are numerous charts that show just how shaky our financial markets are right now.

About Jay Taylor