The Epocalypse Spreads its Gaping Jaws and Smiles

If it weren’t so serious for the world, it would have been funny to watch on Thursday as the stock market rose sharply upon news that oil prices were rising. Robotraders with silicone brains, I thought. Do people really believe today’s rise in the price of oil means anything? There must be a built-in desperation to the robotraders’ algorithms — that would cause them to so desperately bid the market up on such a meaningless hint of good news.

I don’t know if it is the bots — designed with their creators’ imperfections built in — or human buyers who are so desperate that they actually priced oi-company stocks up because of an increase in oil prices that everyone knew wouldn’t last a week.

We all know that Iran is going to immediately flood the markets with even more oil, driving the price back down. So, in anticipation of that day, oil prices and stocks went into convulsions the next day (Friday) and fell of a cliff. I half smiled at how quickly it went down as I drank my morning coffee and read the news on the west coast of the Dow already being down 300 points. The robo-rally didn’t even last a day!

 

From robotraders to old-time traders, the stock market crash is fully underway

 

The legendary Art Cashin, director of NYSE floor operations for Switzerland’s largest bank (UBS), has said that, if oil dropped below $30 a barrel, it would likely have a trap-door effect on the stock market. Well, oil just broke below that; so Friday’s plunge may have been that door opening … if Cashin is right, and Cashin has watched over the NYSE like he is the father of the exchange. After fifty-plus years on the exchange floor, Cashin has pretty much seen everything the market can go through. He knows a worried market, and he says this market is deeply concerned:

 

This market shows no robustness. The people who sell mutual fund would give their right arm to get an up year [in 2015] so the advertising would say “S&P up for x number of years in a row….” With all that power — and they were actually in plus territory with two days to go in the year — the markets abated. So, that tells me that there is some kind of a latent negative built into the marketplace that will not carry it much higher…. You have a fairly distorted market here that can cause a great many surprises…. History tells me that it shouldn’t be two down years in a row, but looking at the geopolitical risks that I see out there, and looking at the sputtering of the global economy … we should keep the caution flags flying and be very careful.  (Art Cashin on King World News)

 

China’s central bank acknowledged that it pumped $15 billion into its stock market on Friday to slow its continuous crash. Yet, the Chinese stock market still ended the day down another 3.5%. Nevertheless, every week, some blathering TV economist with a pimple for a brain tells his audience that China has taken the aggressive action needed in order to end its train wreck.

At one point in the day, Friday, the Dow had fallen more than 500 points (2.4%). It eventually ended the day down 391 points. The S&P 500 broke below its Aug. 24 low; several market analysts have said this would constitute a major sell signal if it happened. That would be its lowest level since October 2014, which was the last market plunge I predicted (until the present time).

Traditional safe-haven investments went up: the price of government bonds jumped, and gold rose 1.6%. Futures for the market, on the other hand, went even lower than the market’s closing, which hints at more trouble on Tuesday when the US stock market re-opens after a holiday.

The human traders described sentiment as the “worst in months.” One financial advisor said he received more phone calls from nervous clients than he has ever received. He, of course, tried to cheer his clients up by writing the day off as just a little bad news from China — good feelings being more important than wise caution. If his clients had two firing brain cells that should have been all they needed to hear in order to find another broker. Nothing against blind folks, but never stay in a taxi after you learn the driver is blind, even if he does turn around and smile reassuringly.

Just a little bad news from China?

  • Surprise, surprise, oil wasn’t up to stay. It dropped below $30/barrel — Art Cashin’s danger point — settling at its lowest price in thirteen years. Thus, Thursday’s rise on good oil news turned immediately into Friday’s falling tide upon bad oil news — a current that took most stocks down with it. (Gee, and it was just going up.)
  • Surprise, surprise, China crashed to its lowest point in a year even with $15 billion dollars of instabank propping. (Who could have seen that coming? Well, maybe readers of this blog.)
  • Surprise, surprise, retail sales in the US turned out to have declined in December after all. (Hold it! In December? The one month in which retailers make all their profit for the year, having spent eleven months covering all their expenses?)
  • Surprise, surprise, corporations started reporting lower profits, including particularly big banks and the top-ten stocks that kept the market alive in 2015.
  • European stocks (Stoxx Europe 600) dropped 2.8%.

So much bad news in a single day? If not Black Friday, it was certainly Ugly Friday. Who would have thought? (Maybe readers of this blog?)

“Just a little overreaction due to some temporary bad news from China,” said the blind cabbie, as he unwittingly extinguished his cigarette in his Crown Royal, instead of the ash tray, and then took another drink.

These market bulls have been breathing the rarified air at the top of their skyscrapers for too long, and their brains are turning blue. When are they going to stop believing that bad news from China is over and that China has solved its problems? When are they going to stop pretending that China’s demand will return anytime short of another five years? When are they going to stop pretending that the United States is immune to China and all the rest of the world? When will they stop kidding themselves that Saudi Arabia is going to blink before crushing some American oil companies out of existence?

Ah well, they’re called “bulls” because they’re bull-headed, certainly not because they’re smart. To wit, I present the following evidence:

 

“While we expected to have more volatility in 2016, I certainly did not expect the year to start with this big of a downdraft,” said Kate Warne, investment strategist at retail brokerage Edward Jones. (WSJ)

 

Obviously, she doesn’t believe the right blogs, or she’d be better informed. She would have known that every bit of this was going to happen, and that it isn’t going away anytime soon. People hear what they want to believe in and tune the rest out. Anyone who approaches them with reality is just a worry monger or is “predicting the unpredictable,” never mind that people like Kate are always predicting the future themselves, forecasting an eternal bull market for their clients to buy into. Ah well, you can’t save stupid. Not when it is bullheadedly stupid.

 

“When stocks start dropping, investor fears increase, which leads to more drops in the short term.”

 

Ah, see. Bad as the market has become and rapidly as it is gaining speed on its way down, it is only falling into a “short-term” gully, not a canyon. Poor Krazy Kate. Even poorer customers of Kate, for that is what they will become — poor.

Here’s another dim candle, trying desperately to hold its light in the wind:

 

We’re hitting a meaningful inflection point in the market. When you see this type of activity — big 2 percent moves up, 2 percent moves down — you see this type of volatility at market inflection points,” he said. “If that’s the case, you have to ask yourself if this is a point where you sell everything, or is this a point where you buy. With how much this market has fallen…a level-headed person is going to conclude the latter.” (CNBC)

 

Obviously this man hasn’t recovered from his recent brain injury when he bounced his head off the market’s ceiling several times last fall. He actually thinks the level-headed person would leap with both feet in a crashing market during the onset of global economic collapse. In other words, a level-headed person, when he or she hears the sucking sound of the whirlpool start to really roar, will go for a swim.

Such lack of imagination for the trouble that lies ahead. He’s right in knowing major volatility where the market spasms up 2% and then down 2% indicates an infection point. What he cannot imagine is that the inflection is to turn down at an even faster pace.

Listen as the following dingleberry says Friday’s vortex was just a “sentiment driven reaction” because the “fundamentals still remain extremely strong in the United States.” (as if mountains of debt, crashing oil prices, failing oil bonds, a highly overpriced currency related to others, a manufacturing industry that is solidly in recession for several months now and a decline in transportation business — just to tick off a couple of items — is “fundamentally extremely strong.”)

 

http://video.cnbc.com/gallery/?video=3000481255

 

You can’t even make up this kind of sad entertainment. What can you do but pull up a lawn chair and watch the running of the bulls? You’re not going to talk them out of it. They are headstrong and determined to run off a cliff.

—David Haggith