Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Take your pick–here’s three good reasons to engineer a “crash” that benefits the few at the expense of the many.
There is an almost touching faith that markets are rigged when they loft higher, but unrigged when they crash. Who’s to say this crash isn’t rigged? A few things about this “crash” (11% decline from all time highs now qualifies as a “crash”) don’t pass the sniff test.
Exhibit 1: VIX volatility Index soars to “the world is ending” levels when the S&P 500 drops a relatively modest 11%. The VIX above 50 is historically associated with declines of 20% or more–double the current drop.
When the VIX spiked above 50 in 2008, the market ended up down 57%. Now that’s a crash.
Exhibit 2: The VIX soared and the market cratered at the end of options expiration week (OEX), maximizing pain for the majority of punters. Generally speaking, OEX weeks are up. The exceptions are out of the blue lightning bolts such as the collapse of a major investment bank.
Was a modest devaluation in China’s yuan really that unexpected, given the yuan’s peg to the U.S. dollar which has risen 20% in the past year? Sorry, that doesn’t pass the sniff test.
Exhibit 3: When the VIX spiked above 30 in October 2014, signaling panic, the Federal Reserve unleashed the Bullard Put, i.e. the Fed’s willingness to unleash stimulus in the form of QE 4. Markets reversed sharply and the VIX collapsed.
Now the VIX tops 50 and the Federal Reserve issues an absurd statement that it doesn’t respond to equity markets. Well then what was the Bullard Put in October, 2014? Mere coincidence? Sorry, that doesn’t pass the sniff test.
Why would “somebody” engineer a mini-crash and send volatility to “the world is ending” levels? There are a couple of possibilities.
1. The Shock Doctrine. Naomi Klein’s landmark study of how manufactured crises are used to justify further consolidation of power, The Shock Doctrine: The Rise of Disaster Capitalism, provides a blueprint for how financial crises set the stage for policies that extend the power of central and private banks and various state-private sector players.
A soaring VIX and sudden crash certainly softens up the system for the next policy squeeze.
2. A “crash” engineered to set up a buying opportunity for insiders. When easy gains get scarce, what better way to skim a quick 10% than engineer a “crash,” scoop up shares dumped by panicked punters and momo-following HFT bots spooked by “the world is ending” VIX spike, and then reverse the “crash” with another round of happy talk?
3. Settling conflicts within the Deep State. I have covered the Deep State for years, in a variety of contexts–for example:
Is the Deep State Fracturing into Disunity? (March 14, 2014)
The Dollar and the Deep State (February 24, 2014)
Surplus Repression and the Self-Defeating Deep State (May 26, 2015)
Without going into details that deserve a separate essay, we can speculate that key power centers with the Deep State have profoundly different views about Imperial priorities.
One nexus of power engineers a trumped-up financial crisis (i.e. a convenient “crash”) to force the hand of opposing power centers. As I have speculated here before, the rising U.S. dollar is anathema to Wall Street and its apparatchiks, while a rising USD is the cat’s meow to those with a longer and more strategic view of dollar hegemony.
Take your pick–here’s three good reasons to engineer a “crash” that benefits the few at the expense of the many.
Of course it’s engineered. I distinctly remember having on CNBC in early 2009 when Obama came on TV and was asked some question about the stock market. He said “it’s a great time to buy stocks” with his patented sneer. That call was made about a week before the ultimate bottom. Now, do you think Obama is just such a fucking smart guy and market analyst that he could make such a good call? Of course not. What he did know (that you and I didn’t) was that the Fed and Treasury were about to embark on a multi-year, multi-trillion $ monetary expansion never seen in the history of the world. Dimon knew. Blankfein knew. Buffett knew. Sorry your phone didn’t ring. To think that the same cast of assholes doesn’t know exactly when the easy money support ends and to what extent is just fucking stupid, or naïve at best.
How else could they clean the muppet’s accounts out? And to think some people get two years in prison for stealing food while these criminals get a bonus.
Who, other than the HF Traders, gains in a crash? The HFT guys make bank frontrunning the market swings, but the corporate execs, who have their compensation packages tied to stock price, sure as hell don’t want any stock price crashes.
And, it doesn’t make much sense to blame the fall of the US stock market on the fall of China’s, unless, of course, they are tied together algorithmically (like the 5/6/10 flash crash, that took down every stock market in the western hemisphere). And China ain’t destitute. It can go a long way in lowering rates, compared to the US. The Fed’s sticking with ZIRP, with no way to move rates down, whereas China is at 4.6% with plenty of room to lower rates further. Even if China’s GDP sinks to 5%, it still beats the hell out of US GDP.
Then there’s all the commotion about a 2% yuan devaluation, but what’s that compared the crazy devaluations of our other trading partners, like Mexico and Canada. Hell, the loonie is down 26% for the year.
So what took the Chinese stock market down so far? Perhaps “so far” is in the eye of the beholder, because the Shanghai index is still 800 points higher than it was a year ago. Some pundits are saying that the Chinese crash had a lot to do with the Central Government’s serious crackdown on corruption. Maybe the corrupt wealthy Chinese are just taking their chips of the table. The US stock markets have nothing to worry about when it comes to a government crackdown on corruption, especially when US Presidents appoint the most corrupt CEOs (like Ruben and Paulson), to run the US Treasury (fox guarding henhouse). Also, while China’s government has been pouring trillions into infrastructure, the US Government, led by the likes of Ruben, Paulson, Geithner and Summers, poured trillions of dollars into the oligarch banks. Which policy ultimately is better of the Main Street economy? The answer is obvious.
The US stock market has to crash, we just don’t know when. When even a company like Apple, which everybody thinks is rock solid, is on its way to borrowing $130 billion, to buy back its own stock and to pay dividends, one could wonder if Apple’s cash claim of $178 billion (held offshore) is any more real than the US Treasury’s claim of $11 billion in gold held somewhere in deep, deep storage. So if even Apple is leveraging up, than what publicly traded US corporation isn’t? Sooner or later, China or no China, the US stock market and its highly leveraged shell corps are going down.
Disagree.
What is the old saw? “Never ascribe to viciousness that which as easily be ascribed to stupidity?”
This is all a complex system, and it obeys the dictates of no one (or no group of no one’s.) Ruling elites come and go. Riches can turn to rags and ruin.
Yes, someone with $500,000,000 who loses 90% is still fabulously wealthy, but the truth is that there are two groups of people with the most to lose in years ahead:
– The Rich.
– People counting on pensions (public, private, etc.)
(A third group, people counting on their savings, could be construed as similarly vulnerable.)
There will always be a High, a Middle and a Low. The same PEOPLE, however, will not always occupy the High. The same people will, in all likelihood, always occupy the Low however.
“The Rich” include corporations claiming “cash” hoards. All that “cash” is in fact, a pile a IOU’s. And the real wealth destruction in coming years will not be from a stock market crash.
The bond market is far larger, and forms far more of the collective illusion of wealth that underpins everything we know and (falsely) assume is permanent.
DC Sunsets say “This is all a complex system, and it obeys the dictates of no one”
100 million is made with HFT in the blink of an eye, is that nasty little component just part of the complex system that obeys the dictates of no one? Right.
@dc.sunsets “ruling elites come and go” Normally I agree with you, but not on this one. I tried to think of a single “ruling elite” either in politics or high profile business who has *personally* been bankrupted/shamed/run out of Dodge so to speak and came up blank. Oh sure, they’ve bankrupted plenty of companies, but their bank accounts barely caught a sniffle. Even that assbag Madoff’s family, who should all be out on the street, got to keep their fancy homes and toys because “they had no idea.” Yeah, right. Sorry, but I think your ideal of capitalistic justice just doesn’t apply anymore… at least to the oligarchs.
Agree completely with DC…it is folly to believe that ANYONE can control so complex a system. People with huge amounts of money and influence can steer or at least influence the system for a little while—like ruddering a massive ship. They cannot, however control the sea…and they cannot stop the massive tsunami heading our way.
And they don’t fix the LIBOR or manipulate the price of Gold either. Good cops and Unicorns.
dc,
The coming system that will develop will be a similar social and economic structure to the old feudal system.
The Kings and Queens, the Nobility, the merchants and tradesmen that service them, and the rest of the people (who will be the overwhelming majority of us).
The Feudal structure has pretty much been the norm for most of history with a few notable short term alternatives to it appearing once in a while.
Anon- Interesting that you post about the future system of Kings, Queens and the Nobility. It is no secret that TPTB have decided to return the world to a system of monarchy with ruling Kings and Queens. Sounds positively dreadful to me as I find Brit royalty to be putrid and sickening. Can’t imagine having to endure that here in the USA!USA!USA!.
Here’s some deja vu from the pump-n-dump experts of the 2008 housing bubble crash. Once again, Robert Toll returns to form. He’s probably dumping the hell out of his stock as he did 8 years ago:
“Toll Brothers’ income slips as homebuilders predict brighter future
Economist cites “robust demand”
Luxury homebuilder Toll Brothers posted third-quarter net income of $66.7 million, down compared to net income of $97.7 million last year. However, Robert Toll, executive chairman, noted that the company is encouraged by recent positive reports.”
Walk the Market Higher, Slowly and Deliberately, and Then?
Yesterday we saw a furious rally in the morning that failed, and badly.
Today the bulls and their backers in various moneyed quarters were a little smarter. They gather themselves together, stabilized the market at a sustainable bottom, and then slowly and deliberately walked it up into the close.
This should give a little cheer to the rest of the world, and hopefully we will see some more stability especially in the Asian markets.
Nothing has changed, really. This is all perception and cosmetics.
Not one thing has changed. Nothing. This was only a taste of things to come if nothing really changes.
There is not an ounce of will to reform anything in New York and Washington. What we saw this week was the pigs getting frightened that they were losing control, and especially losing ready access to their personal feedbags.
The worst thing that these jokers can do now is get overconfident and greedy, and run the markets back up, trying to achieve the former high so they can get their dopey rate increase out in September or October. I would not put this past them since for the most part they are fluff and stuff, lacking all wisdom and proportion.
If they do this, and if the market falters and begins a slight downward again, the risks to the economy are unimaginable to most. But they are especially unimaginable to these myopic, puffed-up, bureaucrats at the Banks, and the indentured servants of Big Money in Washington.
Jesse
“What If The “Crash” Is As Rigged As Everything Else?”
Not sure why but about 1:00am I was surfin’ the webz and this was the exact thought that popped into my head. Seems a bit too controlled to me. It would also give yellen the perfect excuse to not raise rates (as if they were ever going to) and it sets up an opportunity for MOAR QE or moar evil plans.
Of course it’s fucking manipulated! Is it 100% under control? No. Can they control the actual real economy? No. Can they manipulate it enough to make shit loads of money and cause lots of pain for regular folk? Yes. To think otherwise is naive.
Really big money is made on fast and violent moves. It doesn’t matter if it’s up or down. Down is actually better because it happens much faster.
The last week or so was a traders dream. If you knew of this violent downside before it happened you made out like a bandit by shorting or buying puts in leveraged ETF’s, for just one example.
Can a crash be engineered? Everybody who ever saw a level II quote screen when bids get pulled can answer that question. It is like the floor breaking under your feet.
My guess is that one of the purposes of this event was to arraign gold which threatened to break out just last week. The gold stocks really were taken behind the wood shed.
Gold can’t be allowed to rise during a crisis. They let that one slip the last time in the seventies. They are not making this mistake again this time.