“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds
“In February 1720 an edict was published, which, instead of restoring the credit of the paper, as was intended, destroyed it irrecoverably, and drove the country to the very brink of revolution…”
Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds
“In reading The History of Nations, we find that, like individuals, they have their whims and their peculiarities, their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”
Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds
“Nations, like individuals, cannot become desperate gamblers with impunity. Punishment is sure to overtake them sooner or later.”
Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds
“It happens that crashes and panics often are precipitated by the revelation of some misfeasance, malfeasance, or malversation (the corruption of officials) engendered during the mania. It seems clear from the historical record that swindles are a response to the greedy appetite for wealth stimulated by the boom. And as the monetary system gets stretched, institutions lose liquidity, and unsuccessful swindles are about to be revealed, the temptation to take the money and run becomes virtually irresistible.”
Charles Kindleberger
Everything Breaks Again: Futures Tumble; Peripheral Yields Soar, Greek Bonds Crater
Submitted by Tyler Durden on 10/16/2014 06:28 -0400
Yesterday afternoon’s “recovery” has come and gone, because just like that, in a matter of minutes, stuff just broke once again courtsy of a USDJPY which has been a one way liquidation street since hitting 106.30 just before Europe open to 105.6 as of this writing:
U.S. 10-YEAR TREASURY YIELD DROPS 15 BASIS POINTS TO 1.99%
S&P FUTURES PLUNGE 23PTS, OR 1.2%, AS EU STOCKS DROP 2.54%
This comes after futures actually were briefly green for the session earlier in the morning. The catalyst this time, however, is not some US fund liquidating or repositioning or new Ebola pandemic news, but all Europe:
GERMAN 10-YEAR BUND YIELD DROPS TO RECORD LOW 0.715%
Only this time Europe is once again broken with periphery yields exploding, after Spain earlier failed to sell the maximum target of €3.5 billion in bonds, instead unloading only €3.2 billion, and leading to this:
PORTUGAL 10-YR BONDS EXTEND DROP; YIELD CLIMBS 30 BPS TO 3.58%
IRISH 10-YEAR BONDS EXTEND DECLINE; YIELD RISES 20 BPS TO 1.90%
SPANISH 10-YEAR BONDS EXTEND DROP; YIELD JUMPS 29 BPS TO 2.40%
And the punchline, as usual, is Greece, whose 10 Year is now wider by over 1% on the session(!), to just about 9%.
One-handed golf clap to all those who used other people’s money to buy those Greek 5 Year bonds a few months ago.
In short, Europe is a sea of red, only unlike before when the bid for safety was peripheral bonds, this time the puking is also sending the periphery crashing, something we last saw just before Draghi’s “whatever it takes” speech, which means that the market has finally called the ECB’s bluff and demands that after 2 years of jawboning, that the ECB actually put the printer where its mouth is. Good luck with that.
Let’s not forget that oil is also still sliding and we have yet to see some major macro fund liquidate as a result of commodity margin calls. The wait will hardly be too long at this point.
Oh, and we forgot to mention that today Dallas well announce State of Disaster (aka martial law lite) and activate an emergency plan over its third Ebola case. So all those BTFD, best of luck to you too.
Bulletin Headline Summary
European equities only see short-lived relief at the open as Greek market rot spreads to the Eurozone core, pushing German 10yr yields to – yet again – record lows.
Greek markets continue to sell-off on speculation that Greece’s early bailout exit will be less than smooth. The market turmoil also results in Spain failing to sell their targeted EUR 3.5bln in a longer-dated Bono auction
Focus turns to the slew of Fed speakers today, primarily Yellen at 1745BST/1145CDT, and earnings from Goldman Sachs, Google and Philip Morris
Treasury rally continues, 10Y trading below 2% while 30Y yield lowest since Dec. 2012 amid concern over global growth and possible economic impact of Ebola.
Investors are worried that five years since the world limped out of recession, central banks have virtually exhausted their stimulus arsenals if inflation and activity keep fading
A second Texas nurse infected with Ebola alerted U.S. health officials to her elevated temperature before flying from Cleveland to Dallas on a commercial airline
Lawmakers and health specialists say reversals and missteps mar the Obama administration’s handling of the outbreak — and fueled calls for the resignation of CDC chief Thomas Frieden, who testifies today in Congress
As airpower has failed to dislodge Islamic State fighters from the Syrian border town of Kobani or halt their offensive in Iraq, Obama’s appeals for strategic patience are being challenged by some U.S. military and intelligence officers and diplomats who say more needs to be done
It’s futile for the U.S. and its allies to “blackmail” Russia over the Ukraine crisis, Putin said in a newspaper interview; also accused Obama of adopting a “hostile” approach in naming Russia as a threat to the world
The ECB agreed yesterday on two acts that officially establish its covered-bond program and lay out how it will be implemented, according to two euro-area officials, who asked not to be identified because the discussions aren’t public
Hong Kong Chief Executive Leung Chun-ying said his government is ready to meet student leaders next week to discuss the city’s first leadership election as he seeks to end three weeks of pro-democracy protests
EU peripheral yields surge, with Greek 10Y over 8.00%. Asian stocks fall, Nikkei -2.2%, Shanghai -0.7%. European stocks, U.S. equity-index futures fall. Brent crude falls to four-year low; copper falls, gold little changed
MSM, Politicians, and Fed Reserve
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Human beings are part individual, part collective organisms, like tree/forest, cow/herd, coral/reef.
I’m amazed that aside from a few books like Mackay’s masterpiece, Spengler’s Decline of the West and Yockey’s Imperium that so few people have ever tackled the subject. Individual behaviors are light years away from collective ones.
The True Believer- Eric Hoffer. It’s the study of mass movements, I’ve mentioned it before and reading it now would be very timely.
Thanks for the others HS, will check them out.
The contrarian view has served many of us well.
EF
Don’t forget “Escape from Freedom” by Erich Fromm.
A book purporting to study this condition (herd behavior) scientifically is Robert Prechter’s “Wave Principle of Human Social Behavior.”
I have an autographed copy, so that offers truth-in-advertizing; I think he’s very much onto something.
Bottom line: People share certain brain structures with herding animals, and so we herd in quite identifiable ways. Herding is neither rational nor irrational, it’s PRE-rational.
Herding behavior, graphed, forms an identifiable patterned fractal where the pattern repeats at all levels of observation (from minute-by-minute charts to century-by-century charts and everything in between.)
Knowing where you are in the pattern theoretically allows you to make educated guesses as to what is next. (This is the most controversial part; frankly, I cannot make it work in trading to save my life, but I’m unwilling to call it bullshit just because I can’t do it.)
Prechter in 1978 published “Elliottt Wave Principle” and called for
1) a huge bull market (despite stocks having been the death of capital for 16 years.)
2) When the bull market ran its course, he called for the largest & longest bear market since the bursting of the South Sea Bubble chronicled in Mackay’s 1841 classic.
Prechter thought 1987 was “it.” He was wrong.
He never imagined 1995 would see, not a top, but an acceleration into the greatest asset mania in recorded history.
He thought 2000 was THE top (in inflation-adjusted terms, he was right so far.)
He didn’t see the 2002-2007 rally coming, called the top in 2007 but while in March of 2009 he said the immediate bear market was over, he never indicated that we would zoom upward 300% or more.
Bottom line: We began a huge bear market in 2000.
The main indexes have hit new all time nominal highs, but not in terms of commodities, gold or inflation-adjusted dollars. It’s been a bear market all along, just very well disguised.
The disguise is likely falling off now, and a full scale Kodiak male bear, an angry one, is stepping out from under it.
I think.
Of course, I’ve been wrong before.
When it comes to markets we are no longer talking about human behavior on either the individual or crowd level because of plunge protection teams and liquidity injections set up to prevent natural swings from taking place.Throw in HFT/computers and any type of logical cyclic observations go right out the window. AI may have its own “herd” behavior, but it hasn’t been observed long enough to determine what it might be. If every last trader on earth failed to show up for work in the morning the markets would almost certainly continue to trade based on pre-set algorithms.
But what do I know.