SELL-OFF ANALYSIS: How active rigging and passive reaction make the markets your enemy

by John Ward
If you’re wondering what on Earth really happened in the stock markets earlier this week, the bad news is that nobody else knows either. Whether the answer be cynical milking of a dying Bull market, Alt State testing of investor naivety, a brief revolt by the plebs or simply indefinable SNAFU, the conclusion remains the same: we must diversify away from overdependence on the bourses as a means of revitalising social capitalism. They are not only unfit for purpose, their purpose has been very obviously perverted by greed.

JFK’s infamous father Joe Kennedy was once asked in an interview how he made all his money in the stock market during the 1920s. “Well,” said the old bootlegger, “I watched what all the saps were doing, and then did the opposite”. Joe Sr was being a little sparing with the Truth on that one – he was also a serial inside trader. But later, many witnesses did attest to his amazing ability to grasp when the herding instinct had taken over. Above all, he was a contrarian with total belief in himself.
Last Monday’s abrupt “correction” across the globe demonstrated a number of old truths, and some very disturbing new ones. But perhaps what it showed more than anything   – and this trend is most marked in the US and London – is that the overwhelming majority of investors, traders and rate chasers are passive followers using the protection of various insurance policies – hedges, ETFs, the Vix and so forth – to help play things as safely as they can.
There are also nowhere near as many of them as there used to be back in the old days, when a steady nerve and some footslogging research really could unearth a gem. I have been banging on now for over three years about low volumes in the markets since 2008, but by mid Tuesday this week, we were all given a salutary lesson in the maths of it all.
In 2018, there are four tribes engaged in the markets: algorhythmics (banking firms with at least some Alt State input), Very Big Manipulators (huge business sectors or central banks who need high or low prices to function), professional fund managers, and traders pro or pro-am.
The last group represents the largest people volume, and they spend 90% of their time reacting passively via insurance products to what the algorhythm directions are. They usually (and wisely) steer clear of VBMs. Fund managers sometimes twig what the VBMs are doing (in the oil sector, it’s brazenly obvious) but mainly they still “take positions” based on interpretations of data. However, if the power, speed and persuasive force of SOL [speed of light] algorhythmic trades outgun their positions, they not surprisingly remove themselves from the path of the rampaging dam waters.
While there is still some genuine fund manager talent really earning their vast client fees, the quick summation of today’s stock markets is rigged and reactive. Algorhytmics and VBMs call 80-90% of the shots, and they do so for variously political, diplomatic, geopolitical, Sovereign currency, share price, military but always venal reasons that have nothing whatsoever to do with what’s actually happening on the ground in the economy.
In following that course, élites do not render the Little People at the bottom of the food chain saps: it’s just that in the 21st century, the adage “don’t fight the Fed” has moved on to “don’t fight the computers”. This is what I call Stealth Bomber Wisdom: there is no point in trying to shoot it down, because it’s flying faster than your rockets…and by the time you see it, you have 1 second to live.
After one truly mind-screwing experience as the MD of a plc in the 1980s, I became  a radical critic of all forms of remote shareholding, on the grounds that distant investors in a company don’t give a crap about the talent of your workforce or the quality of your product: they only want the right numbers at the right time to keep their clients happy. Worse still, they were employing so-called analysts who were woefully ill-informed about your market.
Today, the case against the bourse system of raising capital is infinitely more compelling. If the needs of central bankers are urgent, then suddenly valueless bear notes will dilute your net worth via the fraudulent scam called QE. If that cleverly designed short on crude gets whistled up by a Texas in need of sixty bucks a barrel, it’s bye-bye boulah. If cynical Brussels negotiators want to scare the Brits with a strong euro, buying forward in the expectation of a justifiably limp euro will knacker your living standards.
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But that’s just the rigged side of it: the growing passive-reactive element may sound safe, but in actual fact it represents a twin danger. On the one hand, thoughtless copycat trend-following is inherently stupid, and based on the premise “Eat excrement, ten trillion flies can’t be wrong”: what’s good for the 3% is almost certainly not good for the rest of us. On the other, while it is very easy for the chaps who own the levers to control initial directionalising, high trading volumes in the future (wherein passives are automatically (as in robotically) reacting to The Message from on High) does not guarantee the right message being transmitted. As the old gag has it, three and fourpence is not much good when one needs reinforcements.
The spin broadcast on the business media over the last 72 hours will only exacerbate the bewildering complication by exploiting the naivety of relative Youth. You have to be around 45-50 years old at least today to remember Black Friday in the late 1980s, when 25% of global stock values disappeared into the ether in 36 hours. The balm after the storm right now is “the market corrected and then controlled itself, thus showing that its regulatory and insurance tools are ticking over nicely”. Humbug: the market gave up 100% of its 2018 gains in under 24 hours.
The trick being introduced into the poker game here is the catastrophically dangerous idea that a few twisted minds suffering from tertiary frontal lobe syndrome represent a large unsinkable metal passenger liner that can be driven at 30 knots through a dense crowd of icebergs. This is fool’s gold and false confidence: it’s bad enough that the Fed has been sanctifying high-risk investment strategies for years. To now suggest to millennial woodentops that more of the same will produce risk-free investment is inviting the crash of all crashes.
Which, in some respects, is exactly what some of the more deranged neoliberal globalists want: a massive reset that turns every one of them into Jay Gatsby, and the rest of us into serfs. But that’s another topic for another Doomsday.
Suffice to observe in the meantime that, if the market mechanisms are all working so evidently well, why have I been able to audit seventeen wildly different “explanations” since Monday of what happened?
I’ve been out of the markets since 2014. And yes, I know you all think I’m mad, but consider:
  • Rate rise outlooks may have been knocked back by this “event”, but Zirp will in the end become a thing of the past. While that process is developing, my ringfenced pension cash-at-bank will begin to attract a steady 3% per annum – better than nothing.
  • The real global bourse overvaluation that has been filling the magma since 2010 will – when Old Smokey finally blows – take share valuations back to at least 2003, and quite possibly 1994. I will be quite happy to buy back into the stock market at the 2003 level.

If, that is, there is a functioning global financial system on the other side of Krakatoa. (Which, at least this time around, I think there will be). In the meantime, the fundamentals that are being ignored by the Masters of the Inverted Universe remain elephants with an IBS problem in the room: they have not gone away. So it would do no harm to speak Truth unto Shower*.
For the last twelve years, we – as in, the ordinary citizen ‘we’ – have been suffering under a sextratic equation that steadfastly refuses to vapourise. The six elements in the equation are QE, Zirp, Bond yields, Stocks, Commodities and Gold. It’s not easy to write the equation, because the Alt State keeps on moving the goalposts and – when that doesn’t do it – redefining the nature of the game. You thought inflation was bad, well then it was good but now it’s bad again. You thought State bailouts were bad, but then they were essential and now they’re called bailins. You thought deficit economics were spawn of the Devil, but now they’ve been rendered harmless by Zirp, however when rates rise it’s all change here for the Circular Line.
What last Monday showed was just how inflexible the monetarist equation is. In effect, it is a prison….in exactly the same way that e = mc² is a certainty that traps us in our 3D Universe.
It works like this:
Interest rates are low and we’re manipulating the gold market, so go for stocks or starve.
Our QE plan (using your money) will ensure you’re safe in stocks.
When we taper off QE and move away from Zirp, new growth will keep you safe in stocks.
Don’t be tempted to buy the commodities dip, because we’ll lie and manipulate to close that exit route too.
Don’t panic when stocks wobble and Bond yields rise, because we’ll stage a correction that shows corrections are never apocalyptic any more, and print money to buy our own Bonds, thus reducing the yields again, so f**k you.
Then you can buy the dip again….hurrah!
But it can’t, and won’t, work forever. Too little QE slows down growth, too many rate rises cripple Third World Dollar denominated debt and make stock markets nervous.
Already since Monday, the gobby Fed and its five 2018 rate rises are down to three, probably two as the New Normal.
Neither the Fed nor the ECB can control Bond spikes in the eurozone, where Mario Draghi has as good as admitted that he cannot exit the QE/Zirp péage for the foreseeable future. The very Fed that has encouraged risk will find itself unable to stem the tide of those funds working for Baby Boomers looking for higher returns.
Ergo, lack of growth will take funds out of stocks – and Bond yields will rise again. Higher rates and falling valuations will force traders to make margin calls, and further accelerate the fall.
And in the end it will all come back round again to the elephant herd in the understairs toilet: credit.
Today, nobody on the bourses lives in today: they live in expectation of a better tomorrow. Credit takes the waiting out of wanting. But when falling markets and rising rates turn tomorrow into a nightmare, credit waits for no man.

Very few people ‘know’ what happened earlier this week. As I posted two days ago, for myself I see the event as an awareness raiser – although that probably wasn’t what those behind it had in mind.
There is a school of thought that thinks the drones revolted for a while but were swiftly put down by the Queens.
There’s another academy quite certain that this was a dry run ‘test market’ to check that all controls in the cockpit were functioning normally.
And there is yet a third educational institution convinced that the algorhythmics were sending yet another warning to the dying political Establishment: “Don’t mess with our plan to milk this flaccid old cow, or we will destroy you”.
You pays your money and you takes your pick. I honestly do not know. The only thing I do know is that, as the sole means available to raise capital for regenerative, creative capitalism beyond financialised fantasy, Bourse Capitalism sucks.

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