World Stocks Slide On Crappy Economic News!!!

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This was the 2nd day in a row.  First it was China, their slowing GDP and contracting factory index, today, it was bad news from other emerging markets …. sharp drops emerging markets including Argentina, Turkey, Russia and South Africa.

Oh, yeh, and also rumors of another announced reduction in the QE of the Fed.

You can read more here and here.

Personally, I think it has much more to do with the QE than anything else.  No one really cares about Argentina, or that Turkey’s currency is crashing. Russia and South Africa will be fine in the short term and most likely in the long term.  What we’re seeing is a withdrawal of money from the speculative markets.  If there’s enough capital, you will always see money go to more risky ventures.  Adding more risks only adds to greater potential payout.  It’s the dreaded thought that our Fed will quit printing money is what has people scared.  Now it is, more risk, and less capital to risk it with.  But, that’s just me. 

In visions of past absurdities, we see Greece and the troika are still arguing over terms of Greece’s capitulation from being a free state.  No, no, market lemmings, there’s no reason to panic.  Greece will continue to whine, and the troika will continue to support this failed economy. 

Will the slide in the markets continue?  I doubt it.  If it does continue for a few days, there’s no way the Fed will cut their QE further.  Likely, what they would do is pump more than their announced QE, as they did in the past. 

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31 Responses to World Stocks Slide On Crappy Economic News!!!

  1. Latitude says:

    I’m sure you heard my head explode…

  2. DirkH says:

    Turkey slide is cause of fast capital withdrawal; just like the Rupee dropped last time there was talk of a taper. So yes, Turkey is a symptom, not an independent cause.

    In other news:
    All we are saying, is give Benz a chance!

    http://www.breitbart.com/Big-Peace/2014/01/24/Thai-protesters-create-Mercedes-logo-instead-of-peace-symbol

  3. DirkH says:

    Townhall copies an AP piece. AP must be drunk or hacked. Or Townhall brings it with one day delay. Falls of S&P and DJI are 2 %, not what they claim (1.1, 1.4 %).

  4. Tom In Indy says:

    Another reason for the drop is leverage. As prices fall, speculators get margin calls and must sell or their their broker will sell assets in their account to cover the loss. Speculators have 3 trading days to square their position. It looks like speculators closed their positions today, so things should settle down by the end of next week, unless something unexpected happens.

    Margin trading will also become more expensive as interest rates rise, so that will take some of the momentum out of markets.

    If rates continue to rise in the U.S. then some rebalancing will occur and that’s probably what’s happening as speculators anticipate rising rates.

    • DirkH says:

      Yeah sure, this leads to an acceleration of decline day after day. If this is the start of a crash we will see a geometric increase in the daily drop. 2%, 2.5%, 3% …

      • Tom In Indy says:

        Actually it doesn’t lead to an acceleration because there is a finite amount money in margin accounts. I think that’s what you saw Friday. Most margin traders squared their positions on Friday, so they have closed their positions and the margin calls are almost over. Maybe a few more the first part of next week, then the buyers will come back in.

        Institutional investors control the market because there are not enough retail investors in the market these days. Institutional investors like pension funds, mutual funds, etc won’t get scared out of equities. Some rebalancing, sure, but once it settles down they will be back in.

  5. DirkH says:

    TONER!
    TONER!
    TONER!

    TONER TONER TONER

  6. philjourdan says:

    It may not be something the fed can control. We already know the smart money got out. Now it just may be the big money.

  7. Martin C says:

    Oh, just to be a ‘contrarian’, I look for a ‘mini-dead-cat bounce’ on Monday, maybe even following to Tuesday, to make it look like ‘the worst has passed’.

    . Then SOME news, like maybe something on China, or the Davos meeting, or who knows what, will then be used to ‘rattle’ the markets again.

    I am GUESSING ( . .note that word . .) that an overall pullback of 10-15% is in store over the next couple of weeks. THEN, the start of the Winter Olympics will make people feel OK again . . .

    . .Well, Why NOT . .. ? ? ? Can’t I dream just a bit . . .! :-) :-)

    • DirkH says:

      I stick with my prediction: Accelerating avalanche of selling; increasing daily drops; then, the Fed steps in with the Untapir; mumbles something about extraordinary circumstances, declares a temporary doubling of QE, which will of course become permanent as extraordinary circumstances refuse to go away. The end.

      • philjourdan says:

        I have learned not to bet against you. My gut says this is just a correction, and not a major sell off. All that fed money is still sitting there and idle money earns nothing.

        • DirkH says:

          The banks loaded up on it (half of it went to EU banks, saving them from collapse); leveraged it up with fractional reserve banking money creation, and drove up stock market valuation 50fold.
          It’s a loaded spring that snaps back now.

        • philjourdan says:

          It will snap back, and they did load it up. But they could not unload it as no one is borrowing. So it went into stocks. But I do not see it exiting stocks any time soon, that is why I see a correction, not a free fall. But then like i said, I do not bet against you either.

      • cdquarles says:

        We shall see, Dirk, but I’m going to agree with you. This January is not going to be the typical up/neutral January. This one’s going to be more like September/Octobers past.

        • Tom In Indy says:

          Dirk,

          The fractional reserve banking system didn’t react the way you claim. Step 1 of a fractional reserve expansion is a loan. Most of the FED QE went into excess reserves. That means it’s just sitting at the FED waiting for the banks to use it. Compare M2 to excess reserves and you can see that the bulk of the money never made it to into the economy.

          In my mind, the biggest threat to the global economy is debt in the developing world. Notice how speculators cashed in some of their gains from foreign markets this past week. They take profit in the foreign currency then sell the foreign currency for dollars, (or their home currency) putting downward pressure on foreign countries currencies. If they borrowed in dollars, it now takes more units of foreign currency to buy a dollar, so the loan balance in increasing in terms of their home currency. This is exactly what happened during the Asian Contagion in 1997. For example, South Korea ran through nearly $60 billion of reserves before abandoning their currency peg, letting their currency adjust to market forces, and effectively bankrupting any corporation or government agency that had ‘too much’ dollar denominated debt. Same for Mexico, and several Asian countries.

          So…the bottom line is that if speculators continue to cash out their foreign holdings, any foreign country with too much debt denominated in dollars will face the threat of sovereign and corporate defaults.

        • philjourdan says:

          Tom, the fact that most of the QE went into reserves instead of the economy is the reason we do not have runaway inflation. But it does show that the Fed has shot is wad. It is basically powerless to do any more.

        • DirkH says:

          Tom In Indy says:
          January 25, 2014 at 2:19 pm
          “Dirk,
          The fractional reserve banking system didn’t react the way you claim. Step 1 of a fractional reserve expansion is a loan. Most of the FED QE went into excess reserves. That means it’s just sitting at the FED waiting for the banks to use it. Compare M2 to excess reserves and you can see that the bulk of the money never made it to into the economy.”

          Your argument essentially says, QE had no effect. This does not only sound ludicrous, it is.

          Giving fresh money to banks in exchange for crappy loans (T-bills, Greek bonds) helps them fullfill reserve requirements, recapitalizes their otherwise wiped out capital, and therefore enables them to leverage themselves up via margin credit (which equals fractional reserve banking money from nothing).

          Banks are speculators themselves. Without QE, especially several European banks would hang from tree branches now.

          So QE enabled them to drive up stock market valuations; and without QE, they wouldn’t have been able to do so.

        • philjourdan says:

          I do not think Tom said it had/has NO effect, only that it is not having the desired effect (which is actually good). Some of the QE did bleed into the economy. But most did not since no one was borrowing.

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