Bill Bonner – Bill Bonner’s Diary (United States) –
God of all ways, but only Death’s to me,
Once and again, O thou, Destroyer named,
Thou hast destroyed me, thou, my love of old!
– [In Aeschylus’ Agamemnon, Cassandra regrets ever having laid eyes on Apollo]
PORTLAW, IRELAND – At last… a genuine improvement from Washington!
In the panic after the 2008 financial crisis, Congress created the Office of Financial Research (OFR).
The idea was that this group would sound an alarm if the financial system were ever in danger.
It’s about time. Now, we have nothing to fear. The feds will tell us when it is safe to buy… and when we should run for the hills.
But what’s this?
Now, 10 years later, stocks are three times as expensive. Debt is far higher, too.
The feds alone have borrowed an additional $10 trillion. And the OFR was specifically charged with warning us about coming volatility spikes.
But here we are… And no warning.
What gives? The Wall Street Journal reports:
Almost a decade and nearly $500 million later, the agency has struggled to establish a place for itself in Washington. Major projects have been delayed or scaled back. Morale has suffered amid turf battles with other regulators and opposition from Republicans. And one of its most ambitious initiatives – developing a database for recording financial contracts – has progressed no further than a 16-page paper calling for “information gathering sessions” among constituents.
But now, the Great Disruptor, Donald J. Trump, seems to have the OFR in his sights. The Wall Street Journal again:
The OFR’s record of underachievement has made it an easy target. In November, Treasury Department officials told OFR employees that the agency’s budget would be cut by one-quarter and its staff by more than one-third.
What? Only a quarter? Why not cut the whole thing?
Patriots and Poltroons
Setting up the OFR in the first place suggests a naiveté about markets that is breathtaking.
It is so preposterous it calls out for ridicule. And euthanasia. Its director should have been given a loaded pistol a long time ago.
Really, what are those 1,000 Ph.D. economists said to be working for the Fed doing?
Wouldn’t it be reasonable to expect they might check the pressure in the boiler from time to time… and give us a s up before the whole thing explodes?
And if you could put together a team of government hacks to tell you when markets were about to blow a fuse, why not also ask them which stocks are going up… for how long… and how high?
And then, why not ask them to put you in touch with your dead grandmother?
If they really could tell when a bubble was about to burst, wouldn’t you expect that word might leak out… perhaps from the brokers handling their personal accounts? And that they might thereby let the hot air out, so that the explosion never comes?
Oh, Dear Reader… what dunder in Congress voted for such an absurd thing?
If you could see disaster coming, it would never arrive.
Bought a ticket on the Titanic?
And who would stay invested in stocks if he knew they were going down?
Oh… and that marriage… to the Vegas showgirl with expensive tastes.
Never would have happened!
There are thousands of full-time market analysts and researchers already. Plus millions of amateurs.
Every day, these people – geniuses and morons alike – study the numbers and the skies, looking for clues. Surely, if there were a storm coming, these cloud watchers would see it, wouldn’t they?
And yet, the mist rolls in… the clouds are obscured… the newspapers say unemployment is down. The Fed says a “worldwide synchronized growth spurt” is just getting under way. The president says everything is swell… “beautiful”… and getting sweller.
Surely these patriots and poltroons wouldn’t let us down?
And imagine the poor number crunchers and cloud gazers.
What are they to think?
They are human, too.
They might be looking at some pretty scary numbers. But… heck… the GOP tax cut is coming on line! And huge increases for the military ought to be good for Raytheon and GE, right?
“Hey, I’m just a GS-11 here. Am I gonna stick my neck out and tell the president that he is full of sh*t?
“Am I gonna contradict the greatest geniuses who ever lived over at the Fed? Am I gonna risk my cushy job? I’ve got my kids in St. Albans, for Pete’s sake! I’ve gotta think of my family!
“Besides, you never know about these things. Greenspan said bubbles were undetectable. Maybe he’s right. Whatever.
“And if I go public with a Bubble Alert… what do I get? Probably fired. The end of my career. Even if the thing does blow sky high, no is gonna appreciate that I warned them.
“They’ll accuse me of being ‘negative’… and an ‘alarmist.’ Harvard won’t touch me. I’ll be viewed as a crackpot.
“Cause every knows the engineers at the Fed and the Treasury can handle this job. Every knows they’re watching the incoming data –heh-heh – and that they’ll make sure there’s never a big blow-up… or a depression… or a credit crisis.
“I mean, if there’s a big bubble blow-up now, it means they’re all a bunch of incompetent poseurs, right?
“It means they were all wrong. No’s gonna wanna hear that. I’ll be treated like a leper… like a Holocaust denier… or a climate-change skeptic.
“I’ll have to get a job teaching Econ 101 at a community college. My kids will have to go to public school…
“And I’ll end up like that Greek woman who cried wolf. You know, Alessandra or something. And no believed her. And I’ll probably get raped in the temple… and then murdered by a jealous lover.
MARKET INSIGHT: WHAT THE STOCK MARKET WILL DO NEXT
By Jeff Clark, Jeff Clark’s Market Minute
When the market was in the midst of a vicious selloff the other week, I commented to my Delta Report subscribers that the technical conditions had reached oversold levels that had only occurred (to my recollection anyway) two previous times in my 35-year career in the markets.
Once was after the crash in 1987. The other time was in August 2011.
It makes sense, therefore, to go back and take a look at the market action following each of those previous two events in order to get an idea of what we may be in for this time around.
Take a look at this chart of the S&P 500 from 1987…
The S&P 500 collapsed 95 points during the 1987 crash. It took a couple of days for the market to claw its way higher and recover about 30% of the points lost.
Then the S&P fell back to retest its low. That retest was followed by another rally attempt that recovered 30% of the lost points. But the real bottom of the market didn’t happen until about six weeks later when the S&P made a slightly lower low.
Now, here’s the chart of the S&P 500 from 2011…
This time, the S&P 500 collapsed 220 points. It took about six days for a bounce to take hold and recover 30% of the points lost.
Then, the market sold off and retested the lows. That retest was followed by an even stronger bounce attempt which recovered almost 50% of the decline.
But the final bottom didn’t occur until early October – two months after the initial collapse. That’s when the S&P 500 made a slightly lower low.
The CBOE Volatility Index (VIX) stayed elevated during that entire two-month period in 2011. And, if my memory serves, the 1987 version of the VIX (which was structured differently back then) stayed quite elevated as well.
If we use these two examples as roadmaps, then we’re likely in for a six- to eight-week period of sustained volatility.
This week could be a bit rough.
– Jeff Clark
P.S. No matter which direction stocks go, my Market Minute subscribers are always up to date on the trends taking shape – and the best ways to profit from them – hours before the opening bell rings.
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