Blain: “Here’s Why This Gets Worse Before It Gets Better”

Friday, February 9, 2018
By Paul Martin

by Bill Blain of Mint Partners
Fri, 02/09/2018

Wobble continues. Does a Correction morph into a Crash?

“They would never evolve. They shouldn’t have survived.…. Evolution was something that happened to other species..”

Not looking like a positive morning out there. Stocks are down 10% – so officially it’s a correction! Markets are still wobbling. Folk who thought they’d survived Monday’s carnage intact are new beginning to wonder if they should press the panic-button, or pull the dump-lever just in case this gets worse and liquidity dries up. The US has managed to shut itself down again. Our best hope at the Winter Olympics has broken her heel. If this all feels sickeningly familiar – Welcome to 2008 Part 2. Market wobbles, you heave a sigh of relief, and then it pukes massively all over you.

Early this morning it was raining. A storm is coming. And I must have dropped my wallet after paying for a Taxi early this morning.

My gut feel – based on active participation in every single market Donnybrook/Stamash since 1987 – is this gets worse before it gets better. And that’s a good thing – because this is when the great opportunities present themselves!! Cry Havoc and unleash the brokers…

But first we need to talk about my wallet. I appreciate most of you are more concerned with markets than my wallet, but does Life care? Losing my wallet is probably far less worse than will happen to most folk. Yet, its illustrative of something: I called my Amex card to cancel. Lots of help, new card with me early next week. Called my bank. Lots of unhelpful questions and the impression I was the 10 thousandth idiot to a lost my wallet this morning. Sympathy? Look for it in a dictionary is the best advice. New card after 6 business days? Perhaps. Asked if I can get some money out from the branch to buy me a train ticket back home tonight, and they said not unless I’ve got photo id – which is problematical as my driving licence was in the wallet. Any alternatives? Nope.. computer says no. I really must move my accounts from the Bank of Vogon.

The lesson? Don’t assume anyone will help you out. (We will!)

Dealing with the Bank of Vogon parallels what’s going to happen when the liquidity crunch hits. As folk wake up to the reality that credit spreads are ridiculously right and don’t reflect risk, that yield tourists don’t have a breeze on the risks they’ve been buying, and start considering exits, the proverbial bubble will burst. While the New York Stock Exchange has 27 entries, but only one proverbial exit, I fear many ETFs and other Passive strategies may have even fewer…

Modern life is particularly painful when it comes to markets. You can never be sure if its doom and gloom, or bloom and zoom. (Wow, that’s good.. I must patent the line..) It would be nice to think the current renewed tremblors are simply due to the weight of short-vol strategies still being unwound – but you just can’t be sure. In a rational market, that might explain what’s roiling sentiment today, and will continue to do so for next few days if not weeks. JP Morgan analysts say there is a $200 bln short-vol stock dump unwind occurring. The algos and AI’s are learning – and it surprises me how predictable yesterday’s slide into the close was.

The Rest…HERE

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