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DrStool

Meeting Margin Calls - 3/17/20

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FxFox asked what's the money being used for. Seems to me that its being used to meet margin calls as collateral values collapse.  

I said to Lindsay Williams a week ago Monday in that podcast that there were dead bodies. They just hadn't floated to the surface yet. I also said that the dead had taken their banks with them. 

I now think that the entire system is not just illiquid but insolvent. There's nothing the Fed can do. It will become the banking system. As far as I can tell the only way through this is for the collapse to run its course leading to depression. And I think that with all this massive money printing that it will be a hyperinflationary depression. If I'm right, gold and commodities will turn around first.

If they don't, then it will be a deflationary depression, with the central bank ending up owning everything, with very few productive assets. Everything will be worthless. 

 

 

 
 

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Policy makers are clueless that Covid19 is not the cause of the crisis. It's just the catalyst that triggered the end of the 25 year credit bubble that was inevitable anyway. Had not the system been at the maximum fragility as a result of blowing the bubble to its actual limit, this crash would not have happened. Covid19 would have been a blip in the big scheme of things. 

No. This crash is the end of bubble dynamics. It changes the way all of us think about the world.

And the first people to wake up to the change and react to it were the first leveraged long traders who started selling way back in September when repo funding rates went through the roof. 

Then gradually more of the smart guys caught on. The trickle of selling became a wave, and the wave became a tsunami. 

Collapsing asset values now destroy money faster than the Fed can replace it. Absolutely nobody wants credit for speculation any more. All they want to do  now is liquididate and deleverage.

The Old Time religion is coming home after Greenspan and Bernanke kicked it out into the wilderness. They allowed, promoted, and enabled moral hazard to grow far beyond anything the normal human mind could imagine. 

Finally in September we hit the limit. The system was no longer able to support the growth of the game. Everybody was margined to the hilt. And people started to go in reverse. 

There's no turning back now.  The big leveraged players who drove this have been destroyed. They are no more than smouldering piles of ash now. The smart money that got out first will now sit and wait, but there is too little to restart the game. We'll all be dead and gone for decades when the next game comes.  

After this, people will be risk averse for two generations. There's a playbook for this. It's called the 1929 Crash and the Great Depression. 

The tsunami will recede in a few weeks, and the destruction left behind will be generational. 

 

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The dreaded triple bottom in the fucutures. 

Do triple bottoms hold? 

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Well your in Zagreb for a month or two now Lee.  I'm agnostic on your conclusion but no matter how bad it gets it is surely going to play out over months. I hope. I was not kidding a couple of weeks ago about thinking hard about your location in Europe. You know that if your scenario plays out that at some point the electronic money transfer system will break down. Yikes. That was not part of my caution but you can certainly imagine where that would put  you which would make Del Boca Vista seem pretty good. 

 

 

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35 minutes ago, DrStool said:

Policy makers are clueless that Covid19 is not the cause of the crisis. It's just the catalyst that triggered the end of the 25 year credit bubble that was inevitable any way.

 

Absolutely.  A great post, Doc.

 

Just as well this virus is not Ebola or similar .. next one will be more serious, this one is just a practice run.

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Catching a train after it left the station. 

I was late in recognizing the tradeability of this crash, but on March 2, I decided to try to get on. The market was setting up a little rally and my screens found a stock that hadn't yet broken shport. It was CME. WIth the stock having closed at 199 on Friday, I recommended that it be shorted at a limit of 210. It got there on Tuesday March 3 and ran up to test the high. It held. 

The stock closed yesterday at 148.54. 

See how easy it is. 

 

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Just now, aussiebear said:

Absolutely.  A great post, Doc.

 

Just as well this virus is not Ebola or similar .. next one will be more serious, this one is just a practice run.

Deadly viruses burn out quickly because they kill all victims within a few weeks. They can be contained. Covid is tougher because about 20% of those who contract it are asymptomatic. They walk around not feeling sick, but infecting people. Some of those people die. That is what makes this challenge so difficult. 

The WHO makes the point that the only way to stop this is through massive testing and isolation. Identify everyone carrying the virus and isolate them. 

Smaller countries who are prepared for testing can get close to this goal. The US cannot. The lack of preparadness in the US means that it will ultimately be the worst afflicted. Ebola never made it to the US. COVID19 will kill countless Americans, but worse, will shut down the US economy and cause some to starve because the only tool the US has is social isolation, and many people won't comply. 

I thought that this thing had been overhyped. Now I don't think so.

It's bad. 

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7 minutes ago, Jorma said:

Well your in Zagreb for a month or two now Lee.  I'm agnostic on your conclusion but no matter how bad it gets it is surely going to play out over months. I hope. I was not kidding a couple of weeks ago about thinking hard about your location in Europe. You know that if your scenario plays out that at some point the electronic money transfer system will break down. Yikes. That was not part of my caution but you can certainly imagine where that would put  you which would make Del Boca Vista seem pretty good. 

 

 

I agree that EMT will be hindered and may stop for a time, but ultimately it will be there to a reduced extent. The greater question may be, what will it be worth.  

I have no intention of returning to the US early, and may even delay my return significantly. I think the US may ultimately be the worst affected country for the reasons I cited above. 

I have developed a network of Eastern European babushka widows of high Russian military officers who will care for me if worse comes to worse. 

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So far, Croatia seems to be faring better than other countries nearby. Life is still relatively normal here. The number of known cases is still less than 100 in a country of 4.5 million.

There are a handful of cases here in Zagreb. Foreigners who entered the country in the last 2 weeks have been ordered to self quarantine for 2 weeks.

Businesses remain open, but the usually bustling bars, cafes, and restaurants are completely dead. 

I take a walk daily, and go to the supermarket, but I stopped going to restaurants 10 days ago. 

I love this neighborhood. It's one of the best I have ever stayed in. So I'm quite content to be stuck here. 

https://www.instagram.com/200daysineurope/

 

My front door.

 
 
 
 
 
 
 
 
 
 
 
 
 

Home

A post shared by Lee Adler (@200daysineurope) on

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52 minutes ago, DrStool said:

Policy makers are clueless that Covid19 is not the cause of the crisis. It's just the catalyst that triggered the end of the 25 year credit bubble that was inevitable any way. Had not the system been at the maximum fragility as a result of blowing the bubble to its actual limit, this crash would not have happened. Covid19 would have been a blip in the big scheme of things. 

No. This crash is the end of bubble dynamics. It changes the way all of us think about the world.

And the first people to wake up to the change and react to it were the first leveraged long traders who started selling way back in September when repo funding rates went through the roof. 

Then gradually more of the smart guys caught on. The trickle of selling became a wave, and the wave became a tsunami. 

Collapsing asset values now destroy money faster than the Fed can replace it. Absolutely nobody wants credit for speculation any more. All they want to do  now is liquididate and deleverage.

The Old Time religion is coming home after Greenspan and Bernanke kicked it out into the wilderness. They allowed, promoted, and enabled moral hazard to grow far beyond anything the normal human mind could imagine. 

Finally in September we hit the limit. The system was no longer able to support the growth of the game. Everybody was margined to the hilt. And people started to go in reverse. 

There's no turning back now.  The big leveraged players who drove this have been destroyed. They are no more than smouldering piles of ash now. The smart money that got out first will now sit and wait, but there is too little to restart the game. We'll all be dead and gone for decades when the next game comes.  

After this, people will be risk averse for two generations. There's a playbook for this. It's called the 1929 Crash and the Great Depression. 

The tsunami will recede in a few weeks, and the destruction left behind will be generational. 

 

Doc,

this post is THE all-time masterpiece! It gives me the freakin creeps! Holy crap!

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23 minutes ago, DrStool said:


I have developed a network of Eastern European babushka widows of high Russian military officers who will care for me if worse comes to worse. 

Good to hear, I guess. I was having Stranger in a Strange land ideas and all that entails. 

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10 minutes ago, DrStool said:

 
I have developed a network of Eastern European babushka widows of high Russian military officers who will care for me if worse comes to worse. 

:lol::lol::lol:

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13 minutes ago, fxfox said:

:lol::lol::lol:

Are you on Badoo? It's quite useful in any self quarantine crisis. 

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24 minutes ago, DrStool said:

 I think the US may ultimately be the worst affected country for the reasons I cited above.

Yep, gonna be huge there imo ..

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