The Expected Market Crash Is On Its Way

As foreseen in the last 18 months, the market is plummeting. We can almost feel the satisfaction perspiring from the financial articles published these last few days. We can intensely feel the financial journalists or gurus restraining themselves from saying: “I told you so!” Truth be told, by dint of crying wolf we were bound to witness a financial crash.

Nonetheless, it’s nothing new under the sun of Wall Street. Once again the market reacted solely based on the communication of one of the Federal Reserve’s presidents. By the way, let me remind you that the Fed’s presidents do not all have the right to vote for or against a rate raise and but apparently those who spoke last week DO have the right to vote. However, it must be highlighted that they do not know more than we do regarding the future of the economy and that their declarations are half guestimates and half “misunderstandings that could turn out to be true.” But who knows why we “financial professionals” have this regrettable tendency to give them more credit than they deserve.

As a result, we end up with situations like last Friday’s where the VIX (volatility index) spiked by 40 percent approaching 18 percent — while during the worst periods of the last 20 years we witnessed a VIX spiking at 85 percent. The indices went out of control, even finishing under the 50-day moving average on the S&P 500 and on the Dow Jones. To put it simply, regarding the 10 chief leading sectors, not a single one ended up in the black.

It was one of those days that gave us the impression that everything was going south — a commotion caused by two “guys from the Fed” who shared their impression on interest rates, petrifying the rest of the world.

It was Eric Rosengren (the Boston Fed’s president) who first declared that the Fed “COULD” again start its gradual interest rate raise since the economy seems to have its strength back. Here again we witness the abusive use of conditional verbs, which express uncertainty. Never mind that. The market thought it knew something we did not know. Moreover, since the Jackson Hole symposium, everyone seems to be in favor of a gradual raise of interest rates based on a seemingly rebounding U.S. economy thanks to the creation of a plethora of busboy jobs — and, to be fair, there are also a lot of newly employed people whose job is to pack your groceries at the supermarket.

The market was waiting for that and that only: another declaration that led to the assumption that the economy had recovered too well, implying that the Fed HAD to gradually raise interest rates, and that was final. It was the straw that broke the camel’s back. Henceforth, since we KNOW — almost with certainty — that the Fed is ultimately going to raise interest rates (maybe), the market is pondering: first, whether the Fed will comply and if the U.S. economy is actually booming, or second, if raising interest rates just amounts to wishful thinking and self-justification in order to legitimate the last 10 years — with an on-going economy as dynamic as a snail in a salt mine. Where there’s smoke…

The market imploded and this morning the bad news continued to unfold when we learned that Hillary Clinton developed pneumonia during the September 11 ceremony, substantiating the unthinkable scenario where the bad hairdo champion would become the new president. That takes the cake.

This morning the Asian marketplaces followed the U.S.’s plummeting indices. Japan down by 2 percent, Hong Kong down by 2.8 percent and, in solidarity, China declined by 2 percent. It is reasonable to assume that this sudden decline could not possibly be linked to the victory of Wawrinka last night. Oil is trading at $45.20 and gold (surprisingly) plummeted last Friday regardless of the promised highs it was meant to reach. This Monday morning the yellow commodity traded at $1,332.

So this week’s top trading stories are interest rates, pneumonia and Swiss tennis in New York. For the rest of the world, everyone has reopened their “Market Economy for Dummies” book to re-study the concept of interest rates raises, which urge investors to sell their shares and take shelter under the aegis of U.S. treasury bonds now yielding a whooping 0.25 percent more — if everything goes according to plan and if Yellen does not change her mind … It is sheer madness.

When you know that Coca Cola yields 3.2 percent whereas 10-year U.S. T-bonds hardly yield 1.67 percent, we have a right to ponder which of the two will allow you to retire before the age of 115. Moreover, if you were to ask me which of the two is less likely to default in the next 15 years, I believe the fizzy drink is a surer bet. Especially if the wigged-man becomes President.

The Wall Street Journal expressed its concerns regarding the Italian bank UniCredit, since the future of the bank could endanger the Italian economy, which is far from booming, and the entire European financial system even more so, the latter having the poise of an overcooked spaghetti noodle. And I am quoting The Wall St. Journal. Have we found our European Lehman? Time will tell. Two challengers, UniCredit and Deutsche Bank, are fighting for the title.

Barron’s headlined this morning with a guide on “how to invest for a retirement plan,” which is a change from the sempiternal “what the market is going to do in the next 22 minutes.” The Sunday papers and financial journals also think that Vodafone is a bonanza with a growth potential of 33 percent (a tea leaves reading) and a yielding as high as 5.3 percent. The level of audacity is off the charts. They are also fervently betting on Novo-Nordisk, which, according to them, is fomenting a stealth comeback.

This morning futures contracts (derivatives) are volatile and have been on a downward trend for a long time now — at this moment, down by 0.5 percent. Euro/dollar is reaching 1.1243, renminbi is stagnant around 102.54, sterling pound is trading at 1.3273, dollar/Swiss-f is crawling down to 0.9758 and Euro/Swiss-f is trading at 1.0971. While bitcoin ballooned at $607 and 10-year U.S. T-bonds yield at 1.67 percent. Regarding economic figures, it is as calm as Waterloo before the battle — nothing much to see, except the unemployment rate in Italy.

It’s Monday morning. The 50-day moving average has collapsed and anxiety is spiking. The market crash that was announced is finally knocking at the door so that everyone will finally be able to express the fact we “already know it was coming.”

Have a great day. See you tomorrow.