I have been completely glued to the markets and their turmoil. What’s surprised me was to hear how many people either weren’t tracking them at all, or were planning on dip buying on Monday (today).
To me, this speaks of the immense complacency built up over the prior decade by the Federal Reserve and whatever other forces (PPT?) that have rescued and bailed out the financial markets time and time again.
I think this is a dangerous complacency because it would prevent some people from properly recognizing that the Fed may not have the same motivations (or maneuvering room) today as they have in the past and that the PPT/government may actually want this market correction to run far and deep. The risk of any correction that runs too far too fast is that it breaks something.
Before I speculate further on those, here’s what we know:
- The trigger for the correction seems to be the tariffs.
- However, stocks were ridiculously and even historically expensive and therefore due for a correction all on their own
- There’s been great uncertainty unleashed by the Trump administration, which is adding fuel to the fire.
I consider all of these to be contributory factors.
The contagion has spread globally. Japan, in particular, is getting smoked:
China’s stock market suffered the biggest one-day decline since 2008 last night (my time).
The sea of red in equities has crashed up on every shore:
A Liquidity Crisis
The markets are complex things. The prices that are reported to you at the end of every trading day by the financial news are usually the final settlement between all buyers and sellers that day.
At other times, like now, the prices represent the few buyers that can be found during a period of extreme forced selling.
The people and firms being forced to sell are those that have been trading with ‘leverage.’ That is, they have borrowed money from their brokerage or prime bank to buy stocks and bonds and gold and anything else that fits their investing approach.
by cmartenson