Executive Summary

• Why a crash is likely
• Why the machines have won, and regular investors should flee these markets
• Why the coming oil company bankruptcies will trigger a deflationary rout
• Why we've passed Peak Easy

If you have not yet read Markets Are Correcting Hard, available free to all readers, please click here to read it first.

The Larger Lesson (Why A Crash Is Likely)

Look, the financial markets are broken — the US, in China, and largely everywhere else around the globe. The sad fact is that the regulators have utterly failed to impose any meaningful limits on the rise of the computers and their high frequency hi-jinks.

Now those computers dominate the entire market landscape for better and, eventually, worse.

The reason I say ‘worse’ is because the computers deliver the appearance, but not the reality, of market liquidity.

As long as they detect that everything is operating normally, or at least within their accepted bands or limits, then they indeed provide plenty of liquidity. But when events exceed those limits?

The computers just shut down, revealing the true lack of market depth. The key story of all markets, bonds, commodities, futures and equities, is that each has experienced a vast diminishment of liquidity.

Share volumes are down on the equity exchanges as fewer and fewer participants are willing play a rigged game. That’s not just my view: it’s one increasingly held by the most sophisticated of players, as recently evidenced in an Op-Ed co-written by Yale’s Chief Investment Officer David Swenson:

One Way to Unrig Stock Trading

Dec 24, 2015

AMERICA’S equity markets are broken. Individuals and institutions make transactions in rigged markets favoring short-term players.

Individual investors, trading through brokers like Charles Schwab, E-Trade and TD Ameritrade, suffer first as the brokers profit by hundreds of millions of dollars from selling their retail orders to high-frequency traders and again as those traders take advantage of the orders they bought.