SD METALS & MARKETS
TND Exclusive: Eric Dubin
I don’t believe we will see a massive crash this coming week. We’re
not going to get anything like an October, 1987 style downdraft. We are
going lower, however, and seeing another 5% bleed out of the S&P 500 next
week is roughly the level of carnage I’m expecting. But it’s going to
come with a heck of a lot of volatility, and many people will view downside
voltility as proof that the BIG ONE is upon us. This downdraft is part
of the overall “rolling crash” that we are undergoing that will extend
through this year and into next year.
My assessment about the coming week is based on what I’m seeing with
market management efforts led by central bankers. I see substantial
anecdotal evidence in multiple markets that stocks, ETFs and futures and
options were being bought by the powers that be to save the markets.
The magnitude of these flows is impressive, at least, as suggested by
the impact to targeted assets.
I’m not able to prove that the Fed, BOJ, Bank of England and the ECB have
fired-up credit swap lines with each other. But once the fireworks
started to go off, post Brexit victory, the Fed actually disclosed to
the media that swap lines were at the ready. Friday morning, the
Fed released the following statement:
The Federal Reserve is carefully monitoring developments in global
financial markets, in cooperation with other central banks, following the
results of the U.K. referendum on membership in the European Union.
The Federal Reserve is prepared to provide dollar liquidity through
its existing swap lines with central banks, as necessary, to address pressures
in global funding markets, which could have adverse implications for the U.S.
economy.
That sort of disclosure is unusual, because it wasn’t all that long ago
that the Fed refused to discuss using swap lines. The Fed has
taken a chapter from the public relations industry; since central
bankers have been outed for using swap lines when they wanted to hide that
fact back in the 2008-2010 period, why not “get in front of a crisis” and
make the most of market participant awareness that central bankers have a big
red button they now push anytime flinging a few trillion around is
deemed necessary (that’s trillions, with a “t”). The intention was
to let it be known that the authorities are going to try to kick the snot out
of short sellers while supporting equity markets.
Here’s just one example of PPT footprints. Look at the insane
level of buying of Deutsche Bank’s ADRs at and through the NYSE open.
No profit seeking investor or trader would be doing that in the face of
what was going on with Deutsche Bank shares crashing on European stock
exchanges.
This is just a short note to introduce this week’s SD Metals &
Markets. I’ll be back this weekend with more analysis.
Click
here to access this week’s SD Metals & Markets.
Disclosure: I have a short position in Deutsche Bank.
