21 August 2025

Stocks and Precious Metals Charts - Incoming, All Over Again

 

"The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning.

Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost.

The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recorded 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruinous fall.

Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months.

The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable."

John Kenneth Galbraith, The Great Crash of 1929, 1955

"In the months leading up to the Black Thursday of the Crash of 1929, the markets experienced a series of terrific ups and downs that 'left everyone feeling exhausted.'

Now there is a significant amount of uncertainty with a strong undercurrent of fear. How bad will it be? Which banks are insolvent? Why aren't the normal indicators working? Why does reality feel different from what the government numbers are reporting?

At the same time, stocks are divorced from fundamentals so they are 'trading like commodities.' The big players watch the short and long interest, and run raids against the smaller players and funds. There is a cynical ruthlessness prevailing in the US markets that is the result of extreme lapses in regulatory oversight mixed with a surfeit of hot money with no particularly productive places to go. So it roams the exchanges in search of a quick buck.

We're setting up for a rough time fraught with uncertainty. This implies widening spreads and wild swings.

Asking the market to tell us what is coming now in the real economy is going to be tough, because the market doesn't know whether eat soup or jump out the window."

Jesse, Incoming, 6 September 2008


Stocks continued to wobble again, extending their declines ahead of the speech by Jay Powell tomorrow at Jackson Hole.

Bitcoin continued its decline from its recent all time high.

VIX popped up to its 50 DMA.

The Dollar rallied.

Gold was off a bit.  Silver was hanging in despite stocks and the Dollar.

Economist in general are operating on two important axioms.

First, that Volcker has proved that you can beat even a serious, pernicious inflation with high short term interest rates.

I remember that period of time very well.  There were some who made quite a good amount of future income by investing in interest rate sensitive assets such as dividend paying stocks and bonds and annuities, on the bet that 20% marked the peak of Volcker's gambit.

I can even recall a young engineer who took an ARM mortgage who interest rate fell in each subsequent year, so that merely by maintaining the same payment a 30 year mortgage was fully paid in 15.

The second axiom is that no matter how bad the crash, if the Fed floods the markets with liquidity is the right way then assets will return to their prior levels.   This is the Greenspan gambit from 1987.

There is a third axiom.  A supply shock of a key economic input, such as oil, can lead to a slump in activity as well as an increasing price spiral.   This is the oil embargo of the 1970s.   Economists don't think about this one very much, because they still don't know what to do about it from a policy standpoint, without plunging the economy into a depression.

There is a fourth  axiom.  It has not been fully formed as of yet.  In our hubris, we do not yet even recognize it's possibility.   It rests in existential matters of money.

We are well on our way to finding it.   And therein lies our uncertainty.

Have a pleasant evening.