Tags: markets | stocks | recession | economy

'Historic' Day for Markets; Schiff: America on Brink of Recession

By    |   Wednesday, 26 August 2015 06:59 AM

With all the turmoil of the past week or so, yesterday stood out as a “historic” day, and CNBC’s Kelly Evans marked this fact by repeatedly pointing out that a reversal of this magnitude in a strong day that ends up with a weak close had not been seen since October 2008. One might add that the close is usually considered the most valid hour, because it indicates how traders who have acquired a feel for the market throughout the day want to be positioned overnight. It also gives support to the theory of this writer that this country has never fully recovered from 2008. As this is written, CNBC reports that the PBOC will inject about $21.8 billion into the market. This writer has predicted that the US authorities will also resort to market support measures.

It is useful to begin with a recap of Tuesday’s market action, as a top-ten rise quickly turned into a historic decline during the final hour. The recent erratic action has led critics to ask once again whether the “structure” of equity markets is flawed. Chris Watling, CEO of Longview Economics, spoke of “a lot of flash crashes in a lot of markets” over the past year, including Treasurys, the euro, and equities, and he concluded, “Clearly something’s not quite right with the Market Structure.” He suggested that QE and high-frequency trading may be contributing. Watling also pointed to a reduction in liquidity due to increased regulation. This writer would point to issues related to the fitness of major players and note that the SEC has embarked on a “top to bottom” study of Market Structure that at the its normal pace could take ten years.

Bert Dohman, of Dohman Capital, predicts that far from raising rates, the Fed is going to make yet another move to stimulate the economy through more QE. He also focused on corporate buybacks as a source of a trillion dollars of support, but he thinks companies are now conserving cash because they suspect the economy is headed for recession. This writer would add that the authorities must try at all cost to prevent a recession from occurring during an election year.

Alex Wong
, Director of Asset Management at Ample Capital, says the move by the People’s Bank of China to ease credit didn’t work as expected because it doesn’t change the negative long-term outlook for the economy, but the Chinese don’t think stock crashes affect the economy. CNBC’s Eunice Yoon reports Chinese authorities are going to step up market enforcement, and she thinks intervention has fostered “despondency,” not calmed markets.

Next, Mark Newton, of Greywolf Execution Partners, reviews charts that reveal the technical damage compared to 2014 and 2011 and suggest that more selling is in store. Finally, Peter Schiff, of Euro Pacific Capital, addressed the idea advanced by CNBC’s Bertha Coombs that the correction might be ending: “In the past it was the Fed that has been there to catch the markets with more quantitative easing, but right now the Fed is still pretending that they’re getting ready to raise rates, which is really what’s behind the stock market selloff. People want to blame it on China, but it’s not about China.” Schiff called the rally that was going on as he spoke but would later fail “suspect,” pointed to “technical damage” and predicted that the correction “will turn into a bear market.” As this writer has said, Schiff thinks the Fed has been planning QE-4 all along, and the markets have been propped up by QE and zero rates: “There’s nothing beneath the market but air.” The economy “is teetering on the edge of recession now, and any kind of rate hike would probably push it over the edge.”

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With all the turmoil of the past week or so, yesterday stood out as a "historic" day, and CNBC's Kelly Evans marked this fact by pointing out that a reversal of this magnitude in a strong day that ends up with a weak close had not been seen since October 2008.
markets, stocks, recession, economy
Wednesday, 26 August 2015 06:59 AM
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