“Dow Drops Over 700 Points; Stocks Extend Selloff”
by Anora M. Gaudiano and Barbara Kollmeyer
“U.S. stocks fell sharply, extending their decline in afternoon trade Friday as investors continued to fret over a deepening China-U.S. trade fight and fresh concerns about inflation. The main indexes sold off in early trade following President Donald Trump’s proposal of fresh tariffs against China. The afternoon selling pressure followed Federal Reserve Chairman Jerome Powell’s speech in which he backed a “patient” approach to raising interest rates.
What are main benchmarks doing?
•The Dow Jones Industrial Average DJIA, -2.34% fell 715 points, or 2.7%, to 23,799, with all 30 blue-chip companies trading in the red.
•The S&P 500 index SPX, -2.19% dropped 70 points, or 2.7%, to 2,592, with all 11 main sectors trading in negative territory. Industrials and financials stocks were leading losses, down nearly 3%.
•Meanwhile the Nasdaq Composite Index COMP, -2.28% declined 182 points, or 2.6%, to 6,892.
All three main indexes are looking at weekly declines between 1% and 2%.”
Full article here:
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“A collateral call is like a margin call in a stock account. This occurs when a derivatives trade goes south for an entity that is on the long side of the derivatives bet– a bet that Deutsche Bank won’t default, for instance– and the counterparty to that trade demands more collateral to be posted in order to insure that the bet can be paid off if the “long side” loses.
Now multiply that concept across thousands of derivatives trades involving hundreds of hedge fund and bank counterparties totalling $100’s of trillions ($1.5 to 2.2 QUADRILLION globally, best estimates. – CP). It does not take too many collateral calls before counterparties and Central Banks run out of collateral that can posted against these OTC derivatives margin calls. That’s happening now.
This is 2008 redux– only this time the damage inflicted by derivatives counterparties collapsing will be much worse because the size and scale of the problem is much larger.”
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“The issue of liquidity is not a small one. Investors mistakenly assume there is ALWAYS a buyer at the price at which they wish to sell. This is wrong. While the answer is “yes,” as there is always a buyer for every seller, the question is always “at what price?”
At some point, that reversion process will take hold. It is at that point where the storms all collide into a massive wave of panic driving selling. It will not be a slow and methodical process, but rather a stampede with little regard to price, valuation or fundamental measures. It will be the equivalent of striking a match, lighting a stick of dynamite and throwing it into a tanker full of gasoline.
Importantly, as prices decline it will trigger margin calls which will induce more indiscriminate selling. The forced redemption cycle will cause catastrophic spreads between the current bid and ask pricing for ETF’s, junk bonds, and option pricing. As investors are forced to dump positions to meet margin calls, the lack of buyers will form a vacuum causing rapid price declines which leave investors helpless on the sidelines watching years of capital appreciation vanish in moments.
Don’t believe me? It happened in 2008 as the “Lehman Moment” left investors helpless watching the crash. Over a 3-week span, investors lost 29% of their capital and 44% over the entire 3-month period. This is what happens during a margin liquidation event. It is fast, furious and without remorse.”
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Gregory Mannarino, “4/6/18 Post Market Wrap Up”
CNN Fear And Greed Index:
Source:
http://coyoteprime-runningcauseicantfly.blogspot.com/2018/04/dow-drops-over-700-points-stocks-extend.html
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