Swap Lines To Prevent Market Crash Next Week, But Major Pain Ahead – Eric Dubin

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.