How Could Stock Markets Croak Like This First Thing in 2016?

[nitpicker]

http://wolfstreet.com/2016/01/09/global-stock-markets-dive-first-week-of-2016/

How Could Stock Markets Croak Like This First Thing in 2016?

by Wolf Richter • January 9, 2016

A lot of air underneath Friday’s close.

Wall Street soothsayers were salivating Friday morning. (snip) But then everything came unglued. The three major indices fell about 1% for the day. It ended a week to remember: the Dow plunged over 6%, the S&P 500 nearly 6%, and the Nasdaq 7.3%. As MarketWatch titled it so eloquently: “US stocks see worst opening week ever.”

(snip)
This chart by Doug Short of Advisor Perspectives shows the indignities the S&P 500 suffered over the past five days in hourly increments. (snip) This leaves the S&P 500 9.8% below its record close on May 21, 2015, flirting with a “correction.” The Dow and the Nasdaq, down 10.7% and 11.0% respectively, are already in a correction. On a 12-month basis, all of them are in the red.
(snip)

The week was even uglier in other markets.

China had one of its market tantrums. The devaluations of the yuan, and the government’s efforts to prop it up rattled the world. On two trading days, the Shanghai Stock Exchange plunged 7% each before trading was halted. For the week, the index lost 10%. It’s down 38% from its 52-week high last spring. Most of the government-mandated rally since the summer crash has gone up in smoke. But despite its gyrations, the index is only down 3% from its already inflated level a year ago.

Japan’s Nikkei lost 7.0% for the week, the Hong Kong’s Hang Seng 6.7%. The Nikkei is the only major Asian index that is up for the 12-month period, a measly 2.9% despite an enormous money-printing and asset-buying binge by the Bank of Japan. The other major Asian indices are in the red for the 12 months, with the Hang Seng down 14.5% and Singapore down 17.6%

In Europe, where stocks should be soaring based on the ECB’s QE and negative deposit rates, stocks are plunging. The German DAX dropped 8.3% for the week straight into “bear market” purgatory – down 20.5% from its peak in April last year. The French CAC 40 lost 6.5% for the week and 18% since April. The British FTSE lost 5.3% for the week and 17% since April.
(snip)

[EdwardBernays]

1. Turns out

That basing the world's economy on fairy stories isn't a recipe for stability.

[Proserpina]

2. It's the After Xmas Clearance--Everything Must Go!

[Warpy]

3. First, the market is hyperinflated. There was just no other place for all the money being lavished

on the 0.1% to go, especially with the bottom dropping out of commodities, so they competed with corporations buying their own stock back to goose the price and brought it up to a ridiculous 18,000 Dow. Bubbles will pop, that's a given.

A lot of people panicked when China's markets took a huge dump. That's mob psychology at work and nowhere is it more in evidence than in stock and commodities markets. China's bubble has popped. Ours has not, the losses have been fairly modest.

All the US has seen so far is a correction. Usually they reach a valley and then come back up, as this one is most likely to. With rock bottom interest rates and commodities in the doldrums, there is still nowhere else for investment money to go.

Now when the derivatives casino finally goes bust, that will be a repeat of 1929, with the money disappearing overnight.

[glinda]

4. Do you think that can happen? I mean....if a person has some money

is it better to hold it at home? In a credit Union? Am thinking a Big Bank certainly is out of the question....I have a small sum that just came to me and am afraid to deposit the check actually.

[Warpy]

5. Oh, go ahead and deposit it.

It will be there short term if you need it. Holding it at home is a temptation to thieves.

Anyone who predicts that the derivatives casino will go bust eventually is on pretty solid ground, there are so many bets on bets on bets out there and it's all so unregulated that it's going to go some day. Anyone who predicts when it will go is a fool. I hope I am dead and forgotten by the time it goes.