by Tyler Durden
by John Galt
July 31, 2017 05:00 ET
Way, way, way, way back before televisions were generally available in color, cable was a luxury reserved for hotels and the wealthy, and financial television was reserved to Louis Rukeyser and a weekly program on PBS and the “Nightly Business Report”, the idea of information beyond the 6:30 p.m. national newscast was considered absurd. In fact when the 1987 Market Crash hit live on cable television, it was the quixotic moment which brought financial news out of the shadows and into the forefront.
From that moment forward, long after the great Financial News Network (FNN) was absorbed in a merger with CNBC, financial news broadcasting became a mix of some financial analysis, some real news, and one hell of a lot self-promotion by various financial houses to promote the idea that everyone, even cab drivers, hairdressers, and homeless people just had to be in the stock market.
Then came LTCM in 1998.
Then came the 2000 tech crash.
Then came the 9/11/2001.
Then came the 2008 crash.
And what happened? The parties guilty of bilking individual shareholders got a slap on the wrist. The financial news channels which accepted hundreds of millions of dollars from the financial promoters were never investigated nor prosecuted for potential fraud. And the truly guilty, the banksters and brokers, basically got away with armed robbery with a laugh, a smile, and a tacky commercial promotion in the 6 a.m. hour to urge you to buy a company’s stock or invest in something worse.
This brings my readers to the bit question and a terrifying answer which follows:
WHY will the next market crash not be televised?
Re-watch the FNN video from 1987 above one more time. Pay attention to the interview with legendary investor Paul Tudor Jones and FNN’s Bill Griffith (yes, the one and same CNBC Bill Griffith).
Remember this quote:
“Wall Street uniformly, was, uh, unprepared for this magnitude of a drop”
As America has become complacent and dependent on the technology of mathematicians and hucksters versus experienced financial traders who have warned us about the dot-com bust, the real estate bubble, and other insanity in the past, the risks are up proportionately but the crash is envisioned to occur on television like those in the past. Thirty, twenty, and even ten years ago, that was a realistic prospect where all of us watched the circus unfold live with various annoying television personalities explaining that this was just a “gully” or a “burp” or accident which will self-correct because the Central Bankers said so.
Unfortunately for the average investor and Joe Six-Pack on Main Street, Wall Street has devised a plan to trade in the dark. A methodology using their high speed algorithms which will make the whining of “program selling” in 1987 look foolish so they can engage in trading between the wealthiest of traders which works logically, until all of the clients suddenly scream out into the darkness “No Mas.”
Why is this suddenly a concern?
In the past year the United States has experienced numerous “flash crashes” in its equity, foreign exchange, and commodity markets. The same could be said of individual overseas markets where mini-crashes, much like those in the U.S. system, were dismissed as random “fat finger” trades or computer errors. Yet the system continued to function like it did in 1987 and 2008 but no one ever asked “what happens when all the liquidity is gone” due to the lack of specialists and on the spot providers of liquidity of last resort.
America, Asia, and Europe may well be approaching that moment and the American people will not even be out of bed nor realize that the crash has already happened. Thanks to dark pools, off-market trading operations, and foreign governments providing shields for undocumented exchanges of currency, commodities, and in some case equities (so as to hide stock market purchases by foreign central banks) the crash could be 90% complete before trading even begins at 9:30 a.m. Eastern Time, when most individuals would hope to have a fighting chance to save what is left of their 401K’s or personal portfolios, could even begin to sell their holdings.
This 2014 article from Bloomberg highlights the potential disaster in only a positive, not so much a dangerous light:
Dark pools have a scary name, and to critics they’re scary places: private stock markets housed inside some of Wall Street’s biggest banks. Created to let big investors swap large blocks of shares in secret, they’ve expanded to become a significant part of daily stock trading. More shares now change hands in dark pools than on the New York Stock Exchange.
The graph which accompanied the article above is just as scary:
But don’t worry, the situation was changed as regulators jumped into the fray so as to prevent another 2008, right? Uh, no:
The full report from Cowen which contains the chart above can be read at this link.
From the data above from 2016, it is easy to see that the total volume of the NYSE and NASDAQ combined was far less than the private dark pools and thus provides and advantage to the large financial houses when preparing for or initiating a crash; be it by accident or on purpose. Assuming it was caused by a foreign or domestic political event, or some other irregularity causing an algo driven sell program to start liquidating equities in the pre-market and overnight hours, the American public would be CLUELESS that a crash was already underway unless they were one of the 100,000 or so of us that watch overnight markets via the internet, our personal trading systems, or what remains of financial news online and via cable.
Unfortunately for the American people, the belief is “it is different this time” is being promoted by the hucksters once again. In 1987, it was over three years since a 10% correction had happened; right now we are at 10 years plus and counting for the longest period without a “normal” or substantive equity correction in modern American financial history. Yet when the crash started in October 1987, well, hear it from the lips of the legendary Louis Rukeyser himself:
Watch it again; he did in fact say a weekly loss of 17.5% before the crash on Black Monday. In those days, there were at least hints of a storm gathering yet the lack of internet trading platforms left one re-dialing their brokers in futility and numerous individuals locked out of their stock broker’s offices as the panic accelerated on October 19, 1987. Does anyone think it will be any different this time should such a crash occur and the markets stop trading due to a NYSE trading halt?
This time the crash for the masses will not be on television until it is too late. This time it is truly different as the average person will be so swamped by the liquidation of equities long before the market opens, if it opens, thus leaving the average American family holding the bag. In the end, the government will be forced to swoop in and buy what is left of most portfolios with guarantees from the Federal Reserve and emergency action by Congress to nationalize pension program, IRAs, and 401K’s to prevent retirees from being put out on the street. The average non-retirement based individual shareholder will be lucky to get 30 cents on the dollar if not wiped out completely. At the same time, the banks will be “guaranteed” liquidity to shield against a bank run which would portend much darker economic and political consequences, especially if the stock market and banks fail to open after such an event begins.
In the end, just like 1987, 1998, and 2008, the taxpayer will end up holding the bag. They will never see the crash coming if it takes a few days or a few minutes to occur.
And modern television will cover it much like they did in 2007 and 2008:
After the financial nuclear bomb has already gone off leaving the citizenry as the bag-holders while the banksters retain their ill gotten gains.
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