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Concerned About A Stock Market Crash? Listen...
David Reavill
 February 26 2025 at 04:43 pm
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Bernard Baruch ** Current financial technology is simply outstanding. We rely on our ability to place an order on our smartphone, move cash from our bank to our brokerage account and back again, and sell anytime we're hesitant about the markets. Instant electronic communication puts Wall Street at our fingertips, and it gives us a feeling of comfort. However, a market phenomenon called a "Flash Crash" might limit our ability to sell stocks. We saw our first "Flash Crash" on May 6, 2020. That day, the Dow Jones Industrial Average fell 1,000 points in 10 minutes. For those of us who were watching the financial markets that day, it was a shocking event, to say the least. Suddenly, everything seemed to plunge. Bids, the purchase orders that provide a floor to the markets, disappeared. Normal market function, the matching of buyers and sellers, was gone. Then, almost as quickly as it came, markets regained their composure, began to rally, and the terrible storm was over. The Flash Crash was all anyone could talk about for the next several days. Traders and analysts were abuzz with this new and entirely unexpected event. It would take weeks before a culprit was identified. A London Trader named Navinder Singh Sarao was convicted of entering fraudulent orders designed to manipulate the markets. Called "spoofing," this type of chicanery has been outlawed in the US since the 1930s. The Securities and Exchange Commission recognized that they had a problem. The Circuit Breakers, initiated after the 1987 Crash, failed to mitigate the rapid price drop. A Circuit Break is a brief halt in trading designed to stop just such a drop as we experienced on May 6, 2010. A new set of Circuit Breakers came into effect with shorter triggers thereafter. The new levels call for the First Breaker to halt trading at a decline of 7% in the S&P 500—at current levels, that would be a drop of roughly 400 points in the S&P. The second Breaker would currently be at 13% or approximately 800 points. Both of these breakers called for a halt in trading for 15 minutes. The third and final Breaker would occur with a 20% decline, about 1,200 points in the S&P, and then trading would be halted for the rest of the day. While this discussion may seem like an interesting piece of history, certain current factors make a review of the Flash Crash relevant today. Whether we like to believe it or not, the financial markets are living under a constant "hair trigger," which, if activated, could see prices move precipitously. Three factors allow another Flash Crash to occur at any time. Like the Great California Earthquake, this threat is constant. The first factor is the threat of high-frequency trading, which is a trade executed in a micro millisecond. Immediately after that 2010 Flash Crash, HFTs came under a great deal of scrutiny as investors realized that Mr. Sarao was operating in a world that many didn't know existed. High-frequency traders are in and out of the market (buying and selling) before most of us can get our phones out of our pockets. Fortunately, HFTs often offset each other, with a rough balance between those purchasing and those selling. But Sarao's objective, which worked, was to move to an imbalanced market, more on the sell side. This would drive prices lower, and Sarao could buy very cheaply. The second Flash Crash risk factor is the preponderance of Index Investing - many mutual funds using the S&P 500 Index will need to adjust when the Index declines. A significant price drop, like the one in 2010, will compel the funds to sell, compounding the decline. The final Flash Crash Risk Factor is the dominance of algorithms in trading systems. These semi-autonomous computer systems automatically make purchases and sales for mutual, hedge, and private equity funds. This is a boon to passive investment managers, including some of the world's most significant managers, such as BlackRock and Vanguard. Unfortunately, in a Crash Scenario, passive managers like these funds may add to the decline by placing sell orders upon sell orders. What to look for A Flash Crash should be understood rather than feared by the savvy investor. Like a summer thunderstorm, we need to recognize it and raise cash to the degree we can. Acknowledging that a Crash is caused when most market players change their outlook. Historically, Crashes have occurred when the "Big Guys" change their projections from positive to negative, from bullish to bearish. This drives the initial wave of selling. The time to become a contrarian is when most investors become overly optimistic. Bernard Baruch told the story of getting his shoes shined. Knowing Baruch was a major investor, the man shining his shoes was dying to tell him about the latest "hot tip," "couldn't miss" opportunity. "Yes, sir, that Stock Market is the place to be." At that moment, Baruch knew it was time for him to sell—the market had become one-sided, and when that optimism would change, something terrible was bound to happen. As it turned out, Baruch was having his shoes shined in early 1929, just before the Greatest Stock Market Crash in our history. Baruch sold and never looked back. When everyone feels the market "can't miss," you'll know it's time to raise some cash. ** If you enjoyed this article, please consider buying me a cup of coffee. Go to: https://buymeacoffee.com/davidreavill Thanks for reading!
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The Great Financial Deception Is Ending, What...
David Reavill
 March 02 2025 at 04:09 pm
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President Trump's Cabinet Meeting, February 26, 2025 ** Imagine that I stole $100 and gave it to you. What would economists call this? To answer the question, one must remember that economists are not moralists. They don’t care where the money came from; they only record what happens with it. In this case, economists would note that your income increased by $100, which you either spent, increased consumer spending, or saved. Either way, the economy would have increased by $100. (Note that in my fanciful example, I’m excluding the loss recorded by the victim for reasons that will become apparent in a minute.) As outrageous as this sounds, this is precisely how our financial system has operated for the past six years. Massive amounts of capital have been “stolen” from our children and grandchildren in the form of debt to be paid by them. Hence, these future victims don’t report the crime because many have yet to be born. But upon their shoulders will be placed the debt burden that we’re now constructing — currently, it stands at $323K for every man, woman, and child in this country and is rising rapidly. None of this comes as a surprise to you, dear reader. You’ve read about the trillions spent on a nefarious emigrant program that brought people to our shores and provided them with transportation and living expenses. You’ve traced the billions given ostensibly to Ukraine but ended up with the military contractors in this country. You remember the trillions in stimulus checks sent to provide support during the COVID-19 Crisis. You understand the trillions in “Quantitative Easing” funds that gave the banks the funds to push loans to even the least qualified. The Federal Government accomplished all this and more by borrowing funds, funds stolen from the future and future generations. It’s not something new. We’ve been dipping into the “kitty” since at least the Great Depression of the 1930s. Each time there’s been an expansive money-printing period like we’ve just been through, a recurring pattern emerges: the future comes. And this new, diminutive future always begins when the monetary spigots are shut off. The last time we had a comparable period was immediately following World War II. That’s right, the previous time policymakers pumped the economy as much as COVID was World War II! Following VE Day (Victory in Europe) and VJ Day (Victory in Japan), there was no longer a need for battle tanks, warships, and all the arms and munitions made in American factories. Stimulus stopped, and the lost decade of the 1940s began, a period of poor economic growth and deflation. The balloon had burst as the American economy transitioned from a fiscally dominated, Washington-based war machine to a civilian-led, free enterprise system. Today, that same sort of transition is beginning. The Trump Administration is halting many of the “stimulus” programs started by the prior Administrations, Biden and Trump 1. Trump is sending back the immigrants and eliminating or downsizing many government programs, which you can find delineated on the DOGE.gov website — programs in Education, Foreign Aid, Social Reform, and many others. Regardless of the merits of these programs and departments (remember, Economics focuses on dollars and cents, not values), dropping or eliminating these programs will reduce financial activity and slow the economy. This week, the current report on the nation’s GDP (Gross Domestic Product) showed how slow the economy is. GDP for 2024 came in at 2.3%, down 0.5% from 2023, and less than half the growth level experienced at the top of the Stimulus in 2021 when GDP grew at an astonishing 6.0%. But that’s all history now. What’s concerning are this week’s results from the Atlanta Fed’s GDP Now Model. The Federal Reserve Atlanta Analysts developed this real-time tracking model. This report reveals the economy is in recession, declining at 1.5% annually. Conclusion It’s well past time that we begin to return our economy to its historic tradition — a steady state where private industry creates the profits and income that drive our prosperity. Our current path of “fiscal dominance” (where the central government becomes a principal influence on the economy) is a sure route to destruction. The fact that the current administration has begun eliminating the excess and control of the past six years is a welcome sign for those who believe in free enterprise capitalism. However, it may not be an easy or painless path. But let us all resolve to pay that price and bring back this country’s foundation of financial freedom and liberty. ** If you enjoyed this article, please consider buying me coffee. Go to: https://buymeacoffee.com/davidreavill Thanks for reading!
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