In this week's Off the Cuff podcast, Chris and Mish discuss:
- Rumor-driven Markets
- Head-fakes and sentiment matter most today
- Sovereign Debt Weakens
- A recent example of how sentiment can shift quickly
- Pundit Predictions
- The take from Jim Rogers & Steen Jakobsen
- A Time of Tears
- A big crash is coming, but those that caused it won't bear the brunt of the cost
Mish joins Chris this week to postulate on how things will end when the markets buckle.
Both agree that the current price action in the markets is so disconnected from the reality of the underlying fundamental that a major correction is baked in the cake soon. Both also agree that the damage of such a drop will be severe, as the system is much less able to absorb the shock the way it was in 2008.
For example, pension funds will get absolutely clobbered. They have not recovered well since 2008 given their heavy weighting in bonds, which have given them extremely little in yield over the past 8 years. Most of their models require 8% annual returns, so they are already quite insolvent on a future expected cash flow basis — but a steep market drop would be a dagger in the hearts of many of them.
Similarly, the popular practice of corporate share buybacks also makes the economy very sensitive to a market crash.
by davefairtex