Ponzi World (Over 3 Billion NOT Served): The Temple of Greed Is Already Collapsing

Unbeknownst to the Idiocracy at large, steeped in its junk food induced coma, the Temple of Greed is already collapsing, even as I write. And also as expected, the media is equally oblivious at this juncture, because they don't really have an in depth clue about anything, and also because they are too busy covering that pointless sporting event known as the Presidential election. In searching my usual sites today, I found absolutely no one pounding the table saying that risk was high. Wall Street is equally oblivious, because they are face down in the Central Bank feed bag and otherwise making up every excuse in the book to ignore reality at this juncture. So when I said before, that this time when the Temple of Greed collapses, those caught worshipping inside will be trapped. Here is what I meant:

One by one, multinational companies are reporting earnings and announcing that the global economy is indeed slowing precipitously. Historically, Wall Street would have heeded these warnings and lowered its risk exposure well ahead of time, however this time around the temptation to stay fully invested is overwhelming. Central Banks created this incentive by lowering bond yields to zero and pushing investors into risky assets. Meanwhile, underperforming hedge funds have only two more months to make up for their (second) dismal year, save their funds, and garner a year-end bonus. In other words, as I have said before, hedge funds are call options - heads they take risk and win, garnering millions in bonus, or tails they lose and walk away from the fund.

These two incentives combined - hunt for yield and bonus fever - have tempted Wall Street to prostrate itself to the altar of greed despite the overwhelming signs of risk that keep getting rationalized away. This is identical to the greed-fogged set-up I wrote about back in 2007. So far, the market itself aka. The Temple has stayed relatively strong, although breaking through a key support level, just today. However, what's more amazing is that key individual stocks within the major averages are literally crashing one by one. Which only means that there are fewer and fewer stocks supporting the market. Given that we are less than halfway through earnings season, there is still a lot more pain to come.

When the Tide Goes Out We Will See Who's Been Swimming Without A Bathing Suit
So far, the flight to safety has been mild, as the dollar is holding steady. When the flight to safety gets rolling, the dollar will rocket higher causing major dislocations as carry trades are forced to be unwound. From a stock market perspective, given that investors are under-hedged going into this fiasco, lower prices are more likely to bring out sellers than dip buyers, a major sea change from the past four years. It's also very likely that the first credit event/default will occur in some corner of the world (a small country or region) not already on the radar. Given that the entire world has been binging on cheap debt these past four years, it's not hard to imagine that there are untold entities worldwide now struggling to make payment. Just as the 1997 Asian currency crisis started with the Thai Baht and spread from there, in this case, a credit event would spawn further events and dislocations, most likely leading to a global currency crisis which would further boost the dollar and decimate risk assets.

Getting back to stocks, below is a pictorial representation of the major supports (stocks) that have already collapsed inside the Temple of Greed:

First the overall market: As you see it's not too bad yet, which is why everyone is still fat and happy. It's also a clear sign that money is staying in the market and rotating into fewer and fewer safe haven stocks: