Wednesday, February 10, 2016

The crash in LinkedIn may cause quite a few people to look down and see how far out on a limb they are.

It may shake folks out of the idea that the bear may approach slowly- that there are weeks if not months to debate whether that is his hot breath on our necks.
The basic October 1929 crash took place in only a week, from October 21 to 29. On Tuesday the 29 th, a messenger boy put in an order for a block of White Sewing Machine at a dollar a share and got it. It had hit 48 before the crash and closed at 11 the previous day. (The Great Crash- J.K. Galbraith)
What makes people think that in this day of robo- trading at millions of actions per second- that this reckoning is going to drag out for weeks?
We already know that so called stop- loss orders can be blown through when a market ‘gaps’
Up here in Canada a guy had a stop- loss order on a Chinese company, Sino-Forest, that got a listing on the Toronto exchange via the back door, taking over a shell company with a listing. This only saved the several billion dollar outfit a few hundred thousand but a lot of questions.
Short seller Carson Block investigated, shorted and announced it was a fraud, which turned out to be the case.
But for a few weeks it was a ‘he said, they said’ and our guy decided to take a chance, but he ‘protected’ himself with a stop loss at $16 and change.
Then it was referred to the RCMP- and our guy got out at 6 and change. He was lucky to get that because of course it went to zero and was de-listed.
But the RCMP went to China and made several arrests ( Joke)
Moral: unless you are a very special client your broker is not going to take a large loss to execute an order.
With a few interruptions from circuit -breakers, ( which will also prevent stop- loss executions) there is no reason for whole swaths of the ‘tech’ sector not to follow LinkedIn.
Earnings momentum stalling and declining earnings coming back to roost even with the accounting shenanigans and financial engineering with non-GAAP, mark to market, vain attempts to boost earnings via share buyback (thru cheap money), hide the loss weenie, guide down the earning thru out the quarter to “beat”, etc.
So the companies will resort to easiest way out thru RIF but painful for the workers and their families. Market will beg to the Fed for another QE, ZIRP and even NIRP (be careful what you wish for into the uncharted territory). But the Fed like other global CB cabals are running out of ammo while facing mother of all currency wars to boost the ailing economies. China facing hard landing with NPLs and mis-invesements galore. And lest we forget the dangerous Syrian proxy war with Russia/Iran/Shiite on 1 side and US/EU/Saudi/Sunni on the other. Who knows maybe even alliances with Sunni ISIS.
More room to fall as take a look at the once rising star Russel 2k and lot of denials on CNBC exhorting buy on the dip and it’s different this time mantra.
Nick Kelly

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