The Stock Market Crash of October 18, 2013

by John Galt
October  9, 2013 23:00 ET

While I realize that outlining a specific date leaves this website and myself open to massive attacks and criticism, there is no guarantee nor offer of financial advice nor investment ideas behind this article as there is always the probability of another disastrous political solution to the upcoming economic disruption which will begin next week. However, if the politicians and bankers decide to press the issue in order to obtain even greater control over the economy and to justify a greater role for our financial industry within a newly created international economic system, then the logical conclusion is that the system must be crashed sooner, rather than later.

The term of the day to remember is “SD” also known as “Selective Default.”

The definition of Selective Default per the ratings agency Standard & Poors:

“An obligor rated “SD” has failed to pay one or more of its financial obligations (rated or unrated) when it came due. An “SD” rating is assigned when Standard & Poor’s believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner.”

Why is this terminology important? Let’s review what Obama said at his press conference yesterday:

Just what is his point in this discussion? It would appear that President Obama is setting the table to blame the Republicans for a default, even if the monies are available to pay the interest payments or principle owed. David Stockman, former head of the OMB under President Reagan provides a warning about how such a default would occur while he was a guest on Lou Dobb’s Fox Business News program on October 5th:

 

 

How does this event lead to a stock market crash so quickly? Think about what the entire construct of our economic system consists of; the full faith and credit of individuals, businesses, and governments having the ability to borrow money and pay it back. No longer is about creating goods and services to expand wealth, we have built a new system of debt, investment, financial services, and Ponzi schemes designed to multiply returns for the elites while extracting opportunity and imposing control on the masses. This hybrid capitalist approach, and I use the term “capitalism” quite loosely, was perfected by the same leaders while designing Communist China’s emergence from it’s fascist neo-feudalism period into the modern age.  By introducing the same system into the European and United States the control of the world’s central bankers will extend to every modern society leaving freedom only as a fleeting memory and history to be redefined as the winners see fit.

Thus if the Obama administration and Federal Reserve are prepared for the worst, what would stop them? They have a patsy within the Republican Party known as the Tea Party movement which gives the leadership which disdains them an excuse to leave them as the scapegoats for an event which need not ever occur. By inferring that it was a small extremist block of politicians that caused this, history and the current crop of political elites will destroy the last opportunity to restore true capitalism and freedom as we once knew it.

The crash would occur as Mr. Stockman noted because Obama ordered a Treasury Department default, The economic consequences would be immediate and severe as his perceived unpredictability would rattle markets worldwide. The methodology behind the default however, is simple and swift. On October 18, 2013, for example, the following Fannie Mae with the CUSIP identifier of 3136G0AB7 has an interest payment due on October 18th (part of a 30 year 4.15% offering). Imagine the market reaction should the Treasury Department announce that their would be a suspension of this interest payment due to the debt ceiling issue and other instruments may be announced throughout the upcoming days.

Boom.

Instant 10%, 12%, 20% or daily limit down on U.S. markets and massive sell off on the Treasury market. But is the market primed for this just because of the debt ceiling and Obamacare fight in Washington? Certainly not; look at the amount of time since a substantial correction and bear market, even short term, has impacted the market in the last 5 years:

STOCKCRASH_OCT182013jgfla

The 1-3-6 month T-Bill markets are also flashing equally disturbing signs:

136_5YEARjgfla

The unnatural rates suppressed by the Federal Reserve and banksters are showing signs again of a strange anomaly at the end of the graph. Bond traders are perhaps the least emotional, most rational bunch I have ever met and they do not move the needle that dramatically unless they feel there is an actual risk of a default, whether planned or not. This event seems to be even more dramatic when reviewing the 4 week Treasury Bill compared to the 3 and 6 month since January 1st of this year:

136_2013jgfla

For the bond market, especially the short duration Treasuries, that is a dramatic move. This fits the model for a preconceived default where a harmless instrument like a GSE bond or bill is deliberately defaulted on creating the excuse for a stock market correction of at least 20% to flush out the weak hands and 40% if there is a more insidious goal planned for the long term. Remember that under the Dodd-Frank legislation, the President and Secretary of the Treasury can waive and eradicate many of the protective banking regulations which would allow greater dominance of the core members of the Federal Reserve to control our economy and personal finances. It is a logical idea to crash the system now, kill two birds with one stone namely the Tea Party and anti-Fed movement, plus create a permanent power structure which destroys any opposition to the policies developed or desired by the highest bidder.

Tread lightly next week because another predictive element I watch, the historical relationship of gold to the stock market is flashing an equally dangerous warning sign. When gold and short term Treasuries illustrate a similar pattern of panic as they did in 2008, I tend to pay attention. Another warning signal for me was the Financial Times story about banks hoarding cash for a potential debt ceiling crisis by increasing their reserves, much like some institutions did in 2008.  Hopefully, as I stated above, I am incorrect, but watch what our financial and political leaders do, not what they say.

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