by John Galt August 7, 2019 21:00 ET
For those who never saw the movie “Margin Call” here is why what I am about to say is so important:
The key phrase?
Sell it all.
Why is this important today? In an era where liquidity appears to be tightening on a global scale and a potential dollar shortage is on the horizon, someone around 4 a.m. EDT liquidated a ton of futures contracts and apparently bought gold, silver, 10 year U.S. Treasuries, Yen, and God knows what else in the safety trade.
It was not simultaneously because moves in the Treasury market of that scale would have triggered a full on panic liquidation once word hit the street. This was not Mr. and Mrs. Main Street selling their 401K shares, this was a large entity; large enough to move the 10 year U.S. Treasury almost 10 full basis points in less than six hours.
Along with that, the apparent culprit(s) may have initiated a stock liquidation the minute the market opened at 9:30 a.m. Because Lord knows, none of us know what was liquidated in the private markets or in Europe before the U.S. markets officially opened.
In fact this chart of the S&P 500 Futures provides a shocking glimpse of what a 70 point or almost 700 Dow point reversal in the pre-market looks like:
There are rumors, rumors, and damned rumors about who, what, and why but one rumor emerged after 2 p.m. EDT that the Jay Powell was going to approve and have the Federal Reserve issue and emergency rate cut tomorrow of 25 bps. Thus explaining the radical reversal in bond yields and equity markets enabling a so-called “green” close.
I remain skeptical of this rumor as apparently Wall Street did also as precious metals, the 30 year U.S. Treasury, the Japanese Yen and other risk-off assets indicating that his was indeed a rumor and not repeat of the Federal Reserve’s not so secret discount rate cut of August 2007 (where certain member banks were allegedly able to rake in huge profits on short term trades to offset their losses in the credit markets at that time).
I leave you with the opening 10 seconds of this “Margin Call” scene as a reminder because when one is hit from the blind side, the injuries are the worst….