Global: What can trigger the crash of '09?
"Chaos" is a "confused, disorderly mass". Its useful synonym is "jumble". So by definition, it cannot be squeezed into the neat, male "cause and effect" cookie cutter. If you agree that market crashes are by nature chaotic, then there is no "cause". Perhaps "triggers", however, might be identifiable.
Basically, my understanding is that the market subconsciously is waiting to crash and, thus, subliminally wants a trigger. Once that trigger has been pulled, everyone and his dog comes in with those linear "cause and effect" statements that they forgot to tell us about before the crash - just like after 10/07.
OK, so I'll put my neck on the line and give you three triggers that could ignite the crash of '09:
- Props desks want to ensure their boni. Shock, horror, disbelief: props traders who want to earn money? Well, why not? That it totally o k. These market psychologists will sense that there is no more money to be made on the way up, so they will tell their most public analysts to start talking the story "down" - having taken appropriate short positions beforehand... So the trigger is some "name" economist or the likes telling us of doom and gloom;
- China takes a crash. Whenever the Economic Time® starts getting changed for the worse, markets tend to crash. This is exactly what happened in October of 2007. Of late, we are reading with greater frequency that the authorities over there want to tighten credit one way or another. Never that credit really went where it was supposed to go; instead, at least 20% went straight into the stock market. Well, if the authorities mutter enough about withdrawing liquidity, watch China ignite a global crash. After all, if China is meant to be a "pillar" of global growth, then surely her economic clout is such that she can be a torpedo to global markets, too, n'est pas?, So the trigger is a China crash sprouting from "nowhere" and unleashing those subconscious crash forces worldwide, and
- U.S. long bonds tumble. We all know that green shoots might be those dollar bills sprouting up, courtesy of the Fed printing money (this was Marc Faber's CNBC quip some time ago, to attribute fairly). We need not review market concerns about the state of the budget deficit; suffice it to say that it only can worsen. Not only because of a worsening Economic Time® in America (that excess supply of goods keeps getting more intense), but also because Obama may emulate Western Europe's socialism by seeking to re-distribute wealth. Higher taxation kills growth, because it kills the incentive to work. So people either get scared of the bottom falling out of the US Federal budget deficit, or they get frightened of ever-higher taxes. So the trigger is either some "name" musing publicly about the size of the US deficit, or Obama pulling-off a tax hike on the rich. (Props traders are part of that clan, increasingly.)
Whatever the trigger will be, two things are certain. First, it will come from nowhere. Secondly, it will elicit all sorts of "20/20 hindsight" smart... comments from those who failed to see the storm clouds gathering....
