{"id":1040789,"date":"2018-09-24T13:55:22","date_gmt":"2018-09-24T13:55:22","guid":{"rendered":"http:\/\/juniorminingnews.com\/?p=1040789"},"modified":"2018-09-24T13:55:22","modified_gmt":"2018-09-24T13:55:22","slug":"the-tripwire-on-the-next-black-monday-3","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1040789","title":{"rendered":"The Tripwire on the Next \u201cBlack Monday\u201d"},"content":{"rendered":"

By Brian Maher<\/a><\/span> <\/p>\n

This post The Tripwire on the Next \u201cBlack Monday\u201d<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

\u201cBlack Monday\u201d \u2014 Oct. 19, 1987 \u2014 remains the bloodiest one-day carnage in market history.<\/p>\n

508 points the Dow Jones plunged that hell-sent day \u2014 an impossible 22%.<\/p>\n

A similar stock market event today would translate to a 5,843<\/em>-point cataclysm.<\/p>\n

We compare that October day to the ancient Battle of Cannae, when invincible Rome lost as many as 70,000 legionnaires to Hannibal’s armies \u2014 in a single day.<\/em><\/p>\n

Or to the first day of the Battle of the Somme, July 1, 1916, when nearly 20,000 British soldiers fell flat under the German guns\u2026 and never got up.<\/p>\n

What could lead today’s market to its own Cannae, its own Somme \u2014 its own Black Monday?<\/p>\n

Today we consider one harrowing possibility\u2026<\/p>\n

Harley Bassman is a world-class expert in derivatives \u2014 what Warren Buffett has termed \u201cweapons of mass destruction.\u201d<\/p>\n

Not long ago Bassman set out with one question in mind:<\/p>\n

\n

The only question one cares about, identifying the tripwire that would tip our system into disequilibrium.<\/em><\/p>\n<\/blockquote>\n

That is, what could turn a bad day on Wall Street into another Black Monday?<\/p>\n

And is there a specific percentage decline that could start the dominoes going over?<\/p>\n

Bassman’s researches indicate there is.<\/p>\n

But what?<\/p>\n

Before revealing that (black) magic number, let us identify the villain of this tale, a possible trigger for the next horror picture:<\/p>\n

Passive investing.<\/em><\/p>\n

After the 2008 near-collapse, the emergency responders at the Federal Reserve inundated markets with oceans of liquidity.<\/p>\n

The biblical-level flooding knocked down existing financial signposts\u2026 and \u201cfundamentals\u201d no longer seemed to matter.<\/p>\n

The tide was rising, and all boats with it.<\/p>\n

\u201cActive\u201d asset managers on the hunt for market inefficiencies could no longer separate winner from loser.<\/p>\n

Some 86% of all actively managed stock funds have underperformed their index during the last 10 years.<\/p>\n

Explains Larry Swedroe, director of research at Buckingham Strategic Wealth:<\/p>\n

\u201cWhile it is possible to win that game, the odds of doing so are so poor that it’s simply not a prudent choice to play.\u201d<\/p>\n

\u201cPassively\u201d managed funds \u2014 on the other hand \u2014 make no effort to pinpoint winners.<\/p>\n

\u201cPassive\u201d because they sit back on their oars\u2026 and let the flowing tide lift their boat. They track an overall index or asset category \u2014 not the individual components.<\/p>\n

It is a strategy that has yielded handsome dividends this past decade of rising waters, as Tim Decker, president and CEO of ISI Financial Group, explains:<\/p>\n

\n

Passive management came into its own during the long bull market that started in late 2009, after the market had collapsed amid the financial crisis in 2007\u20132008. Money had been flowing from active to passive vehicles in the preceding years, and investors \u2014 disillusioned by their losses in the crisis and the high fees they had paid \u2014 started turning to passive vehicles even more. That trend has continued to this day.<\/em><\/p>\n<\/blockquote>\n

Passive investing has increased from 15% in 2007 to perhaps 35% by the end of 2017. It is a percentage that is only rising.<\/p>\n

All is swell as long as rainbows appear in the skies over Wall Street and the tide continues to rise.<\/p>\n

But the risk is this:<\/p>\n

When the tide recedes\u2026 it recedes.<\/em><\/p>\n

As Jim Rickards explains:<\/p>\n

\n

In a bull market, the effect is to amplify the upside as indexers pile into hot stocks like Google and Apple. But a small sell-off can turn into a stampede as passive investors head for the exits all at once without regard to the fundamentals of a particular stock.<\/em><\/p>\n<\/blockquote>\n

But comes the central question:<\/p>\n

How far might stocks have to sink before unleashing the hounds \u2014 and another Black Monday?<\/p>\n

The aforesaid Bassman’s investigations have yielded an answer\u2026<\/p>\n

A 4% single-day drop could prove sufficient:<\/p>\n

It seems possible that as little as a 4% decline in a single day could be enough to create critical mass.<\/em><\/p>\n

From today’s stratospheric Dow reading of 26,555 \u2026 a 4% single-day swoon translates to an 1,062-point loss.<\/p>\n

A thumping drop, yes \u2014 but not beyond imagining.<\/p>\n

The Dow Jones plunged nearly 3% just this March after the Trump administration announced tariffs on China.<\/p>\n

Must we stretch our minds far to conceive a 4% loss?<\/p>\n

Not much\u2026 we dare say.<\/p>\n

And then what happens, Jim Rickards?<\/p>\n

\n

Passive investors will be looking for active investors to \u201cstep up\u201d and buy. The problem is there won’t be any active investors left or at least not enough to make a difference. The market crash will be like a runaway train with no brakes. <\/em><\/p>\n<\/blockquote>\n

Consequently:<\/p>\n

\u201cThis is one more reason why the next stock market crash will be the greatest in history.\u201d<\/p>\n

Let the record reflect\u2026 that history includes 1929, 1987, 2000\u2026 and 2008.<\/p>\n

Perhaps passive investing will write the next harrowing chapter\u2026<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/em><\/p>\n

The post The Tripwire on the Next \u201cBlack Monday\u201d<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

…read more<\/a> <\/p>\n

From:: Daily Reckoning<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Brian Maher This post The Tripwire on the Next \u201cBlack Monday\u201d appeared first on Daily Reckoning. \u201cBlack Monday\u201d \u2014 Oct. 19, 1987 \u2014 remains the bloodiest one-day carnage in market history. 508 points the Dow Jones plunged that hell-sent day \u2014 an impossible 22%. A similar stock market event today would translate to a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[366],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1040789"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1040789"}],"version-history":[{"count":0,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1040789\/revisions"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1040789"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1040789"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1040789"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}