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Dec

25

The issue at stake before the global markets in layman terms appears to be the classical factors of demand as well as supply both being a function of willingness and ability. Whilst the Central Banks are displaying ability with the mint to churn fresh currency out the willingness is what is dwindling lower and further.

There are two possible scenarios here. The possible death of willingness in credit marts is being visualized by the majority of columnists as not only highly probable but also that would lead to the deterioration of willingness in other asset markets (for us of major interest is equities, ASSuME).

The other scenario is one where the perceived spread of the death of willingness is leading to an underbought state in several other asset markets on one hand and the creation of a liquidity implosion. By implosion I mean a system that has gone past the kindling temperature, a configuration that has received all the catalysts, a process which has unplugged all incubators yet it is tied down with the strong threads of unwillingness (or perceived unwillingness across all assets). Such a system rather than dying out as a failed device is more likely to implode before failing.

Given that for the first time in the history of the universe a concept of free money has existed for several recent years (The ground wire in the currency marts made so well only by Japanese technology) that my mind would read the odds to be favouring the sustenance of the biggest bubble in history further.

Inside a bubble who said disbelief, shock, pain, fear, panic cannot be seen multiple number of times? Why are these emotions to be seen only after a bubble has reached its logical conclusion of a burst? Why can they not be essential ingredients of the process of the formation of the bubble itself?

The lesser thought and spoken about possibility at the moment is the latter one. Without the numbers available for counting, one would thus still incline to count the probability more in favour of that. The bubble is only beginning to form, it is quite far from bursting down yet.

Now a third improbable possibility does exist as well. That's imagining without any reason or rhyme though. Perhaps it is how the devil would think if not its advocate. In a situation such as the one prevailing currently including the balance sheets and the minds a larger event such as one that happened with Russia in 1987 could perhaps throw all counts haywire and make the first possibility more true. So, if China is known to be the supplier of volatilities in recent years to different markets it can exert an influence on what stops them from jolting the system hard enough? That leads to another question if I could imagine such in the middle of the night what are the minds of those, who are controlling the mints around the globe and who can figure this out and have the might to stop China from endeavouring such a thing, thinking and doing at the moment?

Since this third bit is hopefully only a third rate imagination for now and in any case ordinary mortals like me cannot have any ascertainment of the chance of such or equivalent black swan appearing I would still believe the biggest liquidity implosion will cause the bubble to start swelling for now rather than burst it before it has swelled.

Hopefully this last one ain’t a self-fulfilling prophecy that a known risk is no longer the risk that will play out since markets will respond to an anticipated event differently than the unanticipated one, I might as well imagine China will try its best to play the same games they are known to in markets ranging from Nickel & Pig Iron to finally the currencies and bonds as well. If many others will believe, despite China trying its hand out market would in the medium term have all the chutzpah to surprise the bears.


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