With days like these, who needs months? In the last four trading days the US stock market has regularly set various records for point swings, point movements and volatility in general. Today was the biggest point gain in the Dow in history. It used to take months to have these sorts of swings in price — now it happens in a day or two.
Volatility is back with a vengeance. And that’s not really a good thing.
I grow more concerned because with the backdrop of volatility, a broken uptrend in stocks and lack of clarity from central bank chatter — there seems to be a wait and see attitude from various market participants. This is after 2015 was the year of consolidation. The markets moved sideways and then eventually down.
But what concerns me more than the price action in stocks is the price action in commodities. The barometer of global economic buying pressure has a very, very low reading. We are heading in to a significant global economic storm. China seems to be leading the way with Europe and Japan contributing to deflationary pressure with a lack of spending. The US has not visibly succumbed to the second stage of the global financial crisis that’s brewing — but it’s reasonable to speculate that our economy never fully recovered.
This has been the slowest recovery since World War 2.
And with good reason! We haven’t yet healed the problems, restored economic balance, curbed the excessive (leveraged) risk taking, wound down the insolvent financial institutions or held criminal fraud to account. Instead the problems from 2008 are not only still lurking, but are actually much bigger than they were back then in scale and concentration.
Large banks were made larger by the crisis — not smaller.
Too big to fail really means too big to exist, but it wasn’t seen that way during the panic. Enormous financial institutions were given shotgun marriages to insolvent ‘spouses’ that they would consume. As a result deposits and risk are more concentrated than ever before.
What was back then a purely financial crisis in the banking system and financial industry (which bled in to housing and other areas eventually) is now a crisis that effects our government’s balance sheet, our central bank, financial institutions — as well as governments and central banks around the world. It’s the largest, most alarming set of risk coupled with some of the largest bubble-like activity in real estate, equity and bond markets we’ve ever seen.
This cannot possibly end well. And the final chapter of this recovery appears to be much closer than many would hope.