On the Market Dip "Mistake"


Is our ‘Crash Alert’ flag still flying? It is? Great.

The Dow got whacked hard yesterday. It was down a few hundred points. And then, somehow, the computer programs triggered the sell signal from hell. It lost another 500 points in just a few minutes.

Then, the computers must have reconsidered. They went into buy mode.

All very strange…

Was it just a mistake? Something weird? Was it a genuine panic…and a phony bounce? Or a phony panic and a genuine bounce? The story last night was that the sell-off was a mistake…that someone hit the wrong button and added a zero. We don’t believe it. Traders must add zeros by mistake all the time. This is the first time it triggered a 998-point drop. As for the recovery, it’s suspicious too…maybe some kind of automatic reaction – perhaps from ‘buy the dip’ program trading, maybe from the mysterious “plunge protection” machinery of the US government.

We don’t know. But what this tells us is what we’ve been telling you: this is a dangerous market. It is no place for widows, orphans, nuns, priests, republicans, democrats, window-washers, bungee jumpers…

…it’s a good market for gamblers. And if you were long the VIX yesterday, you made a killing.

Everyone else got killed.

But it was fun for us. You see, you start out life full of expectations and confidence. Then, you become more cautious. Then, you become more realistic. And then, you become discouraged and hopeless. Finally, after you’ve given up all hope of ever making the world a better place, you become amused by it; you realize that there’s no reason to change it. It’s funny enough the way it is.

That’s the way we felt yesterday, watching the market go wild in the afternoon.

“Hey, Dad…you seem to be enjoying this,” said Jules. “But you must be losing money along with everyone else.”

“Maybe…but it’s worth it.”

We don’t own US stocks. But we have some from emerging market shares. They went down with everything else. And we wouldn’t be surprised if they went down a lot more.


…Because China is going to blow up. It’s on a ‘treadmill to hell,’ says short-seller Jim Chanos.

…Because the US economy is not really recovering. The latest numbers show retail spending sinking again. Bankruptcies are rising. Housing and unemployment remain in the dumps…

…Because the US stock market has been in a decline – in real terms – since January 2000. This move to the downside won’t really end until stocks are cheap again.

…Because there’s more bad new coming from Europe too…

Bill Bonner
for The Daily Reckoning