CRASH 2: Situation normal, all f……

“Look, if I say it’s a train, then it’s a train….”

With the financial and political worlds chucking coal on the fire of the Armageddon Locomotive, the monkeys at the wheel retain their ability to focus on one short stretch of rail at a time. As they describe every wonky sleeper and loose nut in graphic detail, the jargon remains in place – even if sanity got off the train a long way up the line.

‘The US Fed Treasury plans to sell $99 billion in new debt on Tuesday, Wednesday and Thursday. Selling ahead of the auctions to lower auction prices and raise yields could overpower the safety bid, which remained strong going into the weekend’ opined Reuters this morning. For myself, I’m more interested in the fact that the Fed needs to get away the equivalent value of 25% of its gold reserves just to keep going.

“There’s so much uncertainty – even beyond Greece in Europe – that we’re getting yields that are low,”  observed David Coard, head of fixed income sales and trading at Williams Capital in New York. “I think the street is going to do its level best to get a concession, because the only way these yields are justified is if we continue to have news out of Europe that creates this safe-haven buying. The economy is sluggish but it’s not falling out of bed and unless it were falling out of bed there would be no justification for these yields.”

I wonder what it takes these days for an American analyst to come out and say that the US economy doesn’t even have a bed any more, having sold it at the pawnbrokers years ago. But rising above the coke-fuelled gobble-de-gook, what Mr Coard means is that there are headcases out there who think US debt is safe. All things are comparative, but ‘safe’ isn’t a group-term that would’ve occurred to me. This has been the problem with investment decisions for so long now: “Let’s invest in lead balloons – they’re looking safer than lace condoms”. Relativity is meaningless if your choice is between two otally different but equally lousy ideas.

Here’s another one:

‘A bounce could be in the cards for stocks next week as bulls defend a key technical level and managers buy the quarter’s winners to prop up their books,’ suggested Bloomberg. “We want to see more fear,” said Ari Wald, equity strategist at Brown Brothers Harriman in New York.

Yes Ari, we all want to see you lot looking terrified, but not about something that’s going to hurt us a lot more than you. It’s just that the specific reason for his fear-wish wasn’t immediately apparent: does he want bears or bulls to be fearful? Or does he want quarterly managers to be frightened of the unpropped books falling on their heads? Market Strategist Nicholas Colas attempted to make things clearer:

“Every time you test a resistance or support level, you make it weaker,” he mused, “It’s almost like a piece of metal. Every time you hit it, it grows more fragile and that’s why people are really worried the third or fourth time.” Well don’t hit the bloody thing then.

Putting this into words, the bulls buy like mad to see if they can keep the market above the level, while the bears suck their teeth, sell like mad, and hope the level fails. A level failing three times in, say, a month means the market is about to plunge further. Or not. It all depends on whose charted models you believe. Suffice to say that on this adversarial Cro-magnon Man hand to hand struggle depends the future of the world.

So what does it all mean? Well if you’re awake with a functioning brain, you’ve known what it means since Spring 2010 – when everyone began to back off from banker-bashing, stricter regulation, and forcing them to deleverage their lending books down from ‘bonkers’ to something more acceptable like ‘not entirely wise’. But here’s three more signposts all saying ‘Stop train, cliff dead ahead’:

1. The numbers trading in the market are noticeably light. So far this second 2011 quarter – about to be the first in the red for the S&P 500 for a year – daily volumes on the New York Stock Exchange, NYSE Amex and Nasdaq have averaged 7.22 billion shares. That sounds like a lot, but it’s down from the 7.94 billion shares traded daily during the first quarter. There are two obvious conclusions to be drawn from this. First, people are nervous about the market to the point of doing other things with their time besides investing in it….as in, checking out stuff like gold, silver, safer(!) bonds, shotguns, allotments, canned foods and so forth. As Reuters puts it, commitment to the market has waned. And second, it suggests very strongly that, with no QE3 as an artificial pit prop, the smart money expects the market to descend into that pit in pretty short order.

2. China has slowed down its economy, but not prices. In particular, the property boom is shifting from Beijing and Shanghai as government measures to curb the markets there come into force.  Property prices in secondary cities are already going through the roof. The Government will soon have no alternative but to raise interest rates and use monetary policies to curb demand. There are thousands of interpretations about what this means for the West: there would be millions, but they’re restricted to one per analyst. Mine, for what it’s worth, is that a seriously toxic asset bubble is now out of control….and an awful lot of non-Chinese banks have invested an awful lot in that not happening.

3. French bank Societe Generale has just launched a new range of ‘investments’. SocGen, if you hadn’t heard, is up to its tickly nose in worthless Athenian loans. It needs to shore up its cash flow and reserves in double quick time, and so has opted to cut the bullsh*t about banking not just being one continuous punt…by starting to sell unahamed punts. The product is called….

New Super10s

….and this is the blurb that comes with it:

Now super returns can be super simple!
With a fixed return of either £10 or £0 at expiry, Super10s offer the potential for a simple way to enhance your portfolio returns. All you need to decide is whether the FTSE 100 Index is going to stay above, below or within a range of Barrier Levels for the 1 to 6 month Investment Term. If you’re right you’ll get £10 at expiry for every unit purchased, if you’re not, you‘ll lose your initial investment.

When I was a kid and losing heavily at marbles, we used to call this product ‘double or quits’ – for use only when all else fails. It is as sure a sign as you’ll ever see that this is the first desperate cuckoo-idea of what is going to be a long, hot summer.