Thursday, October 16, 2014

CNBC Contributor Art Cashin on the Stock Market Drop

In this King World News interview CNBC contributor Art Cashin talks about the drop in the US stock market. He notes that the drop in oil prices is actually something to watch with some concern (even though gas prices will drop some). He says if it drops below $80 it may signal more problems ahead for the markets.

Kind World News does not allow the copying of quotes from their articles so I will just list a few key bullet points from the interview:

- if the 1790-1800 level gives way on the S&P it may trigger another large wave of selling

- the market bounced back at the end of the day because oil managed to stay above $80

- rumors that some hedge funds had to liquidate positions

- drop in the 10 year bond below 2% was one of the "most stunning moves" Art has seen in his 50 years observing Wall Street

- today gold became a safe haven instead of the US dollar for whatever reason

- market may rally now, but Art says to watch oil prices; a break below $80  may signal more trouble ahead.

Readers are encouraged to read the entire King World News interview article.

We have pointed out here quite some time back that we need to watch oil prices (and gold and silver prices) for signs of deflation. Since that time it has become clearer and clearer that the IMF and Central Banks are very concerned about deflation and are in a fierce battle to prevent it. But right now it seems like they are losing the battle. If stock markets keep falling we will probably see some kind of strong reaction from the Central Banks.

Interestingly, gold and silver were up a little while everything else was falling. This situation bears watching carefully. If that trend were to continue it would suggest that investors are losing faith in the system itself and starting to move more money completely out of the entire system despite the fact that gold and silver prices could fall along with everything else if a deflation event takes hold. 

Why would investors do that? Because in a deflationary world gold and silver might actually gain purchasing power if they fall less % than everything else. If they actually go up some even in a deflationary environment, that would be a gigantic flashing red light that the system is in trouble. It would mean huge amounts of money were exiting the system.

If this did happen, it would be a very powerful indicator that the system is in great stress and we would have to watch that very carefully. It's too early for sure to draw that conclusion, but it is definitely something we have to watch closely. If the markets start into a severe decline and oil keeps plunging, events could happen much more rapidly than has been the case up to now. So we will listen to a 50 year veteran like Art Cashin and watch all this very closely.

Update after market close 10-16-14:

Interesting day. Art Cashin says $80 oil is a key and that the stock market was very nervous. Apparently the Fed was a little nervous too as St. Louis Fed Chief Bullard made sure he got out an early morning statement that the Fed just might have to pause its QE tapering. CNBC noted that this "stunning" Fed comment calmed the stock market.

Think about this for a minute. We keep saying here that the markets and the economy need to prove they can stand on their own feet without constant Fed support. Today just continues to indicate that they can't. What does it mean when you can sit and watch the Fed react to a stock market drop in real time? It did keep oil above $80 and stocks from continuing to fall sharply. But how long does it last? What happened to the discussion about the Fed raising interest rates early due to the strong economy?

Also note that the Fed again used Europe as the scapegoat for why they may have to go back to QE again. But yesterday this article in the UK Guardian blamed the US Fed for tightening too early. And it says the Central Banks may have to have "permanent QE". If true, what happened to the recovery everyone was touting just a few weeks ago? So strong the Fed might raise interest rates early.

We intend to track these kinds of things here and hold people accountable for what they say and predict. So which it is it? The US economy is doing well, but being dragged down by Europe as the Fed is saying?   OR  The Fed tightening too early is dragging down the US recovery as the UK article says? Both cannot be right.

Update 10-17-14: Art Cashin provides this update after a market rally today. He says the bounce today may not last.

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