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(DON’T) PANIC! at Trader’s Narrative


panic buttonThe following charts are from Jason Goepfert, of, showing his proprietary indicator called the “Panic Button”.

This indicator measures stresses in the credit market and is expressed as standard deviations from the norm. So a 2.0 means that the aggregate measures are 2 standard deviations from their usual or normal place. Yesterday it reached 9.5 (intraday) but has since come down to “only” 4.

Notice how it dwarfs all other major crisis in recent history! This is similar to the long term chart of the 3 month Treasury Bill rate I featured yesterday.

panic button indicator sentimentrader jason goepfert

Here is the same chart, zoomed in to the latest few years:

panic button indicator sentimentrader jason goepfert short term

It is not only awe inspiring, I’m left wondering what in the world it all means. Have we left reality and entered a bizarro alternate one? of what use is history and precedents when they are so out of proportion with what is happening right now?

Lynching Short Sellers
Then there is the rumor of the SEC moving to ban all short selling or as the FSA across the puddle, short selling related of financial stocks. Need I or anyone else, explain that this is completely moronic? Short sellers, far from being the culprits in this mess, are actually necessary for the proper functioning of price discovery. Furthermore, the effect of short sellers is to actually slow down a crash.

If that sounds counter intuitive to you, consider that every single share sold short is in effect, a future buy order. So as prices come down, it is short sellers who buy, in selfish interest to lock in profits - thereby providing some sort of friction to stall the downside momentum. Simple stuff. Economics/Trading 101.

But the current US administration is so dumb that they couldn’t empty a bucket of water if the instructions were glued to its bottom. While they attempt to forestall the inevitable, hoping against hope to buy time before a collapse before November, they are only damaging the economy of the US and the whole world by extension even further.

Get A Clue
By the way, if you aren’t yet aware of you have no idea what you are missing! The rumour of the SEC’s move was on there hours ago and many other must read links get posted regularly. If you have an interesting link that you’d like to share or comment on an existing one, you can now do so.

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10 Responses to “(DON’T) PANIC!”  

  1. 1 Blues

    Well said on short selling… next time when market fall, there will BE NO SAFTY NET… IT WILL BE FREE FALL CRASH… We have 3 idiot… each one is telling the other what to do… and the only outcome? AN IDIOT PLAN…

  2. 2 Declan Fallon

    Here Here!

    When are heads going to roll? Farcical really.

    And to think Republicans have the nerve to ask for re-election….


  3. 3 Johan Lindén

    “But the current US administration is so dumb that they couldn’t empty a bucket of water if the instructions were glued to its bottom.” LOL! :)

    It so sad that so many, including myself, really think this is so true. Well, history has shown us a myriads of times that the world could and is in fact, many times governed by morons.

  4. 4 jsp

    I like your blog, but can you leave the partisanship out?

    Here’s the lead of a New York Times story on Sept. 11, 2003: “The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.” (He tried desperately to stop Fannie Mae and Freddie Mac from metastasizing into the problem they have since become.)

    Bush tried to act. Who stopped him? Congress, especially Democrats with their deep financial and patronage ties to the two government-sponsored enterprises, Fannie and Freddie.

    “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Rep. Barney Frank, then ranking Democrat on the Financial Services Committee. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

    Also, Fannie and Freddie have spent an estimated $140 million on lobbying Washington.

    They contributed millions to politicians, mostly Democrats, including Senator Chris Dodd (No. 1 recipient) and Barack Obama (No. 3 recipient, despite only three years in office).

    Fannie and Freddie have spent an estimated $140 million on lobbying Washington. The number 1 recipient? Senator Chris Dudd. Number 3? B. Hussein Obama

  5. 5 Babak

    Blues, we got the mother of all short squeezes, and I think the powers that be are hoping that by the time the restrictions are over, things will be moped up. But this is just a finger in the dam.

    Declan, whatever the outcome of this election, history will not be kind to GWBush’s administration.

    Johan, yes it is true. Why is everyone afraid to call things are they are? jsp calls me ‘partisan’ for stating facts. How much incompetence have we seen from this administration? letting 9/11 happen after being warned about it… war in Afghanistan, war in Iraq, where’s Waldo’s WMDs? hurricane Katrina… Rove ignoring rule of law, etc…

    jsp, partisanship? I’m just telling it like it is. Congress has been in Democratic majority for a small portion of the time, this mess was created by pushing through a free for all deregulation under the Bush administration. Ask Phil Gramm, you know, the guy who advises McCain on economic issues and calls you a “whiner” for losing your house.

  6. 6 jsp

    1) You didn’t even deal with the facts about Fannie/Freddie and their favorite politicians.

    2) Which deregulation are you talking about? Is more regulation what the markets really need? This anti-shorting garbage is the work of Hillary and her fellow Dem senator. Apparently, it’s OK for Hillary to make a killing shorting cattle futures, but no one should enjoy the privilege.

    Hillary’s run-up in cattle futures was VERY suspicious BTW. Who else has made a quick $100K+ in the futures market and totally walked away from trading?

    3) Obama created his own housing disaster in the south side of Chicago. And he’s supposed to fix it nationally?

    4) If people went in over their head buying a house (e.g,, less than 20% down, knowing they couldn’t make increasing interest payments down the road), yes, that’s on them. And the big institutions who packaged, securitized and sold that trash shouldn’t get a bailout either. It’s about responsibility. It’s not about making someone else pay the bill who is more prudent and intelligent than you (i.e., successful small businesses who will pay a heavy burden of Obama’s tax plan).

    5) I’m not all that partisan. I see the Republicans as the lesser of two evils. If you want free markets, you would too. If you want lots of regulations, stay out of the markets and move to a socialist haven.

  7. 7 Babak

    jsp, [1] do you really think this happened within a few months? this mess took years to make. Phil Gramm, McCain’s economic advisor is responsible, check the link - oh and are you possibly referring to this?

    [2] Hillary? is she the president? oh, right, I forgot that Hillary and the Dems were in power for the past 8 years and were pulling the strings.

    [3] no idea what you’re talking about

    [4] why not bail out, you know the common folks, rather than Wall St. billionaires? why not tax the ultra-rich more and the poor less? yeah, I know! shocker to hear a capitalist say that but that makes more sense to me from an economic viewpoint than to tax the poor and reward the rich to entrench extremes of wealth/poverty… which can only lead to disaster for everyone down the line

    [5] look, markets need proper regulation. what Bush’s administration did was to first oversee the making of this disaster and then try to fix it with moronic ploys like banning short selling. that’s getting it both ass backwards. As Bush said, Heck of a job Brownie!

  8. 8 darrell

    I don’t get it. Why not just bring back the tick rule for short selling? Instead of putting a ban on it all together for financial’s.

    What a stop gap solution! Well at least I can still buy my PUT’s lol :)


  9. 9 Babak

    darrell, of course. and there are also all those inverse ETFs

  10. 10 Tim

    McCain’s campaign manager Rick Davis was hired—after running McCain’s failed 2000 presidential campaign—to head up a group called the Homeownership Alliance, a Fannie Mae and Freddie Mac advocacy group

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