{"id":57495,"date":"2021-04-17T06:31:30","date_gmt":"2021-04-17T11:31:30","guid":{"rendered":"https:\/\/olduvai.ca\/?p=57495"},"modified":"2021-04-17T06:31:30","modified_gmt":"2021-04-17T11:31:30","slug":"if-you-dont-see-any-risk-ask-who-will-buy-the-dip-in-a-freefall","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=57495","title":{"rendered":"If You Don’t See Any Risk, Ask Who Will “Buy the Dip” in a Freefall?"},"content":{"rendered":"

If You Don’t See Any Risk, Ask Who Will “Buy the Dip” in a Freefall?<\/a><\/h3>\n

Nobody thinks a euphoric rally could ever go bidless, but as Greenspan belatedly admitted, liquidity is not guaranteed. <\/i><\/p>\n

The current market melt-up is taken as nearly risk-free because the Fed has our back<\/i><\/b>, i.e. the Federal Reserve will intervene long before any market decline does any damage.<\/p>\n

It’s assumed the Fed or its proxies, i.e. the Plunge Protection Team, will be the buyer in any freefall sell-off:<\/b> no matter how many punters are selling, the PPT will keep buying with its presumably unlimited billions.<\/p>\n

If this looks risk-free, ask who else will be “buying the dip” in a freefall?<\/b>Former Fed Chair Alan Greenspan answered this question in his post-2008 crash essayNever Saw It Coming: Why the Financial Crisis Took Economists By Surprise<\/a> (Dec. 2013 Foreign Affairs<\/i>):<\/p>\n

“They (financial firms) failed to recognize that market liquidity is largely a function of the degree of investors’ risk aversion, the most dominant animal spirit that drives financial markets. But when fear-induced market retrenchment set in, that liquidity disappeared overnight, as buyers pulled back. In fact, in many markets, at the height of the crisis of 2008, bids virtually disappeared.” <\/i><\/p>\n

For the uninitiated, bids<\/i> are the price offered to buyers of stocks and ETFs<\/b> and the ask<\/i> is the price offered to sellers. When bids virtually disappear<\/i>, this means buyers have vanished: everyone willing to buy on the way down (known as catching the falling knife<\/i>) has already bought and been crushed with losses, and so there’s nobody left (and no trading bots, either) to buy.<\/p>\n

When buyers vanish, the market goes bidless<\/b>, meaning when you enter your “sell” order at a specific price (limit order), there’s nobody willing to buy your shares at the current price. The shares remains yours all the way down.<\/p>\n

…click on the above link to read the rest of\u00a0the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

If You Don’t See Any Risk, Ask Who Will “Buy the Dip” in a Freefall? Nobody thinks a euphoric rally could ever go bidless, but as Greenspan belatedly admitted, liquidity is not guaranteed. The current market melt-up is taken as nearly risk-free because the Fed has our back, i.e. the Federal Reserve will intervene long […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[24078,1849,500,587],"class_list":["post-57495","post","type-post","status-publish","format-standard","hentry","category-economics","tag-charles-hugh-smith-2","tag-financial-markets","tag-market-collapse","tag-of-two-minds"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57495","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=57495"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57495\/revisions"}],"predecessor-version":[{"id":57496,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57495\/revisions\/57496"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=57495"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=57495"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=57495"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}