Friday, February 04, 2011

Flash Crash To Splash Crash

Remember the last flash crash, when the Dow Jones Industrial Average dropped something like a thousand points?  I sure do, even though I'd had a drink or two just so I could enjoy the spectacle.  The markets may now be facing the even more horrific phenomenon of a "splash crash" according to a new report:

With memories of last May's "Flash Crash" still fresh in investors' minds, now comes warning of a market meltdown that could extend beyond stocks—a possible "Splash Crash" that also would affect currencies, commodities and bonds.

The splash crash takes valuation resets to a whole new level.  The world's central banks can in theory float enough liquidity to refloat equities, bonds, commodities, and every other asset class that a splash crash can impact.  The only problem that will cause is the spawning of a global liquidity trap that forces up the long end of every yield curve in the world.  Oh, that will in turn force down the value of the world's major trading currencies - dollar, pound, euro, yen, etc.  I guess splashing is an appropriate image for all of that liquidity yet to be spawned. 

The splash crash may look something like the picture below if you need a helpful visual aid.

Splash!  You're all wet and so are your assets.
 What an awesome deal for a bargain-hunting bottom feeder like yours truly.  The splash crash will usher in a new era of cheap, affordable investments across all asset classes priced especially for those of us who've stayed liquid throughout the quantitatively eased phantom recovery.  We'll have to act fast, before the liquidity refloat obliterates that brief buying window.