Ben Bernanke Has Become The Pied Piper Of Momoism

Tyler Durden's picture

Today will be day 12 of 13 (or something just as silly) that the market has been melting up on no volume: yet another truly ridiculous statistic in the anals of momoism. As David Rosenberg points out: "the market has been able to digest California, Dubai, and Greece" - and this has all been offset by what? Merely promises of ever increasing liquidity and bailouts by the Fed, first domestically, and soon internationally. Have people really forgotten yet again that this is precisely what got us on the verge of a historic collapse in the first place? Yes, the Fed bailed capitalism out last time around (with about 3 hours to spare), but this time it has gone dodecatuple all in, and unless intelligent, and very rich life, on Mars is discovered pretty quickly, this will all end in ruins (certainly those of the Marriner Eccles building).

Speaking of momentum, as everyone rushes to find ever greater fools (no scarcity these days), the economic condition is forgotten. But the market is a leading indicator skeptics will say... Perhaps, in every other Keynesian situation that did not have global sovereign default on the other side of the crossing. We are now truly in a unique situation where the market is a leading indicator of nothing but greed and stupidity (in retrospect, that's not all that unique). Here is a good recap of where we have been, and where we are, courtesy of Rosie (who we hope is sufficiently inebriated at this point to note the humor in the current situation).

The equity market at any given moment of time is one part reality and three parts perception. Our friend, Brian Belski at Oppenheimer was on CNBC the other day and claimed that this was turning into a normal economic recovery. And that is what many market participants seem to believe until they don’t believe it any more. Their resolve has been impressive. But if this were a normal cycle, then:

  • Employment would already be at a new high, not 8.4 million shy of the old peak.
  • The level of real GDP would already be at a new cycle high, not almost 2% below the old peak.
  • Consumer confidence would be closer to 100 than 50.
  • Bank credit would be expanding at a 14% annual rate, not contracting by that pace.
  • The Fed would certainly not have a $2.3 trillion balance sheet
  • And, the government deficit would not be running in excess of 10% of GDP or twice the ratio that FDR ever dared to run in the 1930s.

If this were a normal cycle, then there would be a ‘clean’ 5-6 months’ supply of homes on the market, not the 21 months overhanging as is the case now when all the shadow inventory is included from the foreclosure pipeline.

If this were a normal cycle, then the funds rate would not be near zero and one in six Americans would not be either unemployed or underemployed.

If this were a normal cycle, then mortgage applications for new home purchases would not be down 13.9% year-over-year (just reported for the week of March 12) on top of the already depressing 29.4% detonating trend of a year ago.

But the perception that this is turning out to be a normal sustainable expansion is strong and pervasive, although the reality is that this is just a brief statistical bounce aided and abetted by unprecedented government bailouts and intervention.

While we are inundated with that old refrain about “not fighting the tape”, in our view, this is just a glib excuse to stay long the market because of the herd effect, and to be honest, we heard that same trite rhetoric over and over again back in the spring and summer of 2007.

This is not the time to live in the moment but to plan for the future. It is a time to reflect not what the talking heads have to say on bubble-vision but on what history teaches us in the aftermath of a busted asset and credit cycle. The Nikkei enjoyed 260,000 rally points during its post-bubble era and yet the market is still down 70% from the peak; the rallies were to be rented, not owned.

The Dow in the 1930s saw no fewer than 30,000 rally points that would get investors periodically juiced up that the post-bubble economy was heading back on track from the New Deal stimulus. But go back and you will see that the next bull market did not begin until 1954 even if the ultimate lows in the Dow were turned in 22 years earlier. It was a multi-year tumultuous period that was racked by volatility and manic market performance. The key to success over the long haul was to immunize the portfolio from the massive ups-and-downs, ensure that you were getting paid to take on risk as opposed to paying for taking on risk, and a pervasive focus on capital preservation, dividend yield and dividend growth among blue-chip stable cash flow companies, and income-generating securities, including corporate bonds for those entities that had the capacity to survive.

Despite massive attempts at monetary and fiscal reflation, which did produce periodic sugar-high influences on growth, government bond yields did not bottom until 2003 in Japan and 1941 in the U.S.A. — over a decade after the initial credit collapse. This is not the story that a ‘live in the moment’ investor may want to hear today, but even as the market lurches forward, the economic outlook is more uncertain than is commonly perceived and we believe investors are taking on too much risk to be overweight equities at this time. The primary trend towards consumer frugality, liquidity preference and deflation has not vanished just because of the impressive bear market rally in risk assets that has occurred over the course of the past year.

Yet nobody cares, as the Pied Piper of Monetary Insanity once again leads the Wall Street rats to the euphoria of irrational exuberance, followed promptly by the guillotine. But everybody forgets the inevitable second part.

And speaking of the credentials of the Pied Piper, it would be useful if at least the Fed could keep its swan song song consistent.

What is most interesting is to see how the Fed’s view of the housing market has changed over the past four months (then again, it’s run by the same Chairman who told us that the problems in housing and subprime mortgages would be contained just a short three-years ago):

  • November 2009: “Activity in the housing sector has increased over recent months.”
  • December 2009: “The housing sector has shown some signs of improvement over recent months.”
  • January 2010: No comment.
  • March 2010: “…housing starts have been flat at a depressed level.”

So where should we look to for the next focus of risk flaring? Why, to our beloved creditors of course.

So far, the market has been able to digest California, Dubai, and Greece, but what about China? That could be the next shoe to drop (before Iran — have a look at Israel and the Crisis with Obama on page A21 of the WSJ) specifically the new spat between the U.S. and China over currency policy. Make no mistake, if China does not make a move away from the peg with the U.S. dollar over the next few weeks, there is a very good chance that trade sanctions are going to come our way. April 15 looms large as that is the day when the U.S. Treasury could well declare the Renmimbi as being “manipulated”.

Gold will be a very nice safe haven in this environment (also have a look at Martin Wolf’s article today on page 9 of the FT — China and Germany Unite to Weaken the World Economy). Also see Prompted by Economy, Lawmakers Press China to Address Value Of Its Currency on page B3 of the NYT.

Who cares about any of this, one may ask. The market can only go up, up, up. Yes, if one considers price discovery to be a function of micro volume block buying by algos who have only been programmed to bid the market up. We broke key resistance levels in the past 2 days, and nothing: no major short covering spree, no influx of new buyers. The market has become a stealth melt up mechanism, driven by who knows what money (mutual funds are out), with shorts out. This is precisely the environment that allowed the market to go bidless overnight in 1987. When will this happen - nobody knows. Although if we continue to antagonize the only major foreigner who has allowed the Fed and the government to embark on its ludicrous policy of fiscal and monetary insanity, we will surely find out very soon.

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TumblingDice's picture

Strong upside volume would be the indication that the cartel has found the greater fools they were looking for. Having said that, it is hard to imagine this happenning any time soon.

SheepDog-One's picture

The only time any volume shows up is on selling, so their only answer to passing off the pump to retail is desperately search for buyers ever higher? Didnt have any volume buying at DOW 10,000, lets try DOW 11,000, see if any suckers can be found there! GO momo-Ben, GO!

Bthewee's picture

So sorry for Jackin the post - my apologies.



I/We have not Seen MARLA - post-comment-edit-or do anything in AT least 2 months!!!

WHAT..... ZH has become of Marla?? and the Great job she has done for this site??

Bthewee's picture

So sorry for Jackin the post - my apologies.



I/We have not Seen MARLA - post-comment-edit-or do anything in AT least 2 months!!!

WHAT..... ZH has become of Marla?? and the Great job she has done for this site??

buzzsaw99's picture

The pension funds never sell, they only buy, buy, buy. The perfect bagholders.

SheepDog-One's picture

And we know the endgame of printing and pumping and stuffing the pensions full of things like 'BIDU', one of the biggest collusive scams ever, thats the govt seizing 401K's, pensions, that story ran the other day in the Wall St Urinal.

Fun times indeed!

buzzsaw99's picture

Better to rip off the sheeple than the chinese, the sheeple don't have nukes.

AnonymousMonetarist's picture

Mother should I trust the government?
Hush now baby, baby, dont you cry.
Mother's gonna make all your nightmares come true.'
-Pink Floyd

'A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world’s greatest civilizations from the beginning of history, has been about 200 years.'
-Alexander Tyler

'The nation is of age and it can do what it pleases; it can spurn the traditions of the past; it can repudiate the principles upon which the nation rests; it can employ force instead of reason; it can substitute might for right; it can conquer weaker people; it can exploit their lands, appropriate their property and kill their people; but it cannot repeal the moral law or escape the punishment decreed for the violation of human rights.'
-William Jennings Bryan

'We all want to believe that the key to making an impact on someone lies with the inherent quality of the ideas we present. The size of the crowd in the theater has a big effect on how good the movie seems.'
-Malcolm Gladwell

'Some people without brains do an awful lot of talking.' -The Scarecrow

Imagine Dorothy as the beguiled American public, the scarecrow as representing indebted consumers, the tin man symbolizing industrial workers, the cowardly lion as the Masters of the Universe and the Wizard as the Oracle at Eccles.

And the yellow brick road as the debasement of the sovereign scrip where Dorothy can return home to prosperity by following this path.

A rhyming version of what many folks think was a hidden message within the Wizard of Oz.

Back then, the United States was on the gold standard. When there was malinvestment causing overproduction, prices fell.

William Jennings Bryan, represented by Baum as the cowardly lion, argued for the right to coin money and issue money as a function of government. He contrasted his platform of legislating to make the masses prosperous whereby their prosperity would find its way up and through every class that rested upon them with his opponents' platform that Bryan derisively opined held fast that if you just legislate to make the well-to-do prosperous, their prosperity would leak through on those below. His opponents argued for sound money.

Today's cowardly lions ,or Nancy Capitalists, are the Masters of the Universe that have literally been given the right to coin money (saved by zero, money for nothing) and issue money (FDIC guaranteed debt, the chits are free.)

Today's Wizard of Oz, the Oracle at Eccles, argues for sound money. Hiding behind the 'I Can't Beleive it is not Capitalism' curtain, he too has been shown as a fraud.

Today's malinvestment cannot and will not result in prices falling, says the Wizard.

Pay no attention to the marks behind the curtain. The operating levers secretly lubricated by the debasement of the scrip cannot be disturbed, discussed or disclosed lest the Emerald City be laid to waste.

Bryan said 'You shall not crucify mankind upon a cross of gold.'

Sorry Bill, the cross has been sold, leveraged, rehypothecated, and is being leveraged again. Sound money is now found money. For the masses? The Dark Side of the Rainbow.

Oh, and in L. Frank Baum's original novels, Aunt Em and Uncle Henry find a refuge in Oz when they are unable to pay their mortgage on the new house that was built after the old one was carried away by the tornado.

'Nuff said.

Bearish Spirits's picture

The local Fox here in Chicago has a "business segment" every morning.  The anchors were talking with someone from Fox Business about how the volume has been extremely low lately, even mentioning that it was indicative of a lack of confirmation for this melt-up over the past month.  Considering the generally bullish slant of the vast majority of their business segments, I was are they trying to pull more money in, or is the lack of volume so obvious it can't be ignored?

All this as school district layoffs are being announced all over the metro area...heck of a recovery.


Rainman's picture

......and in Cali, 23,000 school teachers got a pink slip notice on the March 15 deadline for notification.

deadhead's picture

for me, one of the critical items that we are crossing the rubicon into a further depression is state and local layoffs, particularly teachers.  this is not something to be taken lightly in terms of the signs of the times.  

mtomato2's picture

O.K.  Get this:

Remember how we all figured that "maybe someday, if we needed, we could 'fall back' on teaching"

So I had a roofing company.  And we did pretty well from about '95 through '07.  Then (this is a secret) the bottom dropped out of the building industry!  Don't tell anyone.

So I went back and got certified to teach High School math through Senior Calculus.  I figure: any warm, carbon-based life-form should be able to get a job teaching CALCULUS!

No soap.  They're not even hiring math teachers.  Not even astute middle-aged man ones. 

This MUST be bad.



faustian bargain's picture

It's the third year in a row the state schools budget has been cut. Local districts are going to be leaning on the taxpayers.

1fortheroad's picture

I was wondering why the market gapped up this morning.

Ripped Chunk's picture

Only the beginning.

As states and localities increase taxes on everything that moves, burns is wearable or edible while simultaneously laying off workers, the death spiral becomes unstoppable.

CB's picture

and the zombie citizens yet again do not respond because there's still one more beer in the fridge and a twinkie in the pantry.

Headbanger's picture

And the most important thing of all: There's still gas in the tank.

ZakuKommander's picture

The raccoon sits poised just outside the trap [don't worry, it's a Hav-a-Heart trap; no raccoons will be killed in the making of this post], eyeing the juicy apple inside.  Waiting, waiting.  It knows it's a trap, but the apple gets riper, the raccoon gets hungrier, and it finally decides . . . "well, the trap hasn't sprung yet, and I am nimble, so let's have a go!"

Those algos are so lulling, so comforting . . . 


RockyRacoon's picture

I ain't fallin' for no apple!  No way, no how. 

Got gold.

mtomato2's picture

I'm glad you said that part about the Hav-a-Hart trap.  The person who was offended by the use of the term "Dead Cat Bounce" might have come for you.

faustian bargain's picture

I tell ya, you can't swing a dead cat without hitting a trap for some unsuspecting raccoon.

economessed's picture

Everyone has their favorite historical analogy to compare this market to, and I continually draw parallels between this stock market and the Beanie Baby craze that played-out during the early days of eBay -- around 1998 give or take a year. 

For some reason, people convinced one another that a mass-produced $3 plush toy was intrinsically valuable, and bid prices north of $400. 

Human behavior is highly maleable, and stupidity is a fuel source that powers the cyclic engine of boom and bust.

Ripped Chunk's picture

I remember that fiasco.

Similar situation when I saw the PS III "rights" getting bid up over $2k on ebay.

What the fuck were they thinking?????


crzyhun's picture

Everyopne is 'in' but like Jason B is looking for three exits at the same time

Second, like a charmed snake this market is rising on illusion. Just who is the charmer. Any guesses? The first two don't count...the administration through its lap dogs is the winner. Whether Ben, GS, FRBKNY et. al.

john_connor's picture

This is a time to just look out for your family and remove all capital from the system.  The NY banking cartel will destroy themselves eventually.

SheepDog-One's picture

Agreed, john conner. Im not near nimble enough to out-guess Jason B. on his multiple exit strategies all day long. I'll take 100% safety and just clear the blast zone. Let the zombies eat each others damn brains, Im sick of this.

Whizbang's picture

Or you could just purchase options as a hedge. Thats the difference between the average retail investor and the pro. Hedges...

Celsius's picture

Hedging attempts to hide risky investments. Systemic events can prohibit counter parties from meeting their obligations. AIG CDS's are a perfect example, because without the government bailout the investor hedges would have failed.

orangedrinkandchips's picture

AND HOW brother! just so sick and tired of this crap, enough to make you really sick.

Today I did selling, even the ones I think are solid....hell no. Fuck no they are not.

Who is inflating this market?


God, sometimes like lately I think I am so alone, fucked in the head and wrong, wrong, wrong....I cannot shake the shit that T-bone goes over.

I cant change horses in mid-stream. Once I do, it's all over.

Mutual funds? nah...I think this is a good old fashioned short covering...


SheepDog-One's picture

'April 15 may well be the day the Treasury declares the Renmimbi 'manipulated'"

Pretty bold statement coming from the kings of manipulation themselves! Like pirate crews accusing each other of stealing. Arrrrrgh, mateys.

Great article, Tyler.

merehuman's picture

Pirate economy limping along on a swaying deck in turbulent seas

Headbanger's picture

As long as ol Wiley Coyote doesn't look down when he runs off the cliff... That's the market we've got now.

Prof Gulliver's picture

The market is also digesting Rosie and spitting him out. He may be a great philosopher, but as a stock analyst and predictor he is awful. This game will go on until eternity. Madoff would still be going strong if only he could print money. Let's face it, folks. All of us expecting a crash based on fundamentals are never going to see it. WE are the sheeple.

Missing_Link's picture

Good point.

Those who believe fundamentals still matter really need to answer the question:

What are the mechanisms that cause the market to correct to the fundamentals?

And why are those mechanisms no longer working as they should?

If we believe the market must eventually revert to the fundamentals, what are the mechanisms that could cause that to happen?

Or is the belief based on "efficient market" theories that may once have been valid but have been invalidated since the 1990s by momentum-driven quantitative algo trading?

merehuman's picture

Since we are no longer a country of Laws

anything is possible. Most certainly a higher crime rate.

Until Law is restored there is no market, only a sham of collusion.


GS is short Gold's picture

technical analysis no longer works either. The only thing that works is being on the inside of the good ole boys network. 

merehuman's picture

or on the outside, planting your garden on this sunny day and ignoring the whole show while your PMs are safely stored.

Tethys's picture

Well, I would say that the primary mechanism for the market to correct on fundamentals would be for more people to become aware of what is going on.

And the primary mechanism for making people aware of what is going on is the mainstream media.

And the mainstream media is controlled by... oh my.


faustian bargain's picture

What we need to do is convince N.N. Taleb to be a contestant on Survivor...

Reflexivity's picture

Why?... So, his messages and mutterings get picked up by Joe 6-pack and Jane-the-desparate-housewife who are addicted to prime time TV (since they never end up in the bookstore, let alone the philosophy of finance section)?


economessed's picture

This is the theory of univariate valuation -- establishing a value using the object itself as its own measure of intrinsic value.

But I disagree with that assumption -- valuations are set in context of something else.  In the short run, we can ignore external comparators when we decide to buy a stock (it was up today, I think it will go up again tomorrow).  In the longer-term, facts matter.  Dot com, housing, tulip bulbs, whatever. 

The stock market and fundamentals parted ways at some point over the past 14 months, never to have seen one another since.  They'll meet up again soon, and one of them is going to be profoundly mis-aligned with the other.

crosey's picture

Never is a very long time, and assumes that control can be maintained.  That's the myth.  Control requires that all global players agree, all the time.  Now that is the only "never" that has ever happened.

But it is very true that the market can remain irrational far longer than we can remain liquid.

Prof Gulliver's picture

Never will be interrupted by short-lived episodes such as we had in 2008-early 2009. Then we will resume the rationally irrational flight to eternity. And next time it will be more short-lived. They know how to play the game now.

From "Never Give a Sucker an Even Break":

Card player to WC Fields: "Is this a game of chance?"

Fields: "Not the way I play it, no."

masterinchancery's picture

It can sure go on for a long time with enough help from high places; a great example being John Law and the Mississippi Scheme in the France of 1715 to 1720. Ultimately, however, the result was catastrophic bankruptcy that permanently damaged the French economy, with promoters like John Law fleeing for their lives.

1fortheroad's picture

Exactly and they can keep this trap going for months, maybe years,

its just a constant spin. The trap is called greed.

merehuman's picture

Its  also been said that the "market" was bigger than the PPT. So now which one is true?

Either they can do this forever or

The "market" is bigger.