Guest Post: The Sharpest Rally Since 1644

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Sharpest Rally Since 1644

The recent stock market rally's manic force is deeply suspect.

According to my research, last week's stock market rally was the sharpest such surge since 1644, just before the Ming Dynasty collapsed and Europe was decimated by an epidemic of plague. Perhaps that is coincidence, perhaps not. The Status Quo always tries to brighten the outlook just before things fall apart, and nothing cheers flagging spirits more than a sudden rise in wealth.

The rally in barley in Babylon during the last week of December 1748 BCE was almost as robust, a peculiar coincidence given the next sharpest rally on record was the rebound in Dutch tulip bulb contracts which also occurred in the month of December, 1636.

Shares in the South Seas Company recovered much of their initial losses in a similar rebound in London, September, 1720, a welcome respite for all the investors who were about to be wiped out by the 80% decline in share value when that bubble popped.

More recently, condos in Florida saw a sharp uptick of sales and prices fetched in August, 2007, just before that market collapsed in a great heap.

You see the pattern: the sharper the rally, the closer the market is to the bubble's end-game. The South Seas Company is the closest analog financially to today's Fed-goosed stock rally; massive insider profiteering and official intervention pushed share prices up, fueling a frenzy of buying and forecasts of rising profits forever. In another eerie parallel, the South Seas Company's entire raison d'etre was to offload government debt onto a proxy entity to evade the perception that government debt was out of control. (Funding various wars tends to do that to national debt.)

Does anyone seriously believe this rally is based on fundamental strengths in the U.S. and global economy? Uh, sure. Let's be honest, the whole thing reeks of massive goosing by proxies with the goal being perception management. If the stock market is rising, wealth is increasing and the economy is healthy. Or so goes the marketing pitch.

With the end of QE2 and endlessly rising government deficit-spending stimulus in sight, the market sagged. No wonder; without the hot air supplied by the Fed and $1.6 trillion deficit borrowed and blown annually, what the heck is going to keep the Central Planning "recovery" inflating?

Nothing. Where does that leave The Powers That Be? Horribly exposed to the chill wind of reality. And what's the easiest way to engineer a perception that all is well? A massive stock market rally that forces everyone who bet against the Fed to cover their bets, a rally so sharp and powerful that it triggers every technical "buy" on the planet: Advance-decline line: BUY! Rising moving averages: BUY! Dow Theory: BUY! etc.--except for volume, which is declining, insider buying, which is as usual swamped by insider selling, and a few other indicators that the players can't control.

Doesn't it strike you as a bit too perfect? The central bank ceases officially propping up of risk assets to the tune of $100 billion a month, and in the normal course of events it would be natural for doubts about the future to weigh on risk assets. Instead, they all go nuts in a straight line up. Interesting, to say the least.

The entire ramp in corporate profits was a see-saw result of the Fed trashing the U.S. dollar. Dollar goes down, profits earned abroad in non-dollar currencies go up. Simple. But unfortunately for the Fed and global Corporate America, the dollar, despite the Fed's numerous arrows in its back, is still alive and is heading for its see-saw date with the euro, a.k.a. the DXY. If the euro implodes--and what exactly is holding it up other than empty promises and ECB duct tape?--then the dollar will necessarily rise, regardless of other conditions.

And when the dollar rises, Corporate America's ever-rising profits hit the reef and sink. It's really that simple.

The stench of official desperation is in the air. The release of oil reserves, the stunning rally on threadbare "good news," the touting of absurdly trivial increases in consumer debt--it rose by $5 billion in a $14 trillion economy, oh happy day, we're saved!--it's all so transparently designed to manage perceptions, because perceptions are what drive the "animal spirits" of borrowing and spending.

It's nice that luxury auto sales have skyrocketed to new highs--good going, guys. Wealth is back, baby, and everything's fantastic.

But soaring luxury auto sales might not create the perception the handlers intended. Note to Fed, Treasury, White House, Congress, mainstream financial media: you need to get out more. Goosing the stock market works for "your people," just like that last big rally in 1644 gave a warm and fuzzy feeling to the Ming Dynasty insiders. But it didn't move the needle on the real economy or dissolve the perception that the whole rotten edifice was crumbling.

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AladdinSaneGirl's picture

Having weathered this storm, we need to get on to predicting the next dip. Don't want another 2 months like the last.

Grease Mokey's picture

your right Aladdin. onwards and upwards! (no pun intended.)

Grease Mokey's picture

your right Aladdin. onwards and upwards! (no pun intended.)

jedimarkus's picture

A key point he makes that I could not have said any better:

"...what's the easiest way to engineer a perception that all is well? A massive stock market rally that forces everyone who bet against the Fed to cover their bets, a rally so sharp and powerful that it triggers every technical "buy" on the planet: Advance-decline line: BUY! Rising moving averages: BUY! Dow Theory: BUY! " 

The underlined boldface emphasis is my own and my point of the idiocy of believing that the manipulators are not more than aware of the technical trading community that perpetuates the fraud Ponzi scheme by feeding into their old technicals that used to be backed by volume and real market participants giving the price movements in the respective markets their legitimacy.  If I had a trillion dollar printing press, I could put ANY market into a "buy" uptrend breakout Andrews pitchfork Fibonnaci salad spinnner Jack LaLanne juicer Big Bird boo-yah buy signal....  Watch out Uncle Ben, black swans seems to come out of nowhere....

HungrySeagull's picture

Just a last spasm of a corpse that has not understood the brain is long dead prior to the bacterial work that is about to happen.

Even the parasites that killed the host too will be cremated for public safety prior to disposal. I understand that they are developing acid disposal and pour corpse down drain as being easier and less energy intensive versus the fire.

Fish Gone Bad's picture

I have an acquaintance that used to sell/deal a fair amount of drugs.  This is a person that I pretty much only knew in passing.  Anyway, he was one day discussing body disposal in Mexico.  One day he talked about some guy that dissolved the bodies in hydrochloric acid for about $5/body.  Then there was another group of people who would take the bodies out to the desert, dump the bodies and let the crows and ants eat the bodies, then come back and pulverize the bones to dust. 

The world is actually a lot more scary than people realize.

RafterManFMJ's picture

I farm all my body disposal duties to a subsidiary in China.  For .50 cents per body, they unpack them from the shipping containter, dress them in a Mao Suit, and salt them away at some party position.  Oftimes they get a salary.

bob_dabolina's picture

Really? I saw the DOW rally nearly 1000 points in the course of 24 hours last year. That seemed pretty sharp to me.

Frankie Carbone's picture

Really? When exactly was that? I just checked and besides a flashcrash there is no such 1000 point rally in a day. 

machineh's picture

The Dow soared 15% in ONE FRICKING DAY in mid-March 1933, when the NYSE reopened after the bank holiday. Last week wasn't no 15 percent rally.

Research doesn't 'show' anything unless CHS cites hard numbers to prove his point. Until proven otherwise, his assertions about 1644 et al are just a load of sensationalist bilge ... and way below his usual high standard.

equity_momo's picture

Not taking sides as im dubious on what CHS is saying here but using the 40% dollar deval v gold to produce a 15% one day anomoly isnt worthy of disproving his claims.

machineh's picture

Sorry, the dollar devaluation against gold didn't start until several months after the bank holiday. Consult 'Monetary History of the United States' and then try again.

equity_momo's picture

I stand corrected. I think this is the chronological order of events :


March 6th the President forbade the hording of gold , $10,000 fine and/or 10yr prison(order 6102)

March 9th Emergency banking act (bank holiday) a de facto deposit guarantee ending the bank runs.

March 15th , first day of trading since EBA , market +15%

April 5th Exec Order 6102 signed

May 1st 1933 deadline for gold returns

Jan 31st 1934 Gold officialy revalued from 20 to 35

h3m1ngw4y's picture

look at one year weekly and this candle stands out like a sore thumb to you

SwingForce's picture

Extra Extra! Read All About It! On Zero-Hedge, why only yesterday...

"117 SPX pts 10 days 8.4% increase Nov-Dec 2007"

So, suckwallamadugga, Charlie. Hi Zilch!

max2205's picture

One day Charile will be right about the market. People comment on the economy should stop trying to call market turns. Wipeeeeee ouuuuuuut

SwingForce's picture

As Marcus said yesty, and I quote:

by MarcusAurelius 
on Fri, 07/08/2011 - 19:33

You know this is mind boggling that people even remotely consider that this is anything but a dead cat bounce. What recovery in the past fifty years was quatitative easing used? What recovery had unemployment this high and with no end in sight? What recovery had consumers in so much debt? What recovery happened with no corporations hiring and afraid to hire. What recovery happened where proper accounting was thrown out the window? What recovery was there where housing was contracting like it is still? I mean this is as obvious as the sun rises that governments are dealing with a global depression becuase of debt. It won't be solved until the debt is purged.

Gordon Freeman's picture

Chucky's on a real roll these days, but prolly about time to STFU for a while...

Biggest rally since 1644??  Gimme a fucking break--CHS is the new Leo...

snowball777's picture

Go long, please. All in, if possible. I'll even borrow the shares to sell you.

BKbroiler's picture

what about the panic of 10,000 BC and the massive glacier short? no mention...

Dr. No's picture

That was actually bullish.  The distruction of the glaciers was epic and the resulting rebuilding added significant GDP.

Amish Hacker's picture

And the glaciers themselves were only transient.

jedimarkus's picture

I am still short North Sea glaciers...

Salah's picture

all betting on the come, buy the rumor, sell the news.  trouble is the news leaking out (Friday's smployment numbers and today's WP revelation that the Senate Dems are back to smokin' rope)...portends a very, very bad outcome. 

With that Democratic Senate proposal ($4 trillion in non-entitlement cuts, $2 trillion in taxes) Monday could be 'very interesting'


random shots's picture

Since Oct 1928, The Dow has increased by 5.43% (last week's rally) or more on a weekly basis in 80 different weeks.

Articles like these turn Zero Hedge into Fox News Rants....

Bay of Pigs's picture

Which begs the question, why did he say this? His credibility will vanish in a heartbeat with historical errors like this.

akak's picture

Really --- I was wondering if I had somehow slipped into reading "The Onion" by mistake.

HungrySeagull's picture

Actually into staged talking head arguments by forum, not on live tv. Less filling and less stressful.

akak's picture

Articles like these turn Zero Hedge into Fox News Rants....

I guess Tyler felt the need for some putative if dubious "balance", given how leo quislingasskiss' liberal-statist rants were turning his particular soiled corner of ZeroHedge into MSNBC.

max2205's picture

+1000. Posters need to get their fucking facts right before they come here ( or cum here)

rcleonard84's picture

The consumer debt numbers are giving a false impression of growth because the government has apparently added into the data recently government student loans. This info comes from Pragmatic Capitalism:


The Federal Reserve reported a rise in consumer credit this afternoon, but as I’ve noted in past months, this data is entirely skewed by the newly added Federal Government student loan program which has given recent consumer credit data the appearance of a significant improvement.  If you back out this newly added data you actually get a continuation in the negative trend in consumer credit with a month on month decline of $1.6B.  Year over year the figure is still dropping 5.6%.  It’s not a pretty picture out there despite the government’s efforts to right the ship.

HungrySeagull's picture

Ignore the credit card data.

That is just Physical Silver and Gold purchased on a unsecured credit card.

css1971's picture

No, you're missing the wood for the trees. It isn't about stocks, it's about bonds.


Where do you go if you don't want to be in bonds?




disabledvet's picture

absolutely.  having said that REIT's are still the better performer--with the Silver Surfer top dog.

And all these girls these days trying to learn how to


css1971's picture

Nope, the reason you don't want to be in bonds any more is the yield is too low. Cash is lower still.


They are going to stocks and maybe gold.


Use of Weapons's picture

Someone else who reads the Farmers Weekly.


Interesting [do a grep of my posts on Barley if you want].

equity_momo's picture

Gold.   Make way  , 1600 coming through. All aboard.   DOW-Gold ratio still has oodles more room before it gets to a level sustainable for an economic revival.

css1971's picture

Yeah, well you and I might. But the sheeple have been well and truly told that gold is in a bubble. They know bonds and stocks. Period.

So when bonds tank at the next auction?

equity_momo's picture

When bonds tank at the next auction , the dollar will drop a % or so against the other ugly sister fiat currencies (yawn , who cares) and stocks will probably rally a fraction of that % , and gold will jump up another 50 bucks.  Rinse repeat until a dollar , euro  or british pound wont buy you sachet of starbucks sugar and golds >4k , your 401k still looks like crap and so does the chances of selling your house.

Oh , and gas will be still be more expensive , relative to your income , to fill up than it is now.


Manthong's picture

My research shows a pretty sharp rally back in 410.

Byte Me's picture

Frogs to the boil yesterday, plague and dynastic collapse today.

Tyler -- could we please move on to the more pressing "Alien Takeover" or cometary impact  soon? Even a supervolcano perhaps?