Guest Post: The Turning Point

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Turning Point

Some technical analysts are calling for a major rally from here, but the massive injections of financial insulin don't seem to be reviving the sagging global economy.

The stock market and economy are both at a turning point. Analyst Martin Armstrong's Economic Confidence Model (tm) set the turn date as June 13/14, 2011.

In the stock market, a number of technical analysts are issuing strong buys based on the negative sentiment of so-called "dumb money"--small investors--and the number of stocks below their 50-day moving averages.

Others such as Armstrong are predicting that Greece has no alternative to default and the Euro is untenable as "one size does not fit all."

It is rare to find a market where the technical evidence is so compelling for a strong rally yet the fundamental basis for such a rally so lacking. Exactly where do Bulls think the growth and rising profits are going to come from?

The answer for the past few years has been massive Federal Reserve/Federal intervention and stimulus, and a weakening U.S. dollar that boosted overseas profits via the legerdemaine of currency devaluation.

But three years of these policies have accomplished nothing but load the taxpayer with staggering amounts of debt: none of the causes of the 2008 implosion have been fixed or even addressed. As Armstrong notes, the massive interventions did not shorten the crisis, they have prolonged it.

This reality has filtered down to the political swamp, and now the politicos are hesitant to bet their own futures on additional trillions in stimulus and quantitative easing. For the first time in memory, the Federal Reserve is on the defensive. Simply put, its policies have failed to accomplish anything except prop up a rotten, insolvent banking sector that needs to be declared bankrupt and swept into the dustbin of history.

As I have noted here before, the next round of QE (quantitative easing) will fail to inflate the stock market regardless of its size or tricks. The fact that QE3 is needed will spook everyone who understands that it is a last-ditch effort to keep the Status Quo financialization from imploding, and since QE2's sugar-high was so brief, others will be spooked by the possibility that the next high will be even shorter.

This is the dreaded Diabetes Financial Syndrome--the Fed is pouring ever larger amounts of financial insulin into the system, but the financial "body" no longer responds to this insulin. The financial system then goes into toxic shock and implodes.

Let's look at two charts for context. Here is the S&P 500 from 1965 to 2011. Hmm, are there any aberrations visible here, any gigantic spikes of speculative frenzy? Just because these spikes of speculative, financialized frenzy have been normalized doesn't mean they are no longer speculative, financialized frenzies.

Has the economy really been healed? If not, then what is the basis of the market's spectacular rebound since 2009? We all know the answer: $6 trillion in Federal financial insulin and another $2 trillion in Federal Reserve insulin. The entire rally, in other words, is an artifact of Central bank/State intervention.

Courtesy of, here is an inflation-adjusted chart of the S&P 500. This chart clearly illustrates that unprecedented Central State stimulus and intervention/manipulation have juiced the market higher than previous post-crash highs.

But the whole financial-insulin project is looking a bit long in tooth compared to previous post-crash markets. In the long run, perhaps we can attribute this extension of the euphoric high of "recovery" to the Fed's QE2, which pumped half a trillion dollars into stocks in a matter of months.

Short of the Fed simply buying trillions of dollars in stocks outright, then it looks like this "recovery" rally is about to have a Wiley E. Coyote moment, as it has raced off the solid ground provided by the Fed's QE2 injections and is now poised in thin air.

Of course the market could rally from here, but it's hard to see on what basis other than a technical dead-cat bounce. The Fed could announce another round of intervention, and that would certainly give the comatose body a jolt. But for how long?

If it does respond to gravity, then we might want to re-visit the definition of "dumb money:" small investors have been pulling money out of the stock market all during the QE2 insulin-rush rally while the "smart money" has been piling in, blubbering piously about the key tenet of their religious faith, "don't fight the Fed."

So which do you think is all-powerful, smart money--the Fed or gravity? We're about to find out.

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hugovanderbubble's picture

ThankS Charles Hugh,

Larry Darrell's picture

"Simply put, its policies have failed to accomplish anything except prop up a rotten, insolvent banking sector that needs to be declared bankrupt and swept into the dustbin of history."

This could and should have been done a decade ago when the consequences wouldn't have been as drastic.  Still, doing it now is better than waiting and can kicking even longer as the scope of negative consequences continues to build.

HelluvaEngineer's picture

Exactly where do Bulls think the growth and rising profits are going to come from?

Since when did the Bulltards start thinking about anything? Booyah, all.

SheepDog-One's picture

Thats right, as long as the bulltards see their 401K as 'ok', then all is well for the Treasury until they decide its time to seize the 401K's and pensions. 

Bernank and the central bankster cabal did not do all this monetizing to ensure mom and pops could retire comfortably thru their golden years at The Villages.

HITMAN56's picture

HelluvaEngin...great call on VXX a few days back btw

Rodent Freikorps's picture

Cloward-Piven Chaos, bitches.


SheepDog-One's picture

Bunch of old-timey street thug organizer nonsense. 

Greeny's picture

Very interesting Article on possible QE3

"Bernanke said: "A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years).

"The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well."

Read more: Pimco's Gross Tweets Fed Will Curb Treasury Yields

Tyler Durden's picture

We always appreciate when Reuters takes our ideas and observations without attribution:

Bill Gross Warns QE3 Is Coming In The Form Of "Operation Twist" For The 2 Year

Cognitive Dissonance's picture


To attribute anything to you would be to acknowledge you which would then require a whole bunch of explaining. Can't have that from one of the MSM keepers of the public (financial) myths.

mayhem_korner's picture

Maybe you're the new deepthroat.  Take it as a badge of honor.

Cognitive Dissonance's picture

Only in this case the MSM wants to stuff a rag down Tyler's deepthroat and silence the heretic.

mayhem_korner's picture

Good call, but methinks the MSM has been losing the battle of silencing the heretics (aka truthtellers) of late...

Caviar Emptor's picture

As the old memes die, and events deviate consistently from the old playbook, they find themselves stammering to explain what is going on to the public and even to themselves. Suddenly Tyler makes a whole lotta sense. Wass't that a song Suddenly Tyler  ?

Cognitive Dissonance's picture

I've thought about this long and hard. And while a growing minority are waking from the dream those who wish to remain asleep will do so and will use the MSM (or anything else for that matter) as a convenient excuse to dream on.

Ultimately it matters not who speaks the truth but who is moved by the truth or lies. Even when the entire stinking edifice collapses I have no doubt the MSM will be used to deflect blame and find scapegoats. As long as lying is still effective truth is immaterial except to those who value it above all else. To those still dreaming truth is not welcome and thus the lies are deemed extremely valuable.

It is not the liars who are the most dangerous, but rather the majority who accept the lies even if they do not believe them. An inconvenient truth is inconvenient precisely because the lie is welcomed and thus very convenient. Truth telling in and of itself is not enough. Truth must be embraced.

Caviar Emptor's picture

CD: as usual great insight. 

You might be interested: in my travels to different cities in the US recently, I find that in talking to the plain folk out there that they aren't drinkin' the Kool Aid anymore. And not afraid to tell you so. They tell you how bad business is, how everybody's on the defensive and have changed their spending patterns markedly. They think politicians chose not to get it. And they believe in peak oil and global warming more than they believe in evil speculators. To my surprise. 

Cognitive Dissonance's picture

As I have continued my Johnny Silverseed wanderings I too am sensing a change in perception and awareness. However this might just mean that we are entering a Soviet Union style era where the population doesn't believe its leadership and in minor ways even tries to subvert it yet does nothing to effectively undermine it.

As more and more people are compressed into the lowest common denominator class and need to fight on a daily basis just to put food on their table they will not direct energy towards fighting the greater evil or even protecting the greater good. It is only when they have nothing left to lose that they will act like they have nothing left to lose.

This is why I suspect this insanity will go on for much longer than most here on ZH believe is possible. Things can always get worse and our own inner denial can always put off to tomorrow the revolution that needs to take place today.

MrButtoMcFarty's picture


Inflation is good for TPTB and bad for the unwashed masses/bottom 95%.

That is exactly why inflation is a sure thing for much longer.

prophet_banker's picture

the revolution that needs to take place today"   - so well said +1

mayhem_korner's picture

"What is truth?" Pilate asked.  (John 18:38)

Cognitive Dissonance's picture

Truth is simply a perception because it comes from an external source and thus is subjected to distortion and manipulation. Knowing comes from within and when sought is irrefutable and undeniable.

(CD 2011)  


Cognitive Dissonance's picture

I know. See my smiley face above? I was being silly and foolish. Except about the knowing part.

:>) :>)  <---- two smiley faces, one for me, one for you.

ibjamming's picture

And WHO was there writing this down?  Nobody...  Yet you believe these words to be TRUTH?


Just making a point...not meant as an insult to you all religious followers.

Cognitive Dissonance's picture

The vast majority of the Bible was written and gathered together centuries after the fact. In today's world that would be consider hearsay.

BTW I love the fact that the word 'heresy' is so close to 'hearsay'. The manipulation of language has been going on since language was first used. It is embedded directly into our words and phrases and continues to this day.

Raymond Reason's picture

And that is why Truth and Correct Doctrine are the charge of the Church.  It was always the Church that was charged with preserving Jesus' and Paul's and the early Church Father's teachings.  And if you study the teachings of the Orthodox Church you will find "the gates of hell have not prevailed...". 

falak pema's picture

That Emperor Constantine did a good job when he chose those who would figure in his bible and those who would not; the latter would then be charged, for time immemorial, by the "official" gatekeepers of the Christian church of Roman Emperor, as "heretics"...and not the true followers of Constantine's spiritual reform of his Empire.

No more Zeus and all those other gods who were growing by the dozen, like a new fad in a decadent empire.

Not on! As cause for internal tension amongst those who continued to worship the traditional pagan hellenistic gods.

SecondComing's picture

Re: Truth

"A truth’s initial commotion is directly proportional to how deeply the lie was believed. It wasn’t the world being round that agitated people, but that the world wasn’t flat. When a well packaged web of lies has been sold to the masses over generations the truth will seem utterly preposterous, and its speaker a raving lunatic.” — Donald James Wheal

Cognitive Dissonance's picture

Nice quote.

I often say that truth isn't the problem. It's letting go of what truth displaces that cause the pain and disruption. Teaching an infant 'truth' is not a problem at all. Teaching an adult 'truth' who has been indoctrinated in a different 'truth' (usually distorted and manipulated 'truths') all his or her life is a major disruption.

The liar always says he is speaking the truth and that the others are the liars. This is why we must all search within to discover our inner knowing.

SecondComing's picture

There's another quote about inner knowing, CD.  I've said it before, many times, in many forms, and I will write it again for conversational flow:

"I am the Truth."

Even the Cretan paradox cannot disprove the Self-referential nature of Truth.  That is, only I decide(s) to accept or reject this irrefragible ontology. about cognitive dissonance.

Cognitive Dissonance's picture

In my book there is a world of difference between 'truth' and 'knowing'. You mention a "quote about inner knowing, CD." but the quote then uses the word 'truth'.

Not arguing with you. But the words 'truth' and 'knowing' are often used interchangeably (IMO to obscure and to promote dependence upon an external source for 'truth') and based upon a strict definition they should not.

mayhem_korner's picture

Spot on.  That's why I absolutely hate the phrase "his/her truth" or "his/her reality."  Perceptions are moldable, truth is immovable.  And inference is not truth, either, which is a bad habit the world has picked up.

The most difficult concept I find people struggle with is when they do not know the truth (i.e., they cannot discern it absolutely).  That's when our own, individualized version of the "truth" fills the vacuum.  And we bear it like an absolute, contesting with others as to who's logic holds the most weight.

And in the midst of all that, absolute truths are branded as heresy.

Wonder why the "market" behaves in ways we believe it shouldn't?  C'mon now! 

mayhem_korner's picture

the Self-referential nature of Truth

You've just called out the sleight-of-hand of environmentalists.  Who's at the center of one's environment?  The irony of the moral high-ground pining enviros is a bottomless pit.

Greeny's picture

Thank you very much, Tyler, great read, very informative.

mendigo's picture

for what it's worth, i have seen zh cited by Colin Barr

there are more raw facts here on any day than in a month of msm articles and many of the facts will never show-up on msm 

should be pay service

i wish your articles were posted or could be viewed as a thread

Al Gorerhythm's picture

That SP 500 1965-2011 chart is one raw fact that should scare the crap out of anyone who really looks at it. Go on, stare at it for a while and watch what it says about our bloated society. Its under-lyings, reading from left to right, range from Meh to OMG!!!, and the scary part is it is only one metric of the unleashing.

mendigo's picture

possibly, but needs to be viewed in light of inflation - particularly now that goldman runs the presses

nevadan's picture

If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well."

The key words in the Bernank's statement is "if" and "likely".  It starts with an assumption "if it were successful" and ends with a prediction "would likely fall as well".  Based on his track record of economic predictions there is a high probability that just the opposite will happen.

Badabing's picture

Lets see the charts priced in gold

mayhem_korner's picture

Priced in Ft Knox gold it goes to infinity.  :D

mayhem_korner's picture

Ouch.  'most put my eyes out.  Be careful with that thing.

More of a "down escalator" than a "road" to me...


mendigo's picture

now that's the real deal - tobagan ride the hell (bitches)


yabyum's picture

This is going to hurt. You can't keep this propping up shit forever.

razorthin's picture

You never, ever argue with the technicals.  Sorry, I know many here do not agree, but it is my conclusion in reviewing my successes and failures.  If you look at historical market data and the concurrent fundamental stories, you will find an almost perfect inverse relationship at major turning points.  What the technicals predict seem to magically materialize in the fundamentals (public knowledge that is) a short time later.

That said, I don't think we are nearly at the sentiment extreme for a major reversal.  Minor counter-trend bounce, sure.