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Revisiting The "Ice Age" - Albert Edwards Charts America's Descent Into Japan, And The Market's Descent To S&P 400

Tyler Durden's picture


Several years ago SocGen's Albert Edwards coined the term "IceAge" (here, here, here, here) to describe the long, unexciting financial and economic slog that follows any credit bust. Recently, after observing (technically it was Dylan Grice but one can be forgiven for thinking they are the same person) the most recent failure by Central Planners to prevent a mean reversion (which however will certainly not stop them from trying - there is a status quo to be preserved), Albert has dusted off the trusty charts that inevitably lead to a very sad conclusion for the central planning brigade: "The Ice Age theme is now well known. In a world of very low inflation and near deflation, equities de-rate both absolutely and relative to government bonds, which also re-rate in absolute terms. After the obscene extremes of equity valuations seen during the 2000 bubble, we have entered a long valuation bear market which should end in extreme levels of cheapness consistent with an S&P around 400. The unavoidable deep recession associated with this level (not forgetting the inevitable China bust) will drag an already  ?expensive? bond market to even higher extremes. One of the key themes of our longer-term analysis is that at the end of one of these lengthy 15-year phases for the financial markets (shown below), investors believe that the current investment phase will continue indefinitely. That was not the case in 2009 and is not the case now. There is still far too much hope to call a bottom." Ergo the selling of #hope (alas the #change has now replaced fiat paper) by the oligarchs. More important than even confidence, the market continues to run on pure unbridled optimism. Take away the monetary spigot and the hope will collapse faster than artificial "record" corporate profit margins. And make no mistake: Bernanke is all too aware of this constantly reappearing and developing dynamic which threatens to end the debt-funded status quo. And the last thing he will ever allow is for it to materialize, $1000/gallon gas be damned.

Presenting the Ice Age:

Some more thoughts from Albert:

In the aftermath of last week’s stunningly weak economic data the market is now beginning to acknowledge that, like last year, without a further round of QE a relapse back into economic stagnation or recession surely beckons. In the post-bubble world, economic downturns are always the most dangerous phase in the cycle – when the Ice Age blows yet another shiver of reality onto market valuations. Both equity PEs and government bond yields will make surprising new lows for a consensus totally convinced of the extreme cheapness of equities and the expensiveness of government bonds. So, this week we revisit some of our old favourite Ice Age charts to see how far advanced we are in our post-bubble long march.

Zooming in:

The post-bubble long march to Ice Age valuations seems fully intact to the naked eye (see chart below). And as the economic gloom intensifies, this is the stage in the cycle when we need to revisit the Ice Age theme. For the Japanese experience shows that in the postbubble cyclical recovery, the Ice Age?s impact on valuations lies dormant, only to viciously catch out unsuspecting investors as the cycle takes its inevitable turn for the worse.

Japan leads the way:

We know exactly what to expect. Japan has been trudging down this very long valuation path for some 20 years (see chart below). The post-bubble de-leveraging finished around 2003 and yet still onward we trudge across the icy valuation steppes with no end in sight. If western investors think we are anywhere near the end of our own deep freeze, let them think again.

Is there any debate left that the US is different than Japan? The chart below should squash it.

One of our favourite Ice Age charts which has most perplexed clients is the one showing the bond/equity cashflow yield ratio. It shows the US is de-rating in exactly the same way Japan did a decade earlier (see chart below).

What clients found particularly surprising is that the left- and right-hand axis on this chart are on the same scale. Hence despite PEs being substantially higher in Japan at the peak of their bubble in 1990 than the US in 2000, price/cashflow ratios were remarkably  similar, as were bond yields. Indeed the exact ebb and flow of valuations with the cycle have also been remarkably similar, suggesting there is a way to go yet.

Lastly, showing just how much more prevalent "hope" is in the US compared to Europe is the chart showing price as a ratio of trend earnings. Simply said, contrary to the gibberish spouted by Ponzi perpetuating business channels, US stocks are anything but cheap.

We typically show just how far the US equity market is from extreme levels of cheapness using the Shiller or Graham and Dodd PE. Let us look at a similar construct, namely the ratio of prices to the trend of reported earnings (see chart below, we use the trend, rather than actual reported earnings to adjust for where we are in the cycle in a similar way to the Shiller PE which uses a 10 year moving average of reported earnings).

What comes next: a complete market collapse, and 2% yields, before the hyperinflationary wave is finally unleashed by the central bankers, sending stocks to infinty and currencies to zero.

Aside from how much more sharply the US valuation has recovered from its 2009 low relative to Europe, one other thing clearly stands out. Investors should note how the 2001 and 2008 recessions brought about savage Ice Age de-ratings of US valuations followed by only a partial 50% recovery of the previous valuation losses during the cyclical upswing. If we are about to set out another leg in the Ice Age de-rating, the next icy ?steppe? in valuations could take us closer to 7x ? i.e. what we would typically expect to see at the end of a secular valuation bear market. By then investors would have lost all hope as we sink into deep recession and bond yields plunge below 2%. That will be the buying signal for equities and time to offload our remaining holdings of government bonds back to the Central Banks.

While we agree with Dylan in principal, the question is what is the true pain threshold for Bernanke and more importantly for Wall Street, and foreign investors (read China) in US equities. While there are political and timing games to be played, with both the debt ceiling and especially with the presidential elections coming up, we somehow doubt Bernanke will allow stocks to drop to 400 before doing what everyone knows is eventually coming...


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Sat, 06/11/2011 - 13:28 | 1361305 Montgomery Burns
Montgomery Burns's picture

YEA! My vxx will finally turn + 

Sat, 06/11/2011 - 15:23 | 1361518 There is No Spoon
There is No Spoon's picture

Unfortunately vxx just doesn't work well because of how it's structured - it decays until the synthetic price of the vix goes into backwardation. I have some too, what I do is sell front month or weekly calls against it whenever it spikes, and use that money to buy vix calls and spy puts further out, like september or october. Vix deep in the money calls are cheap right now.

Sat, 06/11/2011 - 18:34 | 1361868 Instant Karma
Instant Karma's picture

Agree that the major market averages will continue their long sideways churn for years to come. However, great growth stocks can still make one rich as they burst through the ground and blossom. The stock market long ago stopped being a 15% compounding machine. But AAPL and NFLX and AMZN would have made you rich the past 5 years.

Sat, 06/11/2011 - 13:35 | 1361314 Oh regional Indian
Oh regional Indian's picture

Ice Age indeed.

And if mr Robert Felix and Piers Corbyn have anything to say about it, quite the fractal ice age we are getting into.

And it is a fractal world. Icecold markets, icecold traders. Count on it.

This hot, firey, petra-oleum fired game is at end folks. It's going to be a brutal winter...


Sat, 06/11/2011 - 15:16 | 1361505 snowball777
snowball777's picture

Seven billion bicycles...all generating electricity.

Sat, 06/11/2011 - 17:18 | 1361775 Oh regional Indian
Oh regional Indian's picture

nice vision.

Sat, 06/11/2011 - 22:10 | 1362181 morkov
morkov's picture

IT IS A CLASS WAR!!! forfeit any possibility "the workforce" to buy ownership in any business...some people still think that is a sign of enlightened management...but wait another 12 months.

Sat, 06/11/2011 - 13:35 | 1361317 Doña K
Doña K's picture

Benny, has something up his sleeve. O'bummer will need more juice come hell and high water to get reelected and the hell with the economy. Be careful, be very careful.

I am afraid that they may monetize stealthily under the cover of darkness.

Next couple of weeks will give us the signal.

Sat, 06/11/2011 - 13:56 | 1361350 Dr Zaius
Dr Zaius's picture

How secret can it be? Doesn't seem like it would be easy to inject another $2T to $5T into the economy without being noticed. Perhaps I'm not using my imagination.

Of course, this doesn't mean they won't lie and deny what they are doing, even if it is obvious to everyone else.

Sat, 06/11/2011 - 14:08 | 1361368 Quixotic_Not
Quixotic_Not's picture

FWIW, in the former Democratic Republic of the USofA, it was Unconstitutional to issue debt based currency (Art. 1, Sect. 10), but that didn't stop the tyrannical likes of Abe Lincoln or FDR...

The solution is simple, but the sheeple are too stupid...

The state of nature has a law of nature to govern it, which obliges every one: and reason, which is that law, teaches all mankind, who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions ~ John Locke 1690

Hell, even the so-called enlightened don't get it...

Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people, who are thereupon absolved from any further obedience. ~ John Locke 1690

Que Sera...

Sat, 06/11/2011 - 14:40 | 1361436 mukuch
mukuch's picture

They could try collapse the energy prices through whatever means they can. This will at least keep the sheeple "happier" over the summer, maybe give the businesses a little breathing room with input costs till fall when they commence the next round of qe.

Sat, 06/11/2011 - 22:11 | 1362183 BobPaulson
BobPaulson's picture

The problem with energy is that it is a real thing used to do useful work so it's a little harder to fake than other things made of paper or silly putty. I'm sure if they could crater the energy market they'd do it with both hands.


Sat, 06/11/2011 - 21:03 | 1362105 Al Gorerhythm
Al Gorerhythm's picture

In an election year, the peeps will need to know that they are being saved. What's the point of a Messiah if he can't loudly proclaim his greatness and benevolence? I await the heralding trumpets.

Sat, 06/11/2011 - 13:42 | 1361322 Caviar Emptor
Caviar Emptor's picture

Here's a problem: a crash is supposed to cleanse. It's supposed to purge the economy of failed business models, inefficient enterprises, outdated methods and trends, and usher in an era of new ideas, new entrants and meaningful competition that reinvigorates the economy and starts a new cycle of expansion. 

But the plan since 2007 has been to conserve the old, regardless of failure and inefficiency. That's what they called TBTF. And the rot is still all around us, like uncollected garbage on a hot summer day. It attracts maggots and rats. It's a drag brake on the economy. 

So if we have another downturn, will they allow those who failed to fail? Will they permit the needed cleansing to take place? Or are the stakes now even higher. So high even that they'd be willing to hire an army of Russian mercenaries to fire on protesting, hungry Americans? 

Sat, 06/11/2011 - 14:18 | 1361390 Rational Psycho
Rational Psycho's picture

Who needs Russian mercenaries? They have plenty of home-grown thugs who are more than willing to fire on their neighbors if their masters call them terrorists and they get the adrenaline rush of pulling the trigger.

Sat, 06/11/2011 - 14:30 | 1361401 Quixotic_Not
Quixotic_Not's picture

The USA has plenty of sociopathic mongrels, already on the .GOV payroll, that would shoot their fellow 'MeriKans.

Hell, the (D) & (R) Free Shit Empire™ will probably created a national holiday (certainly there'll be at leasts a big parade in NYC) to commemorate the cleansing of the patriot scurge...

Sat, 06/11/2011 - 14:23 | 1361394 three chord sloth
three chord sloth's picture

Excellent point, Caviar.

Sat, 06/11/2011 - 14:43 | 1361439 Hedgetard55
Hedgetard55's picture

Good post but this idea that the business cycle can be short circuited has been around since the late 80's and early 90's under Greenscam. Remember during Slick Willie's reign the Dems claimed they had conquered the need for a business cycle and recessions.

Sat, 06/11/2011 - 14:50 | 1361445 HitTheFan
HitTheFan's picture

The issue surely is that those who 'failed' : banksters, GM, AIG...the list goes on, they are the ones pulling all of the strings.

So, no, of course they will be bailed out again, and the transfer of wealth from taxpayer to the corporate elite goes on and on and on.

Til hyperinflation, but they will be hedged for that day long before their wealth is destroyed like everyone elses.

How would the likes of the IRA deal with this conundrum I wonder? Talk does no good. Voting is pointless. Some of you Americans need to get yourselves organised, you know what I am saying?

Sat, 06/11/2011 - 14:54 | 1361453 zaknick
zaknick's picture

Well said though I would point out that their monopolies go back to the old robber baron age which they've outdone now.

The other point is that in order for you to be free and justice to be meted out, they have to lose their cherished perpetually genocidal DoD & MIC; their Praetorian Guard.

So there will be blood unless individuals act of heroism get through the MSM to rally sympathizers which might even be within the armed forces.

On the other hand, can you imagine an online forum aptly titled We the People where all of the nation's biz is discussed, voted and enacted. Where in order to contribute to your country all you have to do is EASILY reach out to your countrymen and gain votes and change anything? All monies, contracts, policies transparent and fully accountable? Responsive to only a majority of the people?

That is how it's supposed to be.

Sat, 06/11/2011 - 22:25 | 1362194 BobPaulson
BobPaulson's picture

Seems idealistic.

To me the scariest thing is that somehow I even doubt if improvement is possible in a virtual world. Somehow the pathological liars and parasites always get to the cookie jar first because of the deadly combination of overpopulation (precludes real person to person relationships), advanced psychological science in contolling the masses and media and communications that are always a deceptive veil between reality and the people.

The ONLY safeguard is to be extremely vigilant and perceptive; that is beyond the capabilities of the median person in our society.

I know that sounds like a bummer. Open to rebuttals.

Mon, 06/13/2011 - 09:37 | 1364571 Ponzi Unit
Ponzi Unit's picture

True dat.

Sat, 06/11/2011 - 15:45 | 1361589 Cyrano de Bivouac
Cyrano de Bivouac's picture

Sat, 06/11/2011 - 21:12 | 1362119 Dugald
Dugald's picture

Why import any army. When you have ghetto's full of people, who, if paid well, will happily shoot down fellow The tricky  bit is disarming them all after the job is done.

Sat, 06/11/2011 - 22:44 | 1362222 BobPaulson
BobPaulson's picture

Need a suicidal foreign war for that, not difficult at all. The Eurasians and the Eastasians are always there threatening the safety of Airstrip 1.

Sat, 06/11/2011 - 13:43 | 1361324 Monedas
Monedas's picture

I agree with those who think QE3 will be renamed ! Three strikes and your out ! Any ideas on the new name for QE3 ?

Sat, 06/11/2011 - 13:52 | 1361338 Dr Zaius
Dr Zaius's picture

Winning The Future

Sat, 06/11/2011 - 13:53 | 1361339 Dr Zaius
Dr Zaius's picture

Of course, it will be Charlie Sheen style of winning.

Sat, 06/11/2011 - 14:00 | 1361344 Seymour Butt
Seymour Butt's picture

They won’t call it anything. That way it never happened.


Sat, 06/11/2011 - 14:18 | 1361391 Re-Discovery
Re-Discovery's picture

"Financial Repression" (Banks buy bonds.  Dont lend. Bill Gross' new mantra.)

Sat, 06/11/2011 - 14:37 | 1361425 Spigot
Spigot's picture

Well, form following function, they would need to name it for what it does. So, I would assume, since the action will be a complete B*F'ing of anyone holding US$ or fixed rate obligations (as creditor) a la your prison cell "mate" who just took an un-natural liking to you the new inmate, it might be something like "The Golden Johnson/Long John Silver Precious Insertion and Stabilization Program" or GJ-LJS PISP. In this case the precious will indeed be only the friend of those who stand behind it...

Sat, 06/11/2011 - 13:57 | 1361351 doesmybuttlookf...
doesmybuttlookfatinthis's picture

Cash de(sup)pository  insertion?

Sat, 06/11/2011 - 13:58 | 1361354 Ponzi Unit
Ponzi Unit's picture

Yes, BTFD, but the dip could be only partly completed at this point, with much more room to the downside.

I took delivery this week of what the vendor called a very large order of silver rounds. Regrettable timing; I overpaid. That said, I am comfortable, and expect  the big bull move to materialize after further weakness in all commodities, PM's included.

Oligarchs' Kabuki: first the bad numbers, then the selloff, loss of momentum, then QEn and four more years of the Debt Brother from Planet Doughnut.

Sat, 06/11/2011 - 13:59 | 1361356 SilverDoctors
SilverDoctors's picture

QE to infinity...AND BEYOND!!

Sat, 06/11/2011 - 14:21 | 1361369 slewie the pi-rat
slewie the pi-rat's picture

something in this has left me unsure where numbers ends and ?deuteronomy? begins.  like QE(n), itself...

the old econom is struggling along day-to-day (aren't we all?) while we test the upper limits on the price of a bushel of corn.  the oligarchs and central banksters have created a freaking monster and they are now trying to wean it while they listen attentively for its first words...

... eeeeEEEAT ...mmmMMEeee!

Sat, 06/11/2011 - 14:36 | 1361423 cosmictrainwreck
cosmictrainwreck's picture

begs the question....who eats whom?

Sat, 06/11/2011 - 15:21 | 1361513 snowball777
snowball777's picture

news flash: several dining philosophers die, attempting to resolve paradox from shortage of cutlery, film at 11.

Sat, 06/11/2011 - 14:21 | 1361383 THE DORK OF CORK
THE DORK OF CORK's picture

The reason we are in such a pickle is that the last time we saved money / energy in the late 70s early 80s we blew it on useless monetarist tosh.

There is little point in having a world of conservative Austrians who save energy only to see it blown on mindless consumption.

Without vision on the other side of the equation you ain't got nothing.

Neo Keynesian puritans have far more ideas in this Minsky moment then the false Gods of Libertarianism.

We need a Goal

"either this thing goes up or it goes down "


Sat, 06/11/2011 - 14:34 | 1361420 topcallingtroll
topcallingtroll's picture

You are right. They definitely have more ideas. That is the problem.

Sat, 06/11/2011 - 15:03 | 1361469 THE DORK OF CORK
THE DORK OF CORK's picture

Department of homeland security budget 2010 : $44,457 million

                                               budget 1966 : $705 million 

Department of energy budget 2010 : $30,778 million

                               budget 1966  : $2,343 million

NASA budget  2010 : $18,906 million

Maximum NASA budget in real terms (APOLLO DEVELOPMENT PHASE) 1966 : $5,993 million

Sat, 06/11/2011 - 15:00 | 1361472 three chord sloth
three chord sloth's picture

Sorry, Dork... you're wrong.

You seem to have a pretty good head on your shoulders, but you also seem unable to break free from the crippling effects of mal-education, implanted by a system that pretends widespread prosperity and human dignity flow from the wise and enlightened hands of a properly educated technocratic elite. And, coincidentally, that elite looks and sounds just like the college professoriat.

There is little evidence of long-term success in the technocracy. Every elite-driven system, including a so-called meritocratic one, eventually succumbs to the blindness of the self; the belief that "if everyone only acted/thought/felt like me, everything would be fine...". Then is born the system based on coercion, repression, and if left to run it's natural course, the meat grinder.

The neo-Keynesians have absolutely nothing to offer, by the way. As readers of ZH know, the return on debt has gone negative. [] All debt-based solutions will do more harm than good. The multiplier is gone, and debt, like everything else, is subject to the laws of diminishing returns. We can't borrow our way out of this.

Sat, 06/11/2011 - 15:36 | 1361569 THE DORK OF CORK
THE DORK OF CORK's picture

Give me a break

How many kids will the department of Homeland security inspire ?

What has the department of energy done in the last 40 years ?

It is you who has been propagandised by the club of Rome agenda and their little pet projects and ideologies that they resurrect every few years.

From the John Birch society to more sophisticated mind fucks they have destroyed the ambition to explore in the west.

I am sick to my tits of the Peter Schiff's of this world - Its time to let go of these useless shackles - they were not even locked to begin with.



Sat, 06/11/2011 - 16:33 | 1361692 three chord sloth
three chord sloth's picture

What the hell are you talking about?

One minute you're bitching about libertarianism, the next you're tying them into the Dept. of Energy? Homeland Security? And the friggin' Club of Rome?!?!

None of those are libertarian wet dreams, and all were created by the university-created technocracy that believes the world need them to "manage" it for the dim-witted masses. Y'know... the folks I was complaining about in my reply to you.

Sat, 06/11/2011 - 23:33 | 1362305 New_Meat
New_Meat's picture


four legs good

- Ned

Sun, 06/12/2011 - 09:38 | 1362831 mess nonster
mess nonster's picture

I "think" you're saying that NASA will save us all...

Go back to licking the window on the nut-bus. If you want salvation, learn a 19th century trade, like coopering or blacksmithing.

That's where we're headed, not into space (unlike you).

Sun, 06/12/2011 - 14:08 | 1363235 THE DORK OF CORK
THE DORK OF CORK's picture

Mess boy you haven't a fucking idea - 19th century regression is not very practical with 6-7 billion on the planet...... your romantic ideas of the past if conveyed into the world of today will lead to war and pestilence

 You are another poster child for the lack of ambition withen America and the west in general.

Never stop dreaming


Sat, 06/11/2011 - 16:49 | 1361730 snowball777
snowball777's picture

LOL, nice; if you're gonna dig holes and fill them, make sure they're a Hohman orbital transfer away.

Sat, 06/11/2011 - 21:17 | 1362121 THE DORK OF CORK
THE DORK OF CORK's picture

The above observation is correct - but if you are going out - its better to go out in a blaze of glory

Mon, 06/13/2011 - 01:23 | 1364118 tarsubil
tarsubil's picture

I like the premise but what is the point of putting a man on Mars? We proved we could travel a little bit in space decades ago. And the Apollo missions became boring really quick afterwards. Because? There was no point. It was just to say we did it. It was like building the pyramids. Work for work's sake. We developed technologies but that was after using a lot of wealth ordinary people created through hard work. We have no idea if computers and the internet would have been created faster and better in a truly free market. And just imagine if we had, I don't know, attempted to get something from space rather than just send a couple tourists to take pictures and collect rocks? Send up some machines that can build something like a mine or a power plant that produces something we here on Earth could use. That would be a collosal effort but I think that would be a goal that would actually pay off and go somewhere besides planting a flag on another planet and saying "yay, we did it!"

Sat, 06/11/2011 - 14:21 | 1361396 I am more equal...
Sat, 06/11/2011 - 15:52 | 1361596 Waterfallsparkles
Waterfallsparkles's picture

Yes, Wall Street is in a panic.  What I have noticed is that no one is really selling their Stocks.  You still see churning and a little drop from their highs but no one has sold by any significance.  It appears that they are just treding water, waiting and hoping for more Bail Out Money.

Sat, 06/11/2011 - 23:03 | 1362245 BobPaulson
BobPaulson's picture

If somebody sells, somebody else has to buy I think. Call me old fashioned on that one. When there are more sellers than buyers, the price goes down to get the number of buyers to match. Not complicated.

So are you saying there is no volume? That's exactly when the HFT algos kick in and pump it up. From my limited understanding the net victims on these trades are institutional buyers that have to dispense with a certain amount of cash from drones doing automatic monthly buys of mutual funds and things like this.

I think the panic sets in when the QE3 headfake makes the holdouts capitulate and sell on the way down. Now that margins are through the roof that will make the terrible swift sword punishing indeed. As the freefall forces the pathological gamblers to sell low, the pigmen will be vacuuming it up like Walmart shoppers on a half price sale of Cheesies, because they will already know the day, hour and minute of the real QE3 announcement that will catapult their plays to the moon... again.

Mon, 06/13/2011 - 09:46 | 1364592 Ponzi Unit
Ponzi Unit's picture


Sat, 06/11/2011 - 14:29 | 1361406 dark pools of soros
dark pools of soros's picture

a few years ago i thought good metal gas cans were too expensive..  now with gas doubled it doesn't bother me so much to pay $45 for a good can.  

there's probably lots of that going around these days


Sat, 06/11/2011 - 14:28 | 1361412 plocequ1
plocequ1's picture

Its all good. Roubini is here to do the weekend stick save.

Sat, 06/11/2011 - 15:30 | 1361547 WallStreetClass...'s picture

ZIRP for life, bitchez!

Sat, 06/11/2011 - 15:46 | 1361580 Waterfallsparkles
Waterfallsparkles's picture

I think Bernanke should have let the Market re test the bottom.  This never happened.  In a normal Market it retests its bottom a few times before it starts to rebound.  Just like now with the Market continually trying to retest its highs.

Bernanke injected himself into the Market and created the direction without allowing the Market to operate normally.  Now many Stocks are trading at all time highs, even though the Dow average has not retested its prior high.  Although, in my opinion that prior high was really pushed to that level, absent true reason.

Bernanke, like all of us want everything FIXED right now and do not want to take the pain required to rebuild a Financial Crisis like we had.  He should have allowed the Market to flounder for a while and build a base for future growth.  Instead he threw Trillions of Dollars into the system to try and correct it overnight.

From historical standards quoted by many the Market after rising about 30 to 50% should have re traced.  But, the Market has gone straight up unrelentingly for 3 years.  So, unfortunately we should retrace the gain and retest the low.

Of course if the Congress raises the Debt Ceiling, I have no doubt that Bernanke will use all of that Money to hold the Market up for the Banks and Wall Street.  They are counting on it.

Sat, 06/11/2011 - 17:23 | 1361778 Boston
Boston's picture

Looks like I'm going to be hanging on to my Long Treasury positions for a while longer.

Sat, 06/11/2011 - 18:11 | 1361842 Apostle of Unknown
Apostle of Unknown's picture

I'm partial to the Ice Age idea, but please stop comparing Japan to the US. They had less household debt at the start of their Ice Age, they have a trade surplus, they were not clinging to a status of "world reserve currency" that will somehow forgive all monetary sins, they are having a demographic crunch and the world in 1990 was very different from that in 2010. And most of all: they are JAPANESE. That's right, Japanese people are different from Americans. They're complacent, docile and bear technocratic abuse without complaining, all in the name of collectivist order and harmony. To do otherwise is to be a gaijin. Because of this cultural X factor alone, the US Ice Age will not last nearly as long as that in Japan. Americans, both the leaders and the people, don't have the patience to go through 20 years of nothing happening. Besides, at some point we WILL see the yen, the Nikkei and the TOPIX go supernova together. The laws of karma apply even to them.

Sat, 06/11/2011 - 20:12 | 1362021 Noah Vail
Noah Vail's picture

The Japanese system is failing as badly as ours, and now on an equally accellerated pace. Fukushima has unnerved the entire population, resulting in the complete loss of confidence in the Jap "system." They now understand its rotteness, regarding their island as the island of the setting sun.

Sat, 06/11/2011 - 22:24 | 1362200 ViewfromUnderth...
ViewfromUndertheBridge's picture

Creative Destruction meets TBTF and foodstamps...US has a hurdle to clear before the jury returns a verdict on this Japanese thing.

Sat, 06/11/2011 - 18:59 | 1361874 The Fonz
The Fonz's picture

Hmm... I agree the market is downward bound. However, there is manipulation present. This last friday I would guess that it compensated about 1.5% of the drop in the SP500.  In other words I think without the manipulation the SP500 would have gone down perhaps 3%.  That means that manipulators are buying these stocks ect. and much of the passing of them from hand to hand exhausting a portion of the downward potential of the move. If the market is significantly manipulated to slow the downward pace of the decline as it seems to be, how can fundamentals really assert themselves entirely? If 30% of the decline is bought by manipulators then the turn around must be higher than 400? Once 100% of a stock changes hands then the direction changes does it not?


Also those manipulators often act against assumptions that we base off of the belief that all of the participants have the profit motive. It seems to me that the manipulators DO NOT have the profit motive so I am left a bit baffeled as to how to guage the impact of all of that manipulation for buying.   In history one of the most cunning tricks is to sell something you don't have... or in this instance to buy it with printed (stolen) money that is free to the people buying these things that have real worth.  Whoever the entity is that is the manipulator may be holding enough equities that FLOWS from printing money are less nessisary, a large inventory of equities will limit the downside for the market. Stocks and ownership of them by manipulators allows a very early and strong cessation of the downward trend simply for sake of the fact much of the supply of stocks are owned by those manipulators who have bought them in such a fashion as to limit downside acceleration. (hitting the ask? rolling fills through slightly disjointed exchanges intrasecond and aiming for the worst fills?) 


I do not claim this will work in the longer term. I merely wonder at the impact and motivations of those holding so many equities bought without the motivations that we count on to understand the market.  I also wonder how much of the decline we expect to experience has been and will be bought by them. Further I find it vital to determine who got possession of these stocks. Was it a bank? Who owns so much of America for nothing? We know where the money starts... but when we get those relentless long green streaks of ticks at just the right amount to set the SP down about 1% a day, who is buying? We need to know that.


Please note: I do not claim to be correct, I simply offer this idea becuase I have not seen it elsewhere and it may be of some use.

Sat, 06/11/2011 - 19:53 | 1361985 richard in norway
richard in norway's picture

it something i have noticed as well. and it happens in all markets at the same time but the trigger is always important stops on the Dow. it has started to break down in the last few days but ten days ago it was almost tick for tick across twenty markets plus most  commodities. I'm not sure who or how but when nine out of ten ticks are thesame direction, it is bloody obvious


i gotta say that if i was part of the elite i would do the same, slow the slide down and dont let it become a panic, but doomed to failure methinks

Sat, 06/11/2011 - 20:26 | 1362037 Noah Vail
Noah Vail's picture

It would take an idiot not to notice. Nearly everyone does, keeps their mouth shut and plays it to the hilt. But one of these days the law of unintended conseqences will kick in. And when it does, it will be like trying to escape from a falling meteor.

Sat, 06/11/2011 - 21:25 | 1362129 Itsalie
Itsalie's picture

yes stocks are manipulated but so are bond yields by the same folks aka your friendly unelected Federal reserve.

Second, I think edwards charts works against his thesis that bond yields will reach new lows even as equities tank; during the "dismal years" of the 1970s and 1980s, bond yields shot up even as equity yields surge (ie stocks underperformed). The same seems to be happening after 2009 when equity yield did a sharp U-turn and headed up (yes I realize the last 2 years stock indices wroldwide have doubled but the first chart shows a 50 year trend and the U-turn is very clear). So if the "dismal years" were to repeat in Ice Age (and edwards did not make a case why it should not), then bond yields are heading up'

Last, I think edwards is not very objective in calling for bond yields to go lower; look at his first chart - there is no "15 year bobnd cycle", all I see is bond yields in clear up-trend from 1950 to 1981, then falling since then. A 31-year cycle up-cycle, now followed by the current falling-yield cycle which has lasted 29 years, from 1982 to 2011. At most we will see another 2 more years of lower bond yields. But looking at how equity yield has done the sharp U-turn since 2008, edwards should not hold his breathe.

The true Ice Age is when all assets plunge, stocks, bonds and commodities. 

Sun, 06/12/2011 - 06:49 | 1362694 css1971
css1971's picture

We need defaults. Defaults are inflationary.


People have to pay for their bad investments. The alternative under the current system is zirp (bailouts) forever.

Sun, 06/12/2011 - 09:45 | 1362844 mess nonster
mess nonster's picture

Wait, I missed that. Did you say "defaults are inflationary?"

I guess, in today's looking-glass world, where black is white and white is black, and the doormouse and the cheshire cat run the caucus race with equal chances of winning, and the chessboard melts into a Dali-esque ooze of lava-lamp red and white so that the red queen and the white queen end up locking themselves in a lesbian tangle, yes, defaults ARE inflationary...

...sorry, I was just shaken there for a sec, before the sur(ly) reality of it all sunk in.

Sun, 06/12/2011 - 12:55 | 1363113 The Paranoid Kid
The Paranoid Kid's picture

too many big bad bears

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