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If The Market's Disconnect With Economic Reality is Over, Watch Out Below

Tyler Durden's picture


As market participants ponder the disappointing post-QEtc. performance on their 'Bernanke/Draghi-Put'-floored equities, perhaps these three charts will help in comprehending just how much hope there is in the world's equity markets. The disconnect from macro-fundamental is not unique, but has had significant and extremely rapid repercussions in the past. It seems, however, that just like AAPL, everyone believes everyone else to be the greater fool - and this time is different.


Germany's DAX 'disconnected' from economic reality in 2007 (to the euphoric side) and in 2011 (to the dysphoric side). It seems once again that hope has taken over...


The S&P 500 also exhibits the same disconnect - though even more significantly...


This happened before in the US...


That didn't end so well either...


Charts: Bloomberg


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Fri, 10/19/2012 - 18:18 | 2905640 Desert Irish
Desert Irish's picture

Reality is merely an illusion, albeit a very persistent one - Albert Einstien



Fri, 10/19/2012 - 19:12 | 2905718 Precious
Precious's picture

"Einstein was overrated."  - M.E.

Fri, 10/19/2012 - 18:29 | 2905659 Row Well Number 41
Row Well Number 41's picture

"Reality is that which continues to exist, even after you stop believing in it."  Philip K Dick

I repeat that to myself whenever I doubt what is coming.


Fri, 10/19/2012 - 19:13 | 2905719 Precious
Precious's picture

"Reality is overrated." - M.E.

Fri, 10/19/2012 - 19:26 | 2905747 Row Well Number 41
Row Well Number 41's picture

Most of the western world believes that, and so watches 500 channels of non reality reality TV instead.  That way lies Dancing With the Stars. 

Ignore reality at your own risk.


Fri, 10/19/2012 - 19:54 | 2905777 tom a taxpayer
tom a taxpayer's picture

This conversation is getting kind of ontological….kind of epistemological...kind of metaphysical. Newton put the "physical" in metaphysical.

And where is Samuel Johnson and his Dictionary when you need him?


Fri, 10/19/2012 - 21:24 | 2905902 stocktivity
stocktivity's picture

"Bernanke is overrated"  -  Romney

Sat, 10/20/2012 - 09:34 | 2906202 falak pema
falak pema's picture

Benanke is hugely over printed! thats the reality! 

Fri, 10/19/2012 - 23:18 | 2906010 logicalman
logicalman's picture

I think he was under rated - only time will tell, but everything that's been thrown at his theories so far has only shown how powerful his insights were

Fri, 10/19/2012 - 20:48 | 2905857 vast-dom
vast-dom's picture

"Reality Is What You Can Get Away With"

Robert Anton Wilson



Sat, 10/20/2012 - 09:31 | 2906201 falak pema
falak pema's picture

you can fool some people...but, history is a bitch and the good gets interred with the bones, while the evil lives on after.

So let it be with NWO US oligarchs...

Fri, 10/19/2012 - 19:39 | 2905760 ACP
ACP's picture

"Inflation is merely an illusion, albeit a very persistent one." - Ben Bernanke

Fri, 10/19/2012 - 21:12 | 2905889 HD
HD's picture

This deserves more green arrows.

Fri, 10/19/2012 - 23:37 | 2906026 Desert Irish
Desert Irish's picture

Yes it does ....well played sir

Sat, 10/20/2012 - 01:49 | 2906101 ptoemmes
ptoemmes's picture

"The market is merely an illusion, albeit a very manipulated one." - Houdini

Sat, 10/20/2012 - 06:45 | 2906153 doggings
doggings's picture

well played indeed, although you are technically incorrect as.. 

"There is no evidence of inflation"   

Sun, 10/21/2012 - 04:33 | 2907458 Incubus
Incubus's picture

debt is an illusion, too.


How valid is a debt when the impoverished, due to ignorance, have agreed to spend their lives away for the sake of enrichment for the clever weasels who designed the systems that we all must reside in?

As long as food makes it to tables, the illusion can continue.  Once the food stops, these systems managers better be prepared to reset the game if they wish to keep their heads.


Debt is a tool of control, as is credit and money.

Fri, 10/19/2012 - 18:20 | 2905641 tawse57
tawse57's picture

The markets long ago disconnect

ed with economic reality. We are repeating the 1930s and the long march to war.

Fri, 10/19/2012 - 18:27 | 2905654 Rainman
Rainman's picture

High Command is giving Oblamea the push out the door and summoning the red team...right on schedule. How ya like them gas prices ?

Fri, 10/19/2012 - 19:08 | 2905709 Totentänzerlied
Totentänzerlied's picture

Can't tell you how many times I've heard "Gas prices aren't Obama's fault <somewhat true>, it's all the oil companies' fault <arguable>! Obama just needs to do more to fight the oil companies <hilariously deluded>".

There is always, always, always an excuse. Blame Bush.

Fri, 10/19/2012 - 19:26 | 2905746 Spastica Rex
Spastica Rex's picture

Blame Obama.

Blame Bush is so 2006.

Fri, 10/19/2012 - 20:04 | 2905797 Debeachesand Je...
Debeachesand Jerseyshores's picture

Blame Lisa Jackson.

Fri, 10/19/2012 - 21:29 | 2905909 stocktivity
stocktivity's picture

"You can observe a lot by just watching" - Yogi Berra

Fri, 10/19/2012 - 18:32 | 2905661 FinalCollapse
FinalCollapse's picture

It will end very badly. The clowns destroyed the pricing mechanism via their put/flooring and disconnected the capital markets from reality. In consequence they turned the capital markets into Ponzi scheme. They trade this Ponzi between themselves always finding the greater fool until the music stops. This can go for very long time but something tells me that either this year or more likely in 2013 the music will stop.

Don't cry for fools.

Fri, 10/19/2012 - 20:37 | 2905849 flacon
flacon's picture

Beautifully said. 

Sat, 10/20/2012 - 01:16 | 2906085 grid-b-gone
grid-b-gone's picture

They stop the music when they've found the last greater fool and then continue to profit on the downside.

For those who see both sides of the trade, every direction is progress. 


Fri, 10/19/2012 - 18:39 | 2905671 Jason T
Jason T's picture

1987 style flash crash this cracked up market.   Still long SH

Fri, 10/19/2012 - 18:46 | 2905678 Supernova Born
Supernova Born's picture

When lost, start running. When it gets dark, run faster.

-Ben Bernanke

Fri, 10/19/2012 - 19:09 | 2905712 Totentänzerlied
Totentänzerlied's picture

You can run, but you can't run as fast I can print.

-The Bernank

Sat, 10/20/2012 - 00:57 | 2906079 grid-b-gone
grid-b-gone's picture

You don't have to print the most. You just have to print more than the central bank that is printing the least.

                                     - The Governors

Sun, 10/21/2012 - 04:37 | 2907459 Incubus
Incubus's picture

jokes on you, old timer.


Who actually prints anymore when they can just press a few keys and have instant credit/money?

Fri, 10/19/2012 - 18:47 | 2905680 Rathmullan
Rathmullan's picture

You can't blame the pastrami munchin coke heads in manhattan for being dilutional. Virtually all of the fiscal and monetary stimulus ended up in their laps. They soon will figure out that that's all the further the stimulus got (main street has) and that it's come to an end.

Fri, 10/19/2012 - 19:33 | 2905752 lotsoffun
lotsoffun's picture

that is not very nice.  we know who likes pastrami.  are you a racist?

and most of all - the pastrami guys like corned beef too.  and - they like bennie.  because bennie works for THEM.  and they own the FED.  and guess what.  QE ain't over.  and neither are the bonuses.  infact - the BEST bonus is going to be when the clear all the chips off the stock market table, because they make the lie 'QE is over - and all you suckers with your 401k's that thought it was time to get in, and everything was fixed, and well, hell, why not, watch their assets go from their pockets to pastrami pockets'.

it's going to be a lot of fun, because, this time, it's going to be bigger and better than they ever swept the tables before.


Sat, 10/20/2012 - 02:06 | 2906110 20-20 Hindsight
20-20 Hindsight's picture

"...dilutional"... excellent pun intended here, I'm sure. :-)

Fri, 10/19/2012 - 18:56 | 2905693 buzzsaw99
buzzsaw99's picture

Don't worry about Pandit, he got plenty.

Fri, 10/19/2012 - 19:00 | 2905696 TheSilverJournal
TheSilverJournal's picture

Yeah yeah yeah....stocks are bad....but....dollars are worse!!!

It seems like someone is forgetting that when you sell something, that inherintly means buying something else. So why sell a bad thing in exchange for something that's worse?

I don't put stocks being propped up due to hopes in the stock market, I put the reason for stocks being propped up due to despair in the bond market.

Fri, 10/19/2012 - 19:00 | 2905700 MedicalQuack
MedicalQuack's picture

Totally disconnected and in my little area of healthcare, really bad.  GOP House and Senate send letters to HHS wanting to cut the medical record stimulus for doctor and digitally illiterate.  Further more the plan to change Medicare to a voucher system...well let's see..we have about 12 years or so involved right now in getting Social Security out of think the voucher system would fly?  No, and we don't have enough engineers to restructure something tha large and would probably have to outsource to both India and there that fantasy It's rediculous and why the democrats don't call them on this is beyond me.  It reality and logic.

Again worth repeating watch that documentary on the Quants of Wall Street and see the fictious math and formulas that are used as the quant talk and we never get to hear this otherwise.  The quant say that there's way too much math in the financial world that CEOs have no clue about their business model at all...and yup we saw that with Jamie Dimon.  The rich pay the quants very well for this.

We are under the Attack of the Killer Algorithms and all are sleeping at the wheel with straight emotional BS at times that does nothing. 



Fri, 10/19/2012 - 19:10 | 2905714 spanish inquisition
spanish inquisition's picture

Just got on, I have a theory and do not know if it  has already been proposed.

Anyone else think algos were headfaked by the news of the crash anniversary. They just read crash and started selling?

Fri, 10/19/2012 - 21:34 | 2905815 DeadFred
DeadFred's picture

You have an interesting point but it's likely too simple. They might read the bulk of the crash articles and be fooled about market sentiment. One would think the programmers wouldn't leave their 'children' open to such a problem but that is one type of problem this system is vulnerable to. "Oops, I shudda put in some code to sort fact from fiction!" Question is how do they get the algos to exclude some types of unreality and still get them to believe the BLS data? The machines may not be smart enough for that yet.

Fri, 10/19/2012 - 19:17 | 2905726 Bastiat
Bastiat's picture

Jokingly said to someone last week:  look at the Wall St. prez. campaign contributions -- the street is long Romney --  watch out.

Fri, 10/19/2012 - 23:25 | 2906016 logicalman
logicalman's picture

If Romney gets in, I want to move to Mars

Fri, 10/19/2012 - 19:19 | 2905729 Fox-Scully
Fox-Scully's picture

Several books of S&H green stamps should be worth a lot!

Fri, 10/19/2012 - 19:25 | 2905742 Precious
Precious's picture

Not a lot, but not nothing either.

Fri, 10/19/2012 - 19:19 | 2905732 lolmao500
lolmao500's picture

PPT, get to work or else Obama is gonna be gone!

Fri, 10/19/2012 - 20:16 | 2905814 tsx500
tsx500's picture

Oh...they will. just watch. Remember, Monday is debate day ...

Fri, 10/19/2012 - 20:28 | 2905825 tsx500
tsx500's picture


Fri, 10/19/2012 - 19:44 | 2905764 hairball48
hairball48's picture

Regarding that video from Zimbabwe...A lifestyle soon coming our way here in the USA :)

I'm old and poor but I got gold, silver, food and plenty of ammo. I good to go.

Bring it on you no good saggy ass pants illiterate teenage punk bitchez!!



Fri, 10/19/2012 - 19:54 | 2905780 unununium
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Wealthy Advised to Sell for Gains Before Unfriendly 2013

First paragraph...




Fri, 10/19/2012 - 20:08 | 2905801 Martdin
Martdin's picture

Meh... I don't think a lot is gonna happen until a Lehman style wipeout event occurs.

Fri, 10/19/2012 - 20:33 | 2905841 Quinvarius
Quinvarius's picture

Bears are as nutty now as ever.  It is like watching Lucy pull the football away from Charlie Brown every time they get excited.  The Fed is pumping 20 billion a week into the markets.  Money is at 0%.  If there is a real problem, LIBOR won't be a limp noodle and gold miners won't be going UP like they did today. Every jackass on the street is screaming sell because none of them are long and they all know what is coming.

Fri, 10/19/2012 - 20:21 | 2905826 orangegeek
orangegeek's picture

S&P500 Daily channel support broken. Wave 3 down pending.

Q3 storyline of higher earnings on lower revenues is wearing thin. That song played in Q2.

Sat, 10/20/2012 - 14:05 | 2906584 hedgehog9999
hedgehog9999's picture

Who would have thunk it?.

What is interesting is that the Nasdog appears to be the weakest of the indices but only the DOW has broken the trend line from the lows set on June 2nd of this year.......

I wonder if the NASDOG and SPX will confirm next week?

Fri, 10/19/2012 - 20:57 | 2905870 IMA5U
IMA5U's picture

The world is going to end

Fri, 10/19/2012 - 22:27 | 2905962 ekm
ekm's picture

It took Madoff 30 years of theft and 3 weeks to collapse.


Whoever knows Pyramid Schemes, knows pretty, pretty well, that when it collapses, it is faster than a blink of an eye.


Dow and S&P will be watchout out very deep below, at a blink of an eye. It is never gradual. It's always swift.


Fri, 10/19/2012 - 22:31 | 2905965 q99x2
q99x2's picture

Snapdragons my favorite flower.

Sat, 10/20/2012 - 04:06 | 2906126 rufusbird
rufusbird's picture

They are full of beautiful blooms all season long until the weather changes and when it gets hot they wilt and die within a week.

Fri, 10/19/2012 - 22:42 | 2905983 ZFiNX
ZFiNX's picture

Nope, fundamentals mean nothing right now and will for a few more quarters. IF fiscal cliff gets settled.

Sat, 10/20/2012 - 00:07 | 2906043 Tom Green Swedish
Tom Green Swedish's picture

Q: Bass-San if Japan can have a 230 debt to GDP why can't the USA? A: Because almost all Japanese government debt is held at home.


5.3 trillion and counting Foreign Debt.  Not only will that never get paid off just like the public debt, it will keep increasing just like the public debt.  That is one large interest expense.


Sat, 10/20/2012 - 01:20 | 2906089 ak_khanna
ak_khanna's picture

The only thing the Fed can do is print money and hand it over to the too big to fail banks in the form of QE which lead to lower standard of living for all the citizens of a country except for the beneficiaries of the bailouts. The poor people in any country live hand to mouth and do not contribute to tax revenues. The others who earn their living by small businesses or salaries pay taxes at a much higher rate than the rich individuals or big businesses. This is due to the loopholes in the taxation system which enable them to declare maximum profits in countries which have the least tax rates. So effectively in the long run the governments route the money collected as taxes from the middle class of people to the banks so that the bankers can enjoy enormous bonuses. We are in times of privatizing the profits and socializing losses for those who are well connected to the governments and the law makers.

The money which TBTF banks get in the form of QE is used to speculate in currency, stock, commodities and bond exchanges. None of this reaches the main street and hence recovery in the actual economy is not possible through QE. Moreover speculation in commodities like Oil and agriculture products lead to higher prices thus making the lives of the very middle class paying taxes and the poor more miserable.

Sat, 10/20/2012 - 02:28 | 2906112 goldenbuddha454
goldenbuddha454's picture

"Inflation is Transitory": The Fed

Sat, 10/20/2012 - 02:28 | 2906113 goldenbuddha454
goldenbuddha454's picture

"Inflation is Transitory": The Fed

Sat, 10/20/2012 - 04:39 | 2906134 Essential Intel...
Essential Intelligence's picture

The share of autonomous trading SW, aka bots, has reached 70% of completed transactions and the big banks, the TBTF(the allegedly Too-Big-To-Fail Financial institutions, given their insofar fundamental participation in the economy) are loosing ever more Billions of dollarts in profits every passing year to the agile young companies which drive this trend, thus starting to unloading the TBTF aggregate of derivatives over a globally deployed community of agile traders.

Read more about the reasons for The Market's Disconnect With Economic Reality :

Sat, 10/20/2012 - 12:08 | 2906412 DowTheorist
DowTheorist's picture

Good to know about this disconnect in order to honor our stop-losses (or merely trailing stops, since many investors would end up with profits even if the stock market reverses). If the stops are hit, get out, no questions asked.


However, a tenet of good traders is "let your profits run, cut your losses short".


Since June 2012 the stock market has been very bullish and those that jumped in early (June 29 for those following the Dow Theory) nice unrealized gains have been hitherto made.


Such primary bull markets have long legs. They aren't just a "tradable" rally. The average gain of a primary bull market averages ca. 40%.

Furthermore, 70% of the primary bull market signals end up in profits.

Here are 5 reasons for the bullish long term case (1 year or more):

Even if the current bull signal was a "failed" bull signal resulting in losses (30% probability), this wouldn't be the end of the world, since we would see a bear market signal if markets are to go substantially low. Since the Dow Theory tends to be more responsive than moving averages, sell signals are flashed at ca. 10% from the top. Not so bad and in the meantime it allows the investor to participate in the trend until exhausted.

This is accomplished thanks to the Dow Theory trailing stops. More on them here:

Under Dow Theory, we always know how much we stand to lose whereas the profits are open ended.


For those still skeptical as to the Dow Theory stops, it is good to remember that Dow theory stops did a good job in protecting investors in the Black MOnday crash:



Sat, 10/20/2012 - 16:12 | 2906567 hedgehog9999
hedgehog9999's picture

I think what is happenning right now is a dump based on the notion some major market players want Obama out, so we go down for a couple of weeks probably to 1350 levels maybe even lower. Then the Mitt rally will occur once it is aparent he is the victor.

This hope rally will probably push the SPX to its previous highs (1500+) and then the real dump takes place once it is obvious there is no hope for these corrupt politicians!!!


Sun, 10/21/2012 - 21:20 | 2908682 Tim Brasco
Tim Brasco's picture

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