The Market Can Only Ignore Fundamentals For So Long

Tyler Durden's picture

While it is somewhat broadly understood that the 'market' is disconnected from 'fundamentals' currently - apparently on the basis of forward hope and central bank liquidity - we thought the following charts would be worthwhile paying attention to in an effort to shake off the anchoring biases that so strongly hold us as our nominally-priced markets break to new highs. Again and again over the past six years we have seen stocks ignore (just a blip) significant trend changes in macro data, only to revert aggressively back to reality soon after. Whether compared with pure 'macro' data or the liquidity-fueled fed balance-sheet driver, reversions come - especially when the market least expects them (and is most aggressively positioned). Presented with little comment...


Judging by past performances of the market relative to US macro data, there is a lag before the drop (or rise) in macro is recognized as a trend rather than a blip...

In 2007, Macro data turned down as stocks soared after initial concerns were ignored over subprime - only to crash back to reality soon after...


As the market cratered in last 2008 / early 2009, so US Macro data had already started to outperform and sure enough, soon after, stocks began to bottom and rally...


In 2010 the market remained ever hopeful that all was well even as US Macro data took a dramatic turn for the worse...

And once again as US Macro data turned down in the first quarter of 2012 so stocks kept elevating on hope that Europe was fixed (or whatever it was at the time), only to correct soon after...


And now, we see an even more aggressive divergence - with US Macro data on the cusp of turning negative as stocks reach new multi-year highs...


...and perhaps the reason why we have remained disconnected for so long this time is the discounting of the Fed's expansion (flow) this year. It would appear that the 'market' has discounted at least 80% of that flow already - and judging by previous moves, there will be a 'correction' soon enough...


especially as macro indices are once again showing their cyclical downturn - as evidenced by Goldman's real-time macro index and its deja deja deja vu like nature...


especially given the market's excessively long positioning...


Charts: Bloomberg and Goldman Sachs

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shuckster's picture

Wait, is this a genuine bear thesis? It's got to be the only deflationary article I've read here in a long time. Everyone's talking about the new inflationary cycle that's about to start, but they've forgot that for the last 4 years of doom and gloom, deflation never happened

freshjiva's picture

That all depends on how you define inflation/deflation. The Austrian school sees inflation as whenever a central bank devalues a currency, drives interest rates artificially low, creating excess money supply as a result. The Keynesian view of deflation is any situation of falling prices and conclude that the economy is contracting.

Jake88's picture

the deflation that has never shown might be like the shark in Jaws. when it does show you're going to fall out of your seat.

shuckster's picture

The only thing that could cause a real sell-off is the 401k's and IRA's liquidating. Which is totally plausible, since most fund manager's have no attachment to this market. Tax penalties would be the threat held over retail's head against liquidation. I just can't accept that we are facing a correction if so many people are talking about it....

devo's picture

Futures up again.

ekm's picture

Primary dealers selling the same stocks to each other.

It can only go up or........collapse 3000 pts in one day.
There is absolutely no other option left. None.

ramacers's picture

facts can be phonied-up forever.

They Tried to Steal My Gold's picture

1518-1525 and then the Jaws of Death begins...

sunny's picture

Channeling McHugh again are we??  ;-)


Jake88's picture

The only question is how long is so long.

orangegeek's picture

Lot's of upside targets before the next leg down.


SP500 weekly's next move is primary wave 3 down - similar to 2007, but we are headed below the lows of March 2009.

GNWT's picture

dude, we all know what

we must know when

if you knew what not when in late 98

you have been toasted as YHOO went

from 100 to 180 and back to 8

like the old newsletter scamsters

the market should progress nicely in the coming months

but don't be surprised by a significant correction

can't be wrong

can't make money either


G - Stay liquid my friends

GNWT's picture

who belongs in jail


tiny tim






nance p


ken lewis


jamie dimon 


lloyd gods work


every rep and senator with an options or commodity account

did I leave anybody but eric holder out?....

oh, the guy at the fed who makes every pivot point

look like an erection in the ES/NQ

G - stay liquid my friends

GNWT's picture

correct me if i am wrong

but the fed posture is a fundamental, no?



GNWT's picture


anybody remember this:


the fed's job is to take away the punch bowl after the party


gets started


anybody care to take a crack at what that would mean today?



Grand Supercycle's picture

Despite recurring equity short covering spikes - bank index & BAC charts tell the real story...