Guest Post: What Could Possibly Go Wrong?

Tyler Durden's picture

Via John Aziz of Azizonomics blog,

Uber-bullishness is the order of the day in the markets. Last week we noted that the DJIA has climbed to a new post-2007 high. And now, the “fear index” VIX is hitting lows (as we discussed in depth last night):

screen-shot-2013-01-22-at-12-34-42-pm (1)

Popular commentators like Bill McBride are declaring the era of crisis to be almost over:

It looks like economic growth will pickup over the next few years. I’ve written about this before – a combination of growth in the key housing sector, a significant amount of household deleveraging behind us, the end of the drag from state and local government layoffs (four years of austerity nearing the end), some loosening of household credit, and the Fed staying accommodative (with a 7.8% unemployment rate and inflation below the Fed’s target, the Fed will remain accommodative).

While there has been recovery in metrics like industrial production, durable goods orders and GDP, the (artificially stimulated) euphoria in markets is probably strange news to consumers and workers and businesses and job seekers in the real economy. All the various measures of unemployment remain weak especially the employment-population ratio which is still deeply depressed. Private-sector debt remains dangerously high. Home prices are still depressed and foreclosures remain high. Consumer sentiment remains depressed. The financial sector continues to blunder from disaster to disaster. And there are lots of big geopolitical dangers still on the table — not least Japan-China and Iran-Israel.

This implies that the market has become dangerously euphoric, and that risk is being improperly priced.

The last time VIX fell to an all-time low and market-confidence hit an all-time high, it presaged a financial crisis. John Stoltzfus of Oppenheimer Asset Management writes:

We caution our readers about past periods of deflated volatility; the last time the VIX traded down to a new low, which occurred on 01/24/07, it rallied drastically in the following month. Approximately six weeks later on 03/05/07 the index had increased to 98.48%. By 08/16/07, less than eight months from the low, the VIX index was up 211.73%.

This time may not be so different.

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fonzannoon's picture

How is the market up today? It seems like every sector is down and down pretty good. Healthcare, utilities, banks, MLP's...what the fk is up besides a few tech stocks?

SmoothCoolSmoke's picture

Did you really think the elite would let the markets go down while they met in Davos to confer on how to save the world economy (and discuss how to handle 3-4 high classs call girls a day)?

Shizzmoney's picture

NOTHING is going to start happening until after the Super Bowl.


Pure Evil's picture

Oh come on, how can you not have a jubilent market during Obamy's coronation week?

If the markets had been open on Monday, I'm sure we'd seen a 500+ point rise in the Dow Jones Index to show the world how much our Great Leader is beloved by one and all.

Cognitive Dissonance's picture

No one pays attention to risk until it rears up and bites you in the ass.

<"When was your last tetanus shot?" - Hospital nurse>

mayhem_korner's picture



You're channeling Matt Hooper...

Uh … I think that I'm familiar with the fact that you are going to ignore this problem until it swims up and bites you in the ass”. (Jaws)

lunaticfringe's picture

I've been short a couple indices since DJ 13,400. Officially getting my ass kicked- but looking for the blowoff top that occurs before the cliff diving starts. I don't run- I get more steadfast even as this zombie reaches 14k. 

doclink's picture

I'm in the same boat as you. Every time I think about getting out of the short positions, I know the next day is when the fall will occur. It will be worth it in the end- I hope...

tango's picture

I've debated for two years whether or not now is the time to short treasuries.  I am beginning to think that this is truly a "Command Economy" where facts and data matter less and less.

fonzannoon's picture

facts, data, math, laws of physics have all been rendered useless. This will go on and on and on. When it stops it will just be an avalanche.

aerojet's picture

How can you even think like this anymore with the bots running the show?

Divided States of America's picture

You are definitely correct when you call this market a zombie because whenever u think u gave it a knockout blow, it comes back up stronger and tries to eat you up alive.

Freddie's picture

Obam and The Ben Bernake with The JP Morgue and The Goldman Sack know better.  They will make the markets go up or remain flat every day.   Market pumping QE to for eternity. 

You are playing with fire boy!

Wilcat Dafoe's picture

growth in the housing sector?

Huh?  The Fed is printing to buy MBS from banks so banks have enough to lend, even though they already had enough to lend, it's just that no one wants to borrow - in large part because they're saddled with... wait for it... mortgage debt.


And by the way - those homes are massively overvalued.  We're still using pre-write down figures, aren't we?

There is nothing more idiotic than citing to 'growth in housing' unless its the claim that households are significantly deleveraged.  People are still underwater and paying off credit cards and loans.  A little breathing space to lend them more money is just an artificial bump as more jobs get sent to China as more IT workers are imported from India.


Sorry, but the man who wrote this piece doesn't know what the frick he's talking about at all.


blackbeardz's picture

I only read the comments so I cant speak to that

Wilcat Dafoe's picture

Pardon me - not the author of the piece. Bill McBride, I meant... he is truly an ignorant hack. 


aerojet's picture

We bought a house in 2006 because we move across the country.  We're not underwater, but that house has lost over 1/3 of how much we borrowed to pay for it.  That's a huge dis-incentive to want to ever do anything with real estate ever again, and my family and I aren't even close to the worst off in our state.  There's one bank-owned "shadow inventory" house on our street and another one a block away that is finally back up for sale by some flipper with who must be smoking crack in his spare time.

The absolute best thing I can say is, it's a nice neighborhood with zero crime (for now) in one of the best school districts in the state (for now), and it's a comfortable place to live that isn't super expensive bill-wise.  The property taxes have been going down over the past four years due to the decrease in "value."

The point is, on paper, it was a horrid investment.  The intangibles are the only things that sort of make up for it.  It's going to need $50K in updates and repairs over the next few years, though.

My lesson in all this is that real estate is where middle class people go to die.

secret_sam's picture

I'd be happy to borrow a few million, but I'm not off parole yet...

electricgorilla's picture

This thing is down very soon. Solar Maximum peaking in March. Everything expires for the Gov. in March. Seems like all the shorts are getting pushed out before we get the fall. 2013 will not be like 2012. Don't be fooled by this charaded. Ppl going long here will get crushed in my opinion

glenlloyd's picture

Bill McBride is an idiot

Zer0head's picture

I guess someone got to the Marine Corps band for their BeyoncHeresy

thismarketisrigged's picture

this market makes me sick. nothing can bring it down, how is this even legal? every single ounce of bad news and the market goes up. i dont get it. makes no sense

tango's picture

I was a day trader during the go go years and thus, paid for information from a service.  When NASDAQ hit 4400 I began receiving warnings along the line that things cannot go like this forever.  I ignored the advice and at 5000 the "experts" blabbed how NASDAQ woud overtake the DOW  Then, like the tulips in Holland, people began noticing the unreality of PE rations of 100 with no real products to show for it.   

The same thing is happening again.  All is well, stocks will never fall, the market overcomes debt, deficits and unemployment, blah blah. It's demographics!  As we age we spend less money on consumer things, hurting employment and growth pernanently.  Then the zombies outnumber producers and the ball gathers steam.  

caimen garou's picture

markets are hitting all time highs along with the media bullshit index which is off the charts, it might be a smelly trade but i'm long BS!

Dr_Lucid's picture

I like the comment:

" the (artificially stimulated) euphoria in markets is probably strange news to consumers and workers and businesses and job seekers in the real economy"

Its deadsville around here, more and more houses in foreclosure, table talk about "how bad is it to declare bankruptcy", women are complaining about the price of a jar of peanut butter (5.99) and my neighbor just lost his job ( again ) afer having worked for 7 months at a agency only to be replaced by an an intern ( with a British accent and a tight ass ).

One thing I don't see is people starting to talk shop about plowing $$$ into stocks.  They don't have it.  Even if they do have some cash saved, the #1 concern is making sure they have a 6 month emergency fund.  After that, i tell them to buy some gold before they do anything else.

caimen garou's picture

ah, and there is  that BS chart, according to bloomberg news yesterday  that sideline cash is comming back into the market, housing is in recovery mode, and apple will sell record amounts of I-Crack.

russwinter's picture

Yep what could go wrong. On the Iran front by my calculations Iran now has enough 20% enriched uranium to convert to anout 3 or 4 Hiroshima size bombs.

Ivanovich's picture

Wow, by your calculations?  You are a nuclear physicist working for an intelligence organization?

secret_sam's picture

Maybe he was referring to different calculations...he realized he can earn more dough shilling a blog here at ZH than working as a nuke physicist...

Cognitive Dissonance's picture

So have you calculated how much Israel has?

<Just askin' cus....>

Rayfp65's picture

If the answer to prosperity, real growth was markets hitting new highs, as Ben believes, than they would NEVER crash, because each new daily, weekly, monthly high would make evermore people and companies flush with wealth, creating a utopia for all!!!

mayhem_korner's picture



That's like the myth of the Keynesian fiscal multiplier.  If it were true, the entire economy should blossom from the advent of a single penny injected into the system.

The only thing at an all time high is FARCE.

wcila's picture

Until things DO change (and no one knows when that will be) this market is not responding, and thus is not predictable using traditional technical analysis. Retail investors have fled this market leaving only the dealer banks and corporate share buy backs to support it. Those retail traders who take the endless stream of bearish articles and information to heart and who have been shorting this market have had their heads handed to them. ONe has to wonder if there's a need to keep generating bearish news articles to maintain the supply of retail short investors?

yogibear's picture

The main idea is to woo the retail investor back. If the retail investor thinks the market keeps going up then they want to join. Playing on greed is powerful. 

Like the housing bubble where it was beileved that housing always goes up so get on and get involved with the housing game.

Shizzmoney's picture

Hey guys, according to the WaPost, there are no more such things as bubbles:

Yes, the stock market is booming. No, it isn’t a bubble.

What we’re seeing now is a stock market boom that is simultaneously driving Americans’ wealth higher, supporting economic growth, and is well-supported by the fundamentals of what companies are earning.

Those aggregate statistics are misleading. According to the Survey of Consumer Finances, 95% all stock is owned by the top 25%, and 89% of stock is owned by the top 10% in wealth. 

The increase in the stock market, as the reason household finances of US families are improving, is not true.  Look at Tax reciepts.  Look at unemployment.  Look at the income graphs from the past 30 fucking years.

For the majority of the middle class, individual retirement plans are the only remaining asset owned (who STILL have not fully returned to the stock market) .
BUT the Fed (backed by the big banks/investment houses) is trying - with low interest rates - to get these suckers to buy stocks in their portfolios.

When this peaks to their liking, THEN the bubble can be created and collapsed - wiping but the last remaining major asset still owned by the public - their retirement portfolios.

No, it isn't a bubble - YET 
Thats because the public is still on the side-lines.  Mostly it is the investment houses trading among themselves.  
BUT the Fed and investment houses are trying to sucker in the public - touting the low interest rates that make safe investments earning little, if any. They are saying that for retirement returns, the public should be buying stocks. 
WHEN enough of the public buys this argument that they MUST have more stocks in the retirement portfolios again; when enough have driven the stock prices even higher, THEN the investment houses can sell. Then the bubble will collapse. 
THEN, when the public needs to sell those stocks at a loss (or thinks it must) , the last remaining source of wealth for most of the middle-class - their retirement investments - will be transferred to the investment houses re-buying the now, much cheaper stocks. 
So no - don't NOT BUY stocks, unless you are very conservative. Just either be very nimble, and if you can't get out in time, don't then sell at a loss - thus locking in the losses. 

The public is clearly getting cold decked. 

Freddie's picture

The public is being set up yet again.   Hope and Change.

orangegeek's picture

Philly housing index shows a push up - primary wave B up.


A nice 45 degree angle trend up for over a year.  Primary wave C down to follow - it's going to be worse than the 2009 bottom.

mayhem_korner's picture

it's going to be worse than the 2009 bottom


it's going to be worse than the '29 bottom

Freddie's picture

Oba-m-a and The Bernake love you.  Stop complaining....Comrade!

MonkeyBOOM's picture

Let me get this straight --

Low DOW + high VIX = collapse is imminent or under way!!

High DOW + low VIX = collapse is imminent or under way!!

...hmmm. Seems like we have no correlation between a collapse and these market indicators. How about we focus on the fundamentals instead of always finding the dark in these meaningless numbers; it hurts credibility.

chubbyjjfong's picture

What planet are you on? The funamentals are in the toilet..

"instead of always finding the dark in these meaningless numbers" Waa?

If the fundamantals were any darker, we would be experiencing a total solar eclipse.

mito's picture

DOW is sustainable only if a war starts and looking at those news of africa and mideast beaing full of "terrorists"...

They are sooo trying to start one, wonder only why it has not yet begun. Come on Obama, can do!