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Guest Post: What Is Obvious About This Market?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum.
Longtime readers know my analytic perspective is based on what psychiatrist/author R.D. Laing called the Politics of Experience.
Survival+ 6: The Politics of Experience (April 2, 2009)
Survival+ 7: Simulacrum and the Politics of Experience (April 3, 2009)
In his prescient 1972 lecture, The Obvious, Laing explained the inherent difficulty of understanding "the obvious" when a systemic madness is taken as "normal":
To a considerable extent what follows is an essay in stating what I take to be obvious. It is obvious that the social world situation is endangering the future of all life on this planet. To state the obvious is to share with you what (in your view) my misconceptions might be. The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them.
We can summarize one aspect of this analysis by asking: what is "obvious" to those inside a system and what is "obvious" to those outside the system? Our experience of what is "obvious" says a lot about our cultural context and assumptions: the manufacture of our "news" and consensus, the mystification of our experience via propaganda and simulacra, what we perceive as "normal" relationships, work, goals, etc.
What is "obvious" to most participants is that the stock rally is fueled by central bank liquidity and quantitative easing, and since there is no limit in sight to these policies, there is also no limit to the stock market running higher.
It is also "obvious" that betting against this trend is an excellent way to lose money, so the number of people shorting the market dwindles with each push higher.
Equally "obvious" is the incentive to borrow money via margin to invest in the rising market: the higher it goes, the more you can borrow, and the more you borrow and plow into the market, the more you make. It is a wonderful self-reinforcing feedback loop.
Thus record-high margin debt is not a warning sign but evidence that the music is still playing, so by all means, keep on dancing:
Near-Record NYSE Margin Debt Leads to Caution (Bloomberg)
That the disconnect between the real economy and the stock market is widening is obvious, but there doesn't seem to be any intrinsic reason why it can't continue widening. As a result, many analysts are calling for a brief retrace and then another leg up to new highs. Others see a serious decline (10%+) this summer and a new high in Q4 2013 or Q1 2014.
In other words, what might be obvious to those outside the system--that all liquidity-driven bubbles end badly, usually when participants are convinced there is nothing to restrain the trend from going higher--is not at all obvious to participants and those cheering them on (the MSN, the Federal government and the Fed).
What I sense is a near-universal resignation of those attempting to call a top in the market, an acceptance that the trend is up for the foreseeable future and that trying to short this market (i.e. profit from a decline) is a fool's game.
The number of those willing to short the market, i.e. take the other side of the trade, has dwindled. Every sharp rally like last Friday's eliminates entire divisions of shorts, leaving the trade even more one-sided.
Yes, the market is manipulated and totally dependent on central bank QE, liquidity and outright buying of stocks and bonds. But the market is not as stable as presumed, and one-sided trades tend to capsize when everyone who feels safe being on one side of the boat least expects it.
Every trader wants to short the market after it becomes obvious the trend has reversed. But since there are so few shorts left, the decline (should one ever be allowed to happen) might not be orderly enough for everyone to pile on board. More likely, the train will leave with few on board and the initial drop will leave everyone who was convinced the uptrend was permanent standing shell-shocked on the platform with margin calls in hand.
When it is obvious the trend has reversed, it will be too late to profit from it.
The conclusion? What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum.
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What you said (in a nutshell) it that it is way too risky to short because there is no telling how high things might go.
Then you suggested that people get short the market. Is there any actual advice here?
The market can stay irrational longer than shorts can stay solvent.
When this rolls over there will be no couterparties left to
pay off your shorts anyway.Just play your winnings if you must be in the
casino,otherwise stay out.
Precisely. We may have a wait on our hands, but in the end the only winning move will be assets that have no counterparty risk, which is a short list these days.
Well CHS, we are in the age of Un-Natural Law.
I am not encouraged about the prospects.
a systemic madness is taken as "normal":
-- a Racist/Communist/Muslim as President of the USA
-- Eric Holder as Attorney General
-- MSNBC
-- TBTF
-- TBTJ
-- accepting that politicians are liers and thieves
-- capitulating sovereignty to a central bank
-- (fill in the space)
Welcome to the first stock market collapse in which EVERYONE loses. The shorts will have been decimated as all the market makers KNOW what a person is short, and how. Once they are squeezed out with dizzying margin calls, then the collapse happens, wiping out all the longs. In the end, shorts killed, longs killed. Everyone who participated will be that much poorer.
The winners? People who took their money out, those that did not play in the shark tank, and maybe even the already destitute.
Fish Gone Bad
was this article written for retail human "investors" to read and consider?
or for hft codes to parse?
when all the human "investors" have exited, who will be reading articles like this one?
I'm fucked.
a systemic madness is taken as "normal":
-- Congress with 30% approval but sheeple re-electing 90% of them
-- amnesty for illegals to buy votes
-- benefits for illegals that tax payers don't get
Correct Mr. Churchill
You can fight the QE Tsunami, but it would be much advised to wait for the tide. The only question is, when does all this artificial liquidity get sucked back into the vast ocean and drown everyone? Life preserver anyone?
http://www.youtube.com/watch?v=deuC8GPr31A
Yeah that's what I am doing, investing long on marging with Honorable Mr. Corzine. Can't miss that fun.
I cannot believe that Mother Fucker is still using up our oxygen!
WW3 should knock the market down .00000001%.
Charles has been barking this for 4 years. Like Graham he might be right one day.
Nothing in the market is ever easy or obvious. The fact that everyone is so complacent is suspicious in itself. The fact that leverage is sitting at a major high is a warning sign. Everyone is enjoying the party but knows they are late in getting back home. When the first person heads for the door then everyone will crowd the exit.
Everybody snorting free coke right. It's just 'free'.
Bullshit.
Free coke is not free coke.
There is no free coke.
And free money is fake money.
fake money can buy coke too, you know.
Not the really fake kind, though, that shit will have you in a bathtub with a shotgun in your mouth.
or a few pills.
So maybe it's better to pile in on something that's only of limited supply. i.e. Gold and Silver IMHO
$DOG FTW!
Even when you win , you lose ..... Just a matter of time.
Well, if the music keeps playing until it stops, then let's crank it up and keep playing! Until it stops of course.
http://www.youtube.com/watch?v=XWhInhE6emE
Enter Sandman - Metallica
http://www.youtube.com/watch?v=1QP-SIW6iKY
I think most readers on ZH agree this market is total B.S. and without the Fed backstop would have already been send plummeting long ago given the horrific macro economic data. What the author does not do is lay out any solution on how put on any type of short position and not get crushed along the way.
The best formula I have arrived at is to actually go long the market, yes I agree the fundamentals this market are based upon would make Ponzi himself blush. Take your profits from your long position and purchase physical gold and silver each week. No need in putting tight stops under my long positions, the rise of the machines can trade a hell of a lot quicker than I can anyway. Crap like the twitter AP drop a week or so ago only lock in your losses while the machines make money up and down during blips like that. Use the HFT algo's to your advantage like that. Anyway, so far so good, the Fed drives the market higher, and the UPS man drives more gold and silver to my doorstep.
I totally agree. The more Shorts are Margined out or pushed out the higher it goes, there will be no one left to buy when it declines.
Once the Shorts have been pushed out and are afraid to re-enter at any price that is when if a stock falls there will be no support or any Buyers to be found.
Right now it does appear that EVERYONE is on the Long side of the Market and fully Margined to boot.
There are shorts in the market as a hedge but they but are trumped by almost 100% longs pos. The market now is almost 1987 redux (before it blew out). A euphoria trade that most retail are not even buying in - too expensive. It's a Wall Street churning marked up distribution trade and it looks like nothing can stop it, except we have been there before so many times in history. This market will crash. If CBs can't re-inflate commodities, except for oil (war), then Polly don't like that cracker.
of course there are still shorts in the market, i still have my uvxy from a while back... from $25k to $600 last time i checked....
you start learning after a couple of those. The ONLY way to short the market is to go CASH and maybe buy more LAND.
No one left to buy? Bernanke keeps cranking money in at the rate of $85B per month. Seems there will ALWAYS be money to buy.
In a deflationary environment, he who loses the least, wins. Unless you are an avid daytrader with a win rate of at least 70% and you close out each day, what are you doing in the casino?
The system is designed to take the most amount from the most people, and consolidate all of the assets into the hands of the 1%. What asset class will they leave alone?
Name one.
One morning the market will open limit down...trading will be halted and when it opens implied volitility on puts will skyrocket. If someone had a put from the day before they might make tens of thousands of % in minutes. Remember when gold got kicked in the teeth on a Friday a few weeks ago? Some puts that were expiring that day were up 12,000%.
0
.
if you have ever watched the finish line at a marathon you might
have noticed the medical needs of some participants and the general
state of exhaustion of all? pronouncements sound to glorify those
who finish first(win), place or show over time/ year after year.
what is generally disregarded;
those who fall and lose their teeth, them that suffer near death,
exhaustion, dehydration and those that have the mindset that requires
physical destruction to satisfy a temporal performance standard.
.
they say "no pain no gain".
.
but even when there is plenty of pain and no gain /we somehow
feel like we are doing the right thing. we have hospitals and
health care for that....then the grave.
no?
Everybody keeps getting excited about this market, both the cheerleaders and those who know it's a farce.
What we conveniently forget is that the stock market has gone nowhere in nominal terms for more than a decade and in real terms has declined.
It just isn't a powerful market, it really isn't. It's just a way for brokers to make money on the churn and for the big investment firms to trade on inside info.
In fact, the stock market is literally dying in front of our eyes! It has a few years left, at most. Knowing this, we can either keep obsessing about it, or move on now. I've decided that I don't want anything to do with the stock market, ever again, for as long as I live.
Margin debt in nominal terms is a coincident indicator IMO. The alternative way to gauge whether or not the market is getting frothy is the Year over Year and Month over Month percent changes in margin debt. The higher frequency M/M change shows margin debt to be within historical norms. Another reliable metric has been margin debt as a % of total market capitalization, which stands right now at historical average levels.
Where the market goes from here short term, I haven't a clue. What I do believe is the Fed through QE has destroyed the concept of value. Ultimately this will not end well.
There is no market.
If you short it, you misunderstand it.
Because the FED has it in hand.
This is how it ends, if you're brave enough to short the risk zones and they know it.
really, Apple at a 10 PE. just tough to agree here and now. My paid subscriptions to a leading options and Equities data are both bullish, and if the options system hits on its buy signal there will be another 100 point sp500 rally. And the NYSE short interest ration still has 18 days of short covering to go. LOL to the bears here. bunch a wining bitcheszzz
AAPL has $150 billion spare cash.
Why the fuck does it need you buying its stock?
Then do a little more research into the top 500 stocks, and see the same pattern. They're rolling in cash. When the top 500 Corporations have more spare cash than sovereign nations GDP, you should be thinking a little beyond your "paid subscriptions".
Fuckwit.
There's a realignment coming, and you're not part of it.
And if you happen to be lucky enough to make some profit on AAPL from here, the government that allows Apple to offshore most of it's profits and not pay taxes on them will be CERTAIN to tax the piss out of any of your gains.
buying at 420 and selling at 443 is not luck...unless luck strikes three times in a row.
p,
You need tp pay to be told that..?? Seems like a great value-added.
You can't eat/drink a digital stock certificate.
Should be interesting to see the bidding up of real unlevered assets (e.g. food, water) when they need them the most.
Juristic Persons need no food or water, and they have most of the money, so I wouldn't want to be bidding against them, fortunately- they will probably be busy bidding up their version of a real unlevered asset, while the blood of their ironically intangible natural person assets is flowing in the streets.
50,000 ES $275,000,000 crossed friday at 1608.75 at close friday so, there is market support so far
israeli jets bombing syria targets should be good for 40 s&p pts tomm and 400 dow pts.
futures already green, god forbid their would be a breather, got to keep going up and up on this horrendous data we continously get.
the only way this will ever stop is if bernanke and his friends are arrested. this will not stop otherwise. how is this man and his friends not locked up in prison yet?
and let's not forget to sit on precious metals too. Don't alarm the natives.
Perhaps, when this thing does go south, the computers will be in in nanoseconds. Us humans will have to hope that Benny can supply more buying power.
There are circuit breakers and then FED funding to immediately move things higher. Only when the FED pulls the plug and DHS and bankster funded Al-Caeda attacks the United States of America will it change. Then nothing will matter. So put yourself in right standing and live each day as if it were your last.
Funny you should mention "circuit breakers". Last month the SEC approved changes to them that included reducing the market decline percentages from 10%/20%/30% to 7%/13%/20% for the three levels; benchmark was changed to the S&P500 from the DJIA; and other changes. http://usequities.nyx.com/markets/nyse-equities/circuit-breakers
I'm sure the tighter stops will give tptb an opportunity to get in front of everyone else when they reopen. Based on the twitter inspired dump of a few days ago a 7% decline should only take about 5 minutes.
When the Great Dump finally happens, I see two possibilities:
1) They ban shorting.
2) The algos take S&P all the way down to 450 and back within one day, thus completing the cycle.
Either way...
Alien (non-human made) spaceships have been identified on the moon, documented by Americans and now the Chinese....
http://www.thetruthbehindthescenes.org/2010/08/04/an-alien-space-ship-on...
Where are they from?
Euranus?
Ixtlan.
Back in the USSR.... you don't know how lucky you are boy .... back in the USSR....
Shorting this market is a dangerous game, but so is the long side. The Commercials are net short -300,000 Emini contracts (not including the last 3 days). In the last 18 months, there have been zero times they've been this short. That can not last. I do have some sympathy for the legitimate asset managers who have bosses or clients to appease. The right play was to reduce exposure last week, if you lasted that long. Just like in poker sometimes the right play is to lay down what ends up being a winning hand. All the stars were aligned for a top, and it still could happen this month, but it will be tricky to time now. Anyone still heavily long is the kind of person who will never sell until it's too late, and he will have given more back when the top is finally put in than if he would have sold last week.
I don't even know what to look for now. If we do a perfect backtest, I might make a small long play, put a stop in and consider it bonus, but the bigger trade is on the short side for sure. My bread and butter poke-to-new-highs-reversal top pattern would take weeks to setup now. So I guess I'll look for a gap-up green-to-red day, or a strong gap down that keeps going. Although, that will find dip buyers too so it would probably be short-lived. It might take an event to get this rocking to the downside. I feel like unless there's an obvious topping stick with a long tail, or a negative event, all dips will be bought until that happens.
The Euro is forming a wedge. If it breaks out to the upside I'm not getting involved. But if it breaks out downward, I'm looking to go short.
In silver, buying the dips at the uptrend line has been working and should keep working unless that line is violated. I'm looking to get short around 26 unless something changes by then. Tricky trading right now (for people outside the asylum). I would rather miss the trade than chase craziness. If you stay patient long enough, an obvious trade always presents itself. The one advantage the retail little guy has is sometimes you can just go find something else to do. The only way I'd ever manage someone's money is if they said here, maximum 10% drawdown, call me when it's doubled. Done. Leave me alone. lol.
ahhhh Laing. Reminds me of college. Nice to see someone citing his ideas. Don't forget Sartre too:
Bad Faith
A critical claim in existentialist thought is that individuals are always free to make choices and guide their lives towards their own chosen goal or "project". The claim holds that individuals cannot escape this freedom, even in overwhelming circumstances. For instance, even an empire's colonized victims possess choices: to submit to rule, to negotiate, to act in complicity, to commit suicide, to resist nonviolently, or to counter-attack.
From this we are aware of a host of alternative reactions to our freedom to choose (an objective situation), since no situation can dictate a single response. Only in assuming social roles and value systems external to this nature as conscious beings can we pretend that these possibilities are denied to us; but this is itself a decision made possible by our freedom and our separation from these things. "Bad faith" is the paradoxical free decision to deny to ourselves this inescapable freedom.
One must not exercise bad faith by denying the self's freedom of choice and accountability. Taking on the burden of personal accountability in all situations is an intimidating proposition - by pointing out the freedom of the individual, Sartre seeks to demonstrate that the social roles and moral systems we adopt protect us from being morally accountable for our actions.
And now the lowbrow take...
They're gonna leave the punchbowl,
and ignore the big fat turd floating in there.
Maria says "BUY!"
Enjoy your refreshment.