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Hey, Is It A Problem That We're All On One Side Of The Boat?

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water.

Gee, we're all on one side of the boat now--long the S&P 500, NASDAQ, Dow, Eurozone stocks, the Nikkei, not to mention rental housing, junk bonds, bat quano, 'roo belly futures and the quatloo--basically every "risk-on" trade on the planet--is that a problem?

The conventional (and convenient) answer is "nah--stocks can only rise from here." So what if market bears have fallen to 15% or less? So what if 85% of investors are on the same side of the boat? You'd be nuts to leave the winning side, the trend-is-your-friend side, the "don't fight the Fed" side, the side with all the "smart money."

It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water. With the sea remarkably calm (i.e. no waves of turbulence or volatility), the fact that the boat is overloaded doesn't seem dangerous.

But once the sea rises even a bit and water starts lapping over the gunwale, the "guaranteed safety" of the bullish trade might start looking questionable.

When the boat takes on water quicker than anyone believes possible and capsizes, it will be "every punter for himself." But few longside punters are wearing lifejackets.

This is all Investing 101: be wary of extremes of euphoria and confidence and being on the same side of the trade as everyone else. Yet everyone continues adding to their long positions without adding portfolio protection (puts, etc.):

Three indicators suggest this move will reverse shortly, either in a "healthy correction" or a reversal of trend--which one cannot be determined until the downturn is underway.

The rapid rise of the market has traced out a bearish rising wedge. This pattern usually leads to some sort of correction. The MACD histogram is divergent, dropping to the neutral line as the SPX has soared ever higher.

Lastly, price has pulled away from both the 50-day and 200-day Moving Averages, suggesting the rubber band is remarkably stretched.

Round-number attractors are close at hand. The SPX at 1798 is two measly points from the round-number attractor of 1800, and the Dow at 15,961 is a coin-toss away from its round-number attractor of 16,000. This level will invite great cheering ("new all time high," never mind adjusting for inflation) and also present an opportunity for the imbalanced boat to capsize.

Even more astonishing, the crowd is also betting on volatility declining from extreme lows. Look at the put and call options on the VXX, a security that tracks the short-term volatility of the VIX: at the money December calls (bets volatility will rise by December 20) number 311 while puts (bets volatility will decline some time between now and December 20) number 11,265.

Hey, you 311 bears! Join us 11,265 longs on the guaranteed winning side of the boat! Uh, thank you for the kind offer, but no thanks. Though the uncrowded side is uncomfortably above the water at this point, with 11,265 fattened Bulls on the side close to the waterline, the few on this side are less likely to be trampled when physics trumps psychology.

Hey all you PhDs in Behavioral Economics: perhaps you could investigate the "how many angels can dance on the head of a pin?" nature of this psychological conundrum:the market can only do what few expect of it, so if everyone is looking for bubbles, there can't be any bubbles. But what else do you call a market that rises 10+% in a mere 6 weeks?

In other words, if people are looking at the market and realizing it is dangerously close to capsizing, then it can't capsize because the market can only capsize if nobody expects it. The absurdity of this argument is revealed by turning it around: if Bulls confidently expect the market to keep rising, then how can it rise when everybody expects it to rise?

The answer to the question "how many angels can dance on the head of a pin?" is the same as the answer to the question, "How many Bulls can crowd on one side of the trade without capsizing the boat if there are 311 Bears on the other side?" The absurdly concise answer is 11,265--at least for now.

 

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Mon, 11/18/2013 - 14:30 | 4165932 yogibear
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The Fed seems to be supporting an ever pricier market. The Fed continues until the currency crashes. The Fed knows many of the top level of the 1% will survive because they will be warned way ahead of time.

 

Mon, 11/18/2013 - 14:45 | 4166001 NoDebt
NoDebt's picture

Doesn't matter what side of the boat we all run to.  It's a Fed/Disney "imagineering" ride we're on at this point.  To infinity and beyond!

Either that or the boat's up on blocks in a field somewhere and they're just playing a Imax movie all around it for our enjoyment.

Take your pick.

Mon, 11/18/2013 - 14:46 | 4166022 NotApplicable
NotApplicable's picture

How come CHS posts are no longer titled "Guest Post?"

Mon, 11/18/2013 - 14:53 | 4166056 I am more equal...
I am more equal than others's picture

 

 

This type of 'group think' feels so Goebbels-ish. 

The final solution is to make everyone a slave to the state.  

Let the wealth-affect make them it push all in. 

Mon, 11/18/2013 - 14:54 | 4166065 Headbanger
Headbanger's picture

Cause he's a regular now?  

Mon, 11/18/2013 - 15:48 | 4166291 negative rates
negative rates's picture

Starboard!

Mon, 11/18/2013 - 17:58 | 4166938 Running On Bing...
Running On Bingo Fuel's picture

Forward Aft of the Tippy Canoe! Bitchez!

Over.

Mon, 11/18/2013 - 14:30 | 4165934 aVileRat
aVileRat's picture

This reminds me of the Russian ruble trade in 1988. Everyone was so damn certain that the USSR was one record harvest of grain away from snapping the trend and Glasnost would take US exports to the moon.

Not sure where I am going with this rambling muse. Just feels really out of wack.

 

Mon, 11/18/2013 - 14:36 | 4165959 LawsofPhysics
LawsofPhysics's picture

Yes, back then the next thing you knew one dollar bought you 10,000 rubles.  If the same things happens to the dollar, FB stock will be 5K per share.

I have no doubt that the collapse of the U.S. will be very similar to that of the Soviet Union as productive regions of the country, with vast natural resource, tell all the unproductive kleptocrats, political puppets, and EBT babies to go fuck themselves.

Just like the U.S.S.R, the good news will be that we will all be trillionaires and the bad news will be that we will all be trillionaires...

Mon, 11/18/2013 - 14:53 | 4166062 Strider52
Strider52's picture

As in: The United Counties of California, and the Country of Colorado?

Mon, 11/18/2013 - 15:23 | 4166203 WOAR
WOAR's picture

The United Confederation of Texas? (including parts of New Mexico and Old Mexico, just for historical sake?)

Mon, 11/18/2013 - 14:33 | 4165944 Xibalba
Xibalba's picture

Technicals, like Fundamentals, only matter on the downside, in this engineered and completely FED owned "market". 

I.e, Stocks up, Treasuries up.  Dollar down, Gold down.

 

Mon, 11/18/2013 - 14:45 | 4166014 lasvegaspersona
lasvegaspersona's picture

Xi

just how low can gold go before it is all snapped up by peons leaving none for the derivative market to function?...THAT is the question!!

Mon, 11/18/2013 - 15:01 | 4166097 Xibalba
Xibalba's picture

That already happened, but the price (in usd) still goes lower.  GLD has supplanted Gold for most 'peons'. 

Mon, 11/18/2013 - 16:23 | 4166457 MeelionDollerBogus
MeelionDollerBogus's picture

Technicals matter when you're actually technical.
Shapes-in-clouds like cup-and-handle or elliot-waves are not technical OR analysis.
It's hand-waving.
Analysis has math to it, LOTS of math, lots of curves, time-series equations & back-testing results made public with EACH analysis.
Or it's not analysis & it's certainly NOT technical.

Mon, 11/18/2013 - 14:31 | 4165945 Tsar Pointless
Tsar Pointless's picture

Technical analysis. How 2008.

Mon, 11/18/2013 - 14:45 | 4166015 Frank N. Beans
Frank N. Beans's picture

1974

Mon, 11/18/2013 - 14:46 | 4166023 NoDebt
NoDebt's picture

You would think that lesson would have been learned by now, wouldn't you?

Mon, 11/18/2013 - 14:33 | 4165946 Ham-bone
Ham-bone's picture

No problem we're all on one side of the boat so long as it's a catamaran and the CB's of the world are on the other side supplying the hyper-wind in our sails???

Mon, 11/18/2013 - 14:35 | 4165956 Temporalist
Temporalist's picture

ZHers can't be trusted with any water vessel anyway.

Mon, 11/18/2013 - 14:35 | 4165957 TrustWho
TrustWho's picture

Dudley calls this--we're all on one side of the boat now-- "UNFORSEEN", but he is worried about what he can not see....

DUDLEY SEES `POSSIBILITY OF SOME UNFORESEEN SHOCK'

These PhD's are just pure crimminals.

Mon, 11/18/2013 - 15:07 | 4166136 yogibear
yogibear's picture

"These PhD's are just pure crimminals."

They think their right and they'll prove it even if they have to take 99% down with them.

Wed, 11/20/2013 - 10:50 | 4173240 TrustWho
TrustWho's picture

And I think these PhD assholes will continue down this path even when they know they are wrong. If they stay the course they can always create an argument to blame someone else. When someone is willing to burn down the house to save their reputation, these people are crimminals.

Mon, 11/18/2013 - 14:36 | 4165960 greatbeard
greatbeard's picture

A lot of neat little analogies there Charlie but this really is case of don't fight the fed.  You want to fight the fed?  Buy gold.  Come on, man up, load the boat with gold.  Stick a stick in the feds eye and see how far it gets you.

Mon, 11/18/2013 - 14:36 | 4165964 bearish1
bearish1's picture

ICEBERG AHEAD!!!

Mon, 11/18/2013 - 14:37 | 4165968 NOTaREALmerican
NOTaREALmerican's picture

It's just pathological optimism.  Every "market" on the planet shows the same behavior.   

It doesn't matter if it's a stock-market or a meat-market, it takes pathological optimism to continuously expect a good outcome; and who would  "invest" or "ask females with large teeth for sex" if a "good outcome" wasn't "continuously expected"? 

Mon, 11/18/2013 - 14:39 | 4165975 Debeachesand Je...
Debeachesand Jerseyshores's picture

Even the US Coast Guard will not be able to rescue this mess.

 

Mon, 11/18/2013 - 14:38 | 4165976 JimRogers
JimRogers's picture

THIS ISN'T ABOUT BITCOIN!?!?!?

Mon, 11/18/2013 - 14:42 | 4165996 ebworthen
ebworthen's picture

The boom/bust mentality has now been applied to the psychology, the group mind, of the civilization.

This is why otherwise intelligent people can talk about debt as a good thing, and $17 Trillion in debt or $200 Trillion of unfunded liabilities as solvable problems.

It is the thought process of a gambler, of the delusional dreamer, and the insane.

Mon, 11/18/2013 - 14:47 | 4166033 NOTaREALmerican
NOTaREALmerican's picture

Re:  It is the thought process of a gambler, of the delusional dreamer, and the insane.

Aka,  the normal majority.

Mon, 11/18/2013 - 14:45 | 4166008 RobD
RobD's picture

Watched Jaws this weekend. It had been a while and the daughter had never seen it so we got some popcorn made and sat back and watched. Of course there was some great screams when the dead fisherman appeared in the hole in the side of his boat and when the shark came out of the water when the Chief was chumming. Fun stuff. At the end, though the boat was not really in good shape, it was floating ok until the shark came over the transom. Wonder what "shark" will be the cause of this boat to sink?.

Mon, 11/18/2013 - 15:56 | 4166319 daveO
daveO's picture

Fortune cookie say, 'Beware of Chinese Hoarding Gold'. 

Mon, 11/18/2013 - 14:47 | 4166031 maskone909
maskone909's picture

boats and hoes

http://www.youtube.com/watch?v=xLWHzEP_0Rw

youre welcome

Mon, 11/18/2013 - 14:59 | 4166073 all-priced-in
all-priced-in's picture

Why the worry - who cares if most of the people are on the same side of the boat -  just sign up for a Cool trade account - they make the trades for you.

I am not making this shit up -

https://www.cooltraderpro.com/

CoolTraderPro provides user subscriptions to the CoolTrade™ platform. CoolTrade is the ONLY fully automated stock trading platform available to the general public that trades in the stock market and currency exchange 100% unattended and with no programming required.

 

I wonder if the FED is using this platform? /sarc/

Mon, 11/18/2013 - 16:11 | 4166317 all-priced-in
all-priced-in's picture

Just wondering about the down arrows -

Who could possibly think fully automated / 100% unattended stock and currency trading by the general public is a good idea?

Really - I would like to know who you are and why you think this is a good idea.  

 Is that you Ben?

Mon, 11/18/2013 - 16:35 | 4166516 tvdog
tvdog's picture

Who could possibly think fully automated / 100% unattended stock and currency trading by the general public is a good idea?

Goldman Sachs.

Mon, 11/18/2013 - 18:00 | 4166943 rubiconsolutions
rubiconsolutions's picture

"CoolTrade is the ONLY fully automated stock trading platform available to the general public that trades in the stock market and currency exchange 100% unattended and with no programming required."

Kind of reminds me of a drone. You know, like the one that crashed into a U.S. navy ship.

Mon, 11/18/2013 - 15:00 | 4166089 madcows
madcows's picture

Hey, I'm not even in the boat.  I'm floating away on my "inflation-able" life raft.

Mon, 11/18/2013 - 15:07 | 4166131 LinesOnCharts
LinesOnCharts's picture

I know I'm going to catch a lot of flak here, but frankly, bearish rising wedges are one of the worst performing chart patterns in existance.  See here for the statistics that this guy compiled.

http://thepatternsite.com/risewedge.html

With regards to sentiment, what are people doing (rather than thinking)?  Are the buyers out of money yet and not buying any more?  If more people are bullish, and they are putting the money in the market, the market goes up, right?  Sentiment has its place, but only when people are either fully invested or fully divested.

Your thoughts?

~C, CMT

Mon, 11/18/2013 - 15:07 | 4166133 Satan
Satan's picture

The vanishing angle of market stability.

Mon, 11/18/2013 - 15:11 | 4166152 LFMayor
LFMayor's picture

As long as we're all not on one side of Guam...

Mon, 11/18/2013 - 15:19 | 4166184 NoDebt
NoDebt's picture

Yeah, it might tip over!  I don't know how many are going to catch that reference, although it's probably one of my all time head-exploding favorites.

Mon, 11/18/2013 - 15:58 | 4166330 LFMayor
LFMayor's picture

I hear you brother.  That little scene was indicative of the evil genius we're up against (sacrasm), or at least the puppets that are arrayed against us by it (mournful lack of sarcasm).  I've given up believing that the system can be fixed while carrying deadweight such as that, even if our voting process were truly fair.

Instead I've gone over to rooting for the collapse.  Any collapse will do, so long as it provides a KT extinction boundary for imbeciles.  If we don't get that, say within the next 20 years, I fear the movie Idiocracy might truly become a far-seeing documentary.

Mon, 11/18/2013 - 15:14 | 4166164 yogibear
yogibear's picture

With Yellen Krugman gets his way. Obama spends more on  pork and piles on more debt.

Spending and QE to infinity or until the US dollar crashes. Yellen and her 12 stooges get all the inflation they wanted and more as the 99% are impoverished. 

The US then starts attacking retirement accounts.

Mon, 11/18/2013 - 15:20 | 4166182 Waterfallsparkles
Waterfallsparkles's picture

I think the FED is deathly afraid of history repeating itself from the Great Stock Market Crash, where the market went down and recovered.  Only to crash again and go even lower than before.  No one would buy stocks for an entire generation.

Yet, it seems enivatable that is exactly what will happen with way too much stimulus.

Mon, 11/18/2013 - 15:25 | 4166209 Waterfallsparkles
Waterfallsparkles's picture

With Shorts totally wiped out and no one willing to take the other side of the trade there will be no support when the Market starts to turn down.

That is why the FED refuses to taper but they need to provide more and more stimulus to keep the market afloat.

To keep the Market at these levels they are going to have to increase the amount of QE each and every month almost forever.  But, then we will be broke, our dollar will be worthless and it will happen anyway.

Mon, 11/18/2013 - 16:01 | 4166342 Professorlocknload
Professorlocknload's picture

Wow. Good thing somebody has it all figured out! 

"The round number attractor?" Does it bite?

 

 

Mon, 11/18/2013 - 16:12 | 4166397 MeelionDollerBogus
MeelionDollerBogus's picture

We're on the wrong side of the boat! Quick! Everyone to the other side of the Titanic!

Mon, 11/18/2013 - 16:13 | 4166399 Professorlocknload
Professorlocknload's picture

   This market is like my old builders level. No matter where I placed it, it always read level. See, unbeknownst to the observer, the bubble was painted on to the vial. 

 

Mon, 11/18/2013 - 16:13 | 4166404 thismarketisrigged
thismarketisrigged's picture

its going to be awesome when the boat capsizes.

 

let all these assholes be long, soon they will lose there shirts.

 

thank god i am not invested in this shit, i will keep waiting very very patiently for this epic crash, as hard as it is.

Mon, 11/18/2013 - 18:51 | 4167199 Vooter
Mon, 11/18/2013 - 20:57 | 4167715 ejhickey
ejhickey's picture

"Hey, Is It A Problem That We're All On One Side Of The Boat?"

 

not until the boat is upside down

Mon, 11/18/2013 - 21:07 | 4167750 MeelionDollerBogus
MeelionDollerBogus's picture

meh. 4 for quatloos reference.

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