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About That "Bull Market Til 2016" Meme: Before You BTFATH, Check Out This Chart

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If credit expansion leads the stock market, the market is in trouble.

Before you buy the dip "because this Bull market will run until 2016," please ponder this chart from our Chartist Friend From Pittsburgh of total credit and the Dow Jones Industrial Average (DJIA). Unsurprisingly, the stock market advances when credit is expanding and declines when credit growth slows.

Why is this unsurprising? Because ours is a debt-dependent consumer economy: everything from local government building projects to the purchase of vehicles to going to college requires borrowing money (i.e. credit expansion).


Source: The Dome Top Bears Have Been Given Their Stock Market Sell Signal

Here is Chartist Friend From Pittsburgh's commentary:

Total Credit Market Debt (TCMD) growth is not confirming the new DJIA high at all.

The trend of TCMD growth clearly reversed lower in 2007 by making a new all time low. The uptrend of the DJIA appears to be up since it's recently made new all-time highs.

The point is - there's a serious disconnect/divergence/non-confirmation going on here and in the end credit growth is the more important of the two and determines the trend because people can't make a move nowadays without taking out a loan (house, car, student, government spending, etc.).

I would add these points:

1. Notice that credit growth is rolling over, and that its recent peak was significantly lower than the 2007 peak. In other words, despite rescuing the Too Big To Fail Banks (TBTF) to the tune of $16 trillion and the creation of $3.2 trillion that it pumped into the financial system to goose housing and stocks, the Federal Reserve's unprecedented campaign to reflate leverage and credit only managed a weak bounce from 2007 highs in credit growth.

This is known as diminishing returns: Our Era’s Definitive Dynamic: Diminishing Returns (November 11, 2013)

The Fatal Disease of the Status Quo: Diminishing Returns (May 1, 2013)

2. In a debt-dependent consumer economy beset with declining real income for the bottom 90%, the only way to expand credit is to blow asset bubbles that boost phantom assets long enough to leverage new debt:

Why Our Consumer-Debt Dependent Economy Is Doomed December 10, 2013

Why We're Stuck with a Bubble Economy December 9, 2013

See those two little blips up in the real wages of the bottom 90%, circa 1999 and 2007? Those modest boosts in income were the result of monumental credit/asset bubbles. Once those bubbles popped, real income for 100% of households plummeted, and the bottom 90% saw its real income (i.e. the purchasing power of earnings) decline by 7%.

You can't leverage more debt off declining income unless you loan money at near-zero rates of interest. That explains the Fed's Zero Interest Rate Policy (ZIRP), which has the sole purpose of enabling more leverage and debt even as real income stagnates.

And just to remind us how those bubbles ended:


Buy the dip "because this Bull market will run until 2016?" Based on what? Does liquidity from the Fed ultimately drive the market, or does credit expansion drive the market? We will find out in 2014.


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Fri, 12/13/2013 - 12:06 | 4243454 pods
pods's picture

First chart makes total sense. Bank reserves used to go to fund credit creation.  Now it just gets plopped in the stock market.

Not going to end well for Main Street.


Fri, 12/13/2013 - 12:11 | 4243466 Occident Mortal
Occident Mortal's picture

That's my chart!!

Fri, 12/13/2013 - 12:34 | 4243543 CounterPartyVice
CounterPartyVice's picture

I just don't watch financial charts unless they with some sort of softcore pron, .... ho wait!

Fri, 12/13/2013 - 12:36 | 4243549 Newsboy
Newsboy's picture




Fri, 12/13/2013 - 13:14 | 4243697 Fidel Sarcastro
Fidel Sarcastro's picture


I like pron too...wasn't than a movie - or was that Tron?

Fri, 12/13/2013 - 13:59 | 4243750 Headbanger
Headbanger's picture

But it's DIFFERENT this time!

C'mon!  Where's all the cheerleader mooks here to sing along??


Cause it's differnet this time

And not like before

Everything's fine!

So don't be a bore!

See, Yellen's on time

And she'll just print us MOAR!



Moar scotch!  

Live from Zero Hedge...    IT'S FRIDAY AFTERNOON!!

Shall I continue torturing you with moar of my Vogon poetry??

It won't hurt much..  Trust me

Fri, 12/13/2013 - 14:21 | 4243967 Oldwood
Oldwood's picture

Just another new "normal"

Fri, 12/13/2013 - 15:29 | 4244204 EscapingProgress
EscapingProgress's picture

In the new normal you have to account for central bank balance sheets. More specifically, you have to take into consideration who is receiving this newly conjured currency courtesy of Don Bernanke and at who's expense?

I don't believe that total credit market data accurately reflects what pushes the stock market higher in this new normal. What has been pushing the stock market higher is massive wealth transference from the savings of those who do not work within the upper eschelons of high finance to those who do. This massive amount of wealth that is being stolen through inflation (see: Cantillon Effect) is being invested in the stock and bond markets, pushing stocks up and keeping bond yields suppressed. As long as this wealth transference through inflation is incrementally ramped up the general trend in stock prices will continue upwards until there is a change in the psychology of the Ponzi participants.

Oldwood is correct, this is just another new normal.

Fri, 12/13/2013 - 14:05 | 4243870 Pig Circus
Pig Circus's picture

That's my chart!!

No, You didn't chart that!!

Fri, 12/13/2013 - 14:42 | 4244036 Ljoot
Ljoot's picture

No moar chicks Pittsburgh???

Fri, 12/13/2013 - 12:11 | 4243470 ChaosEquilibrium
ChaosEquilibrium's picture

...or Wall Street!

Fri, 12/13/2013 - 12:54 | 4243640 CrashisOptimistic
CrashisOptimistic's picture

Oh look!

Honeywell just announced at $5B stock buyback!

That's real progress.

Fri, 12/13/2013 - 12:13 | 4243473 LawsofPhysics
LawsofPhysics's picture


Folks have been saying this about Japan for 30 fucking years.

Eventually, you will be correct.

Unfortunately, no one will recognize it until well after the blood is flowing in earnest.

Hedge accordingly.

Fri, 12/13/2013 - 12:38 | 4243564 nightshiftsucks
nightshiftsucks's picture

What's the unemloyment rate in Japan ?

Fri, 12/13/2013 - 12:50 | 4243626 LawsofPhysics
LawsofPhysics's picture

More importantly, how many are actually employed versus retired.  Someone has to pay for all the benefits those old folks are receiving.  100% employmant with 110% of their income going to taxes - "winning?", I think not.

You really believe any employment numbers published today?  Good luck with that.

I look at liabilities and how they are funded, nothing else matters.

Fri, 12/13/2013 - 13:08 | 4243685 donsluck
donsluck's picture

Well, I am paying for my retirement with savings, including forced SS savings. You seem to think that there is no such thing.

Fri, 12/13/2013 - 15:27 | 4244209 GeezerGeek
GeezerGeek's picture

Breaking news...your "forced SS savings" are actually paying for my retirement, not yours. Or at least part of mine. Someone else's grandchildren will be paying for yours, assuming SS is still around after us Boomers get through sucking the system dry. 

Sorry if I burst your delusions.

Fri, 12/13/2013 - 13:14 | 4243706 nightshiftsucks
nightshiftsucks's picture

I don't believe any Govt's numbers but the bottom line is I believe their unemployment rate is a lot lower than ours and that during those 30 years even if Japan was stagnant,the world economy and their exports were growing.

Fri, 12/13/2013 - 13:50 | 4243806 LawsofPhysics
LawsofPhysics's picture

Fair enough, but I for one would not live there.   It is also important to point out that their population has been declining.

Death is wonderful for solving employment issues, but I wouldn't publical support that approach, would you?

Fri, 12/13/2013 - 13:56 | 4243844 dontgoforit
dontgoforit's picture

I would find it no great surprise if one day someone close to the inside 'came out' with a whistle and said, "OMG, the real U.S. debt is 300 trillion - they've been printing truckloads of money and it got out of hand, ya' know, and they just kept sending it out there, to banks and whatnot, and well, no one really knew and it just kinda' got outta hand, and OMG..."  turd soup anyone?

Fri, 12/13/2013 - 14:32 | 4244004 nightshiftsucks
nightshiftsucks's picture

The only reason I made a comment is because everyone refers to Japan not going under,we are different. Japan wasn't doing good while pretty much everyone else was,now it seems everyone is doing bad.This won't go on for 30 years.

Fri, 12/13/2013 - 12:13 | 4243483 Al Huxley
Al Huxley's picture

They're going to get a little mini adrenalin rush thanks to the Social Media bubble that's kicking up right now.  So there'll be some temporary retail TWTR millionaires, but I think for most of them it will end the way it did for Newton.  But maybe TWTR gets to 100 before it reverts back to 10, just to fuck over as many mom-and-pop speculators as possible.

Fri, 12/13/2013 - 13:08 | 4243684 max2205
max2205's picture

The Guberment is in control....let it ride

Fri, 12/13/2013 - 12:33 | 4243541 Zionist Jew
Zionist Jew's picture

Main Street can eat cake...

The US is done, we just need to finish picking the carcass.

Eretz Yisrael is the future and Jerusalem will be the world capital.

Fri, 12/13/2013 - 12:35 | 4243546 Zionist Jew
Zionist Jew's picture

This is the way it ends... hahaha!

Fri, 12/13/2013 - 12:36 | 4243551 whatsinaname
whatsinaname's picture

In the interim I believe there will be no taper announced. In fact gut feeling tells me they will hike QE amounts !! Party on seems to be the mantra.

Fri, 12/13/2013 - 14:50 | 4244076 Zero guest
Zero guest's picture


Bank reserves by definition remain at the Fed earning 0.25% (curently).

Artificially low interest rates, caused by QE, are what is driving the stock market.

Gene Baugh

Fri, 12/13/2013 - 15:55 | 4244287 Jumbotron
Jumbotron's picture

All charts like this are complete bullshit.

Because the Fed is backstopping anything and everything.  And even if they taper there is the explicit knowledge they will come to the rescue again....because after all they already have set the precedent of the ages....then it is QEternity until the currency collapse.

Weimar USA !!!

Fri, 12/13/2013 - 12:09 | 4243461 Cognitive Dissonance
Cognitive Dissonance's picture

No worries. It just needs moar QE.

<Yellen.....get in there and ramp those machines up to light speed.>

Fri, 12/13/2013 - 12:13 | 4243471 agent default
agent default's picture

No none of that anymore the Fed will end QE. 

And promptly replace it with something like "Dynamic Liquidity Injection" or something like that.  They will just go in and buy stocks ETFs, bonds, options, you name it, the Fed will buy it. 

Go long kitchen sinks because the Fed will buy that too.

Fri, 12/13/2013 - 12:19 | 4243504 TeamDepends
TeamDepends's picture

"Dynamic Liquidity Injection".  Hell yeah!  Crank it up to 11 Yellen, let's rock!

Fri, 12/13/2013 - 12:29 | 4243528 perelmanfan
perelmanfan's picture

Needs a name more in keeping with modern sensibilities. I suggest "Super Comfy Chocolate Relaxation Wealth Perfection Win-Win Upside Adjustment." Or SCCRWPWWUA.

Fri, 12/13/2013 - 12:48 | 4243614 Beam Me Up Scotty
Beam Me Up Scotty's picture



If you read that fast, it looks like ScrewYouUpTheAss.

Fri, 12/13/2013 - 12:36 | 4243561 Itgoestoeleven
Itgoestoeleven's picture


Fri, 12/13/2013 - 12:10 | 4243464 SheepDog-One
SheepDog-One's picture

It's so crazy to see that as recently as 1987 the DOW 'crashed' from around 3,000, and here we are only a couple decades later saying we've got valuation 6X of that and the only place to go is up from here. We've gone well past full-retard, and the consequences will be brutal.

Fri, 12/13/2013 - 12:14 | 4243476 BullyBearish
BullyBearish's picture

Either they double QE (CPI says Good To Go!) or roll over we will...

Fri, 12/13/2013 - 12:54 | 4243638 ...out of space
...out of space's picture

no taper next week, deflation still win

Fri, 12/13/2013 - 13:50 | 4243810 agent default
agent default's picture

And the cherry on top of that: gold to $500.

Fri, 12/13/2013 - 12:22 | 4243510 101 years and c...
101 years and counting's picture

Apparently, Mr Hugh-Smith has not realized "this time is different".  Because CNBC says so.  And they would never lie to the unsuspecting public!!!

Fri, 12/13/2013 - 12:26 | 4243523 bnbdnb
bnbdnb's picture

The $3T hole is filled by reserves.

Fri, 12/13/2013 - 14:46 | 4244066 SheepDog-One
SheepDog-One's picture

What's really scary is seeing how close 'The Onion Panel' discussions about 'the money hole' are to what we see on CNBS and the rest.

Fri, 12/13/2013 - 12:26 | 4243527 XAU XAG
XAU XAG's picture

Once all the bail ins are set in law around the west............they will tapper


Europe law comming soon not sure if that is what they will wait fore

from memory already sighned up





Fri, 12/13/2013 - 12:42 | 4243597 nightshiftsucks
nightshiftsucks's picture

Go ahead and do the bail in,that will kill the economy even more.No one will put anymore money in the banks and they will cut back on spending because they just lost a big chunk of change.

Fri, 12/13/2013 - 13:07 | 4243681 novictim
novictim's picture

Money must be fed back into the consumer side of the economy.  And I don't hear of people suddenly getting raises in my what would you do to redistribute wealth back to the consumer/workers?

Did you think this transfer of wealth from the poor to the rich could go on forever?

Fri, 12/13/2013 - 13:21 | 4243732 donsluck
donsluck's picture

Don't you know, banks no longer need depositors.

Fri, 12/13/2013 - 12:35 | 4243547 moneybots
moneybots's picture

GREENSPAN says it isn't a bubble, so it is a bubble.

Fri, 12/13/2013 - 12:38 | 4243555 Kirk2NCC1701
Kirk2NCC1701's picture

Given that they agreed on new Gov spending limits (or permission to spend more), the MOmentum is toward the Bull___ to continue.  Regardless of the storm clouds on the horizon.

Re-balance accordingly, but be quick to run for shelter if the storm clouds are no longer on the horizon but seem overhead.  IOW, "Make hay while... you can", rather than let the grass go to seed completely. 

My own guess is to take some yer end profits (if in the market), and wait for the Q1 correction before thinking about a Q2 re-entry.  Then move some to safety in Sep/Oct time frame.  Rinse, repeat the cyclical process, with eyes on the sky.

It comes down to a personal call, depending on YOUR situation and goals. 

Fri, 12/13/2013 - 12:48 | 4243615 nightshiftsucks
nightshiftsucks's picture

Why bother,either they destroy the dollar or we go into an instant depression.

Fri, 12/13/2013 - 12:38 | 4243571 pragmatic hobo
pragmatic hobo's picture

you know only thing/people doing BTFAH are the machines and unfortunate shorts being driven to cover ... and that's the real danger here. Once the supply of shorts run dry and machines don't have anyone to BTFAH ... there will be gaping hole in the market ...

Fri, 12/13/2013 - 15:50 | 4244274 rosiescenario
rosiescenario's picture

"...and unfortunate shorts being driven to cover ." ...and we ahave about exhausted a supply of them.....they are now listed as 'endangered'

Fri, 12/13/2013 - 12:38 | 4243577 Dr. Engali
Dr. Engali's picture

Pffft....who cares? Twitter is a 31 billion dollar company with no earnings. I think Charles forgets that the stock market is no longer a market. It is a policy tool, and  it will continue it's upward trend until TPTB decide it's time to pull the rug. When that happens it will be too late to get out.

Fri, 12/13/2013 - 13:07 | 4243682 Al Huxley
Al Huxley's picture

TWTR (and its friends FB, GRPN, LNKD, etc.) are going to be the last big retail mania of this current leg up.  TWTR straight up in the last 5 days, and EVERYBODY knows TWTR.  That's the prerequisite for a nice little retail mania, people tripping over themselves to buy TWTR which will probably be enough to drag the indices to a rebound slightly higher high in January, before all the air gets let out of this.

Fri, 12/13/2013 - 13:03 | 4243671 novictim
novictim's picture

This is all due to the inherent flaw in capitalism.  It is inevitable that Capitalism, left unchecked by redistribution mechanisms (ie. effective progressive tax systems) leads to the the beggaring of the worker/consumers and the collapse in the consumption side of economics.  Lending and borrowing are just mechanisms to kick the can down the road and we are about to trip over the can as borrowing has been tapped out.  The middle class and poor have no leverage to allow continued borrowing.



Folks, it might give you piece of mind to realize that “Bail-ins” and high inheritance taxes and higher taxes on the wealthy are inevitable if we are to avoid bloodshed and revolution.  Or you can stick your head back into the sand.

Fri, 12/13/2013 - 14:01 | 4243854 Gusher
Gusher's picture

Capitalism is unchecked? Where ?  We can't drill here, we can't mine there, we can't log here, we can't build a factory/refinery there.  Capitalism in the U.S has NEVER been so shackled!  And the top already pays all of the taxes.  Your solution would put us back in the dark ages.   Your comments might be appreciated more on the Huffington post where misinformation rules.  

Fri, 12/13/2013 - 15:51 | 4244285 2bit Hoarder
2bit Hoarder's picture

the thing about high taxes on the "wealthy" ... is that it is never enough.  It always falls to the middle class to bear the brunt of actually paying for programs.  The "tax the rich" meme is great for grabbing votes from the FSA, but just look at tax receipts for 2012 ... it wasn't the base rate increase on the wealthy that made much difference .. it was the barely mentioned 2% payroll tax on 80 million workers that did it ... the same group that always pays the price.  Take every dime from every millionaire in this country .. you could run the government for 6 months.  only a fool believes the "tax the rich" propaganda.

Fri, 12/13/2013 - 13:06 | 4243674 bobbydelgreco
bobbydelgreco's picture

one day this guy will be right but not now ms piggy is going to send lots of money to wall street for now buy the dip

Fri, 12/13/2013 - 13:17 | 4243708 ebworthen
ebworthen's picture

Love that first chart.

Does this mean I should not take out a loan so the Ponzi markets crash?

I was so looking forward to that new Escalade and embarking on a Bachelor's in Russian History.

Fri, 12/13/2013 - 13:19 | 4243723 The worst trader
The worst trader's picture

BTFAH Buy the fucking ass hole?

Fri, 12/13/2013 - 13:25 | 4243735 NEOSERF
NEOSERF's picture

ZH = on Garth!!

Fri, 12/13/2013 - 13:40 | 4243775 zookeep
zookeep's picture

This time it is different. There has never been so much $$ sitting in the banks. 

Any fool can see that. 


Fri, 12/13/2013 - 13:39 | 4243781 The Invisible Foot
The Invisible Foot's picture

The music will skip soon.


Fri, 12/13/2013 - 13:55 | 4243829 Gusher
Gusher's picture

The first chart shows a tiny turndown that may continue or may reverse.  Too soon to say. Agreed that almost all the economic numbers are poor and have been poor for years, but the stock market is running on emotion and gamesmanship right now.   It may go much huch higher before it crashes. and when it crashes it may go much lower than it should.  As many have noted its a casino.  Many have also noted that it is over for the U,S..  If we don't take back control from Washington DC, i would have to agree.  Washinton is out of control. We continue to punish the produtive and reward sloth.  That can't work.

Fri, 12/13/2013 - 15:07 | 4244139 Snoopy the Economist
Snoopy the Economist's picture

How many times do we have to try and correlate reality to the stock market - they will be disconnected until TPTB decide to change it.


Fri, 12/13/2013 - 16:09 | 4244324 TheRideNeverEnds
TheRideNeverEnds's picture

just buy the dip!  


look at the tape action, this latest correction is over;  the bottom is in.


we are going sharply higher into the end of the year.

Fri, 12/13/2013 - 16:10 | 4244342 JamesBond
JamesBond's picture

There is nothing in the charts that contradicts that the DOW "can" continue to rise until and inevitably crash between 2016-2018...




Fri, 12/13/2013 - 16:24 | 4244370 Fishhawk
Fishhawk's picture

The normal distribution of profits between labor and capital has historically ranged from the high 50% to the low 70% band.  This was reasonable, as labor consumed most of what it produced, and 30% profits were sufficient to expand production under this model; most expansion accounted for growing population, and only a small part went into innovation and new markets.  Historically markets sought out this optimal range and adjusted slowly, such that those seeking work had time to adjust or seek other work, and barriers to entry of other work, such as education/retraining were low.  The advent of computers, which merely reflect the logarithmic nature of 'progress,' has accelerated these adjustment rates to something far too fast for this era's workers to adapt.  The types of jobs available are now dangerously bimodal: a small cadre of knowledge workers, imbued with extensive training, and a huge mass of unskilled scut work, requiring only public education, and which pays a poverty level wage.  This trend has been put in place by automation and advanced knowledge of materials, such that mass production, which requires a great deal of capital and knowledge, now requires correspondingly less labor. Labor has been replaced with knowledge and capital, which is really a great gain for society in toto, but the current model of 'work' has been broken, and thus far only SNAP cards and unemployment have replaced it.  If this is the 'solution', it only solidifies the divide between haves and have nots, and guarantees revolution.  

While the pace of 'progress' would have brought about this current labor mismatch with capital, the trend was exacerabated by two intentional moves by the ruling elite:

1)the dumbing down of education, including the current cruel meme that threatens economic failure for those who don't seek 'higher' education, and then demands lifetime debt serfdom for those who buy into it, and then find that a diploma does not help at all at MickeyD's; and

2)the rapid arbitrage by capital to relocate to developing markets where labor is immensely cheaper.  US labor cannot compete with developing market labor at $2/day or even $2/hr while maintaining the lifestyle that was available before this arbitrage occurred.  

Some (Marx, Obama, etc) would say that capital always abuses labor, and that this is a failure of capitalism.  Certainly both sides seek their own advantage, but international labor arbitrage is new and allows change at a rate labor cannot even contemplate.  So the failure was the short-sighted view taken by capital to use the arbitrage, and that is the result of moral failure, which itself is the result of the overly successful marketing of consumerism.  Capital managers, ever driven to find short-term profits, forgot that they are part of society and community, a result of the size and reach of the corporations they manage.  They surrendered their human values for corporate values, and destroyed their own community.  When the people love God, no laws are needed, and when the people forsake God for the love of money, no amount of laws will save them.  

Kings are preferable to democracy, because at least the king cared about keeping his people productive and their communities stable.  Democracy rapidly turns into mob rule, and seeks the lowest common denominator.  This opens the door for socialism, which brings everyone down to that lowest denominator, which then fails into chaos.  The US is far along the path into socialism, but the last vestages of democracy prevent any serious discussion of the kinds of social change needed.  And/or our completely criminogenic 'leadership' refuse to allow any constructive ideas since the status quo is adequate for them, and they are all (self-selected) selfish narcissists (this might be Barry O's only leadership success!)  When low class people reach positions of power, they idolize the 'winner take all' philosophy, because this releases the psychic pressure they are under due to low self-esteem and constant fear of failure.  So all we really need is more mature leadership, a ruling elite class which recognizes that humans are each an end in themselves, and that it is immoral to use other humans as a means to their own ends. 


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