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"Pop The Corks, She's Going Down, Boys"

Tyler Durden's picture


Excerpted from Sean Corrigan's The Baleful Stages of Quankocracy,

In equity markets, the great excitement launched by autumn 2012’s 3QE (easing on the part of the Fed, the BOJ, and the PBoC all at once) seems largely to have run its course. Small caps have lost some of their momentum in both absolute and relative terms and the second tech bubble looks suspiciously deflated. As an example of such indices, consider that the Russell 2000 appears to have completed both this smaller pattern by breaking out below its well-defined channel and that it has filled in a nice looking profile from the depths of the post-LEH slump.

Against this, the large caps have not yet suffered any serious reverse, especially the non-financials among them. What neither they – nor their foreign counterparts like the MDAX – have yet done though is a full-bore, clenched-buttock, margin-reducing liquidation, thus keeping the bears hopeful but frustrated as they anxiously watch the VIX and its ilk grinding ever lower and so signalling that nobody really believes that the end might indeed be nigh.

By contrast, these indices’ larger cousins have hardly suffered at all, with the OEX, for instance, lying the merest whisker away from the previous grand climax set in early 2000. For its part, the S&P ex-Financials has once again undergone a run of around five years’ extent – much as between 1995-00 and 2002-07 – making new highs in the process. If the creation of an almost exact replica of the great tech bubble would now take a final, unlikely looking surge of 25% in the space of the next few months, the 175% gains made so far from the GFC lows are nonetheless hardly to be sneezed at.

Whatever the controversy over how overpriced stocks may or may not be, one key factor undeniably keeps them bid: the fact that bond yields are indisputably too depressed whether one looks at nominals, ex-post reals, current and implied TIPs, or credit. Even EM bonds have unwound all bar the last 25bps or so of their ~125bps ‘taper tantrum’ widening while swaption vols are not far short of their lowest since the 2008 debacle [likewise stock vols and the forex equivalent: what price risk?].



Using our methodology of solving for the implied real trend earnings growth which would reconcile stock P/Es with BAA and/or junk yields, it should come as no surprise to find that US equities are still as cheap as they have been this past three decades, likewise to the current rate of economic growth. Moreover, in terms of carry, from a 55-year median give-up of 250 bps to the 3- month T-Bill, dividends now offer close to 200 bps of premium.



While it is not strictly true that while this relationship holds, stocks must remain supported on the oft-repeated basis that ‘the money has to go somewhere’ (for this forgets that an awful lot of said ‘money’ has been borrowed into existence solely for the purpose of making a purchase and will therefore evaporate just as readily once the target is asset is sold), it does nonetheless mean that until something serves to shatter the currently widespread sense of idle complacency, few will find it attractive to quit equities for fixed income.

Of course, what that does imply is that when the skies finally do begin to darken, the winds could rapidly wind themselves up into an F5-scale twister. Low and declining volatility, lengthening durations, compressed spreads, high multiples, little FX movement – each feeding on the other – is it too far beyond the bounds of reason to suggest that once that virtuous cycle reaches its culmination, the torsional forces involved in its unwind could be remarkably violent?

If we suppose this pretty picture of a fresh cyclical high being set somewhere in the next 15-20% and 6-12 months were to eventuate, the next piece of serendipity would be for the subsequent decline to stretch once more to around 50%, something which might just serve to cut P/Es to something approaching single digits (bravely assuming this all happens without any accompanying earnings collapse) and hence to what would presumably be an attractive entry point at last.

What we can also see is that, starting from the beginning of the overall bubble era at the beginning of 1995, on each of the previous two occasions that stocks have corrected, their returns have converged to those of the bonds they had so distantly left behind during the upswing and, furthermore, that, at that point, returns relative to commodities also touched once more.



Bonds (here taken as the Barclays Aggregate US index) tend to rise at around the 6% pace which has long characterized the nominal growth of money supply and hence the dollar value of those non-monetary magnitudes which one might suspect that latter would influence in the US. So, taking these tentative parameters to the conclusion which they seem to demand, bonds could continue to drift onward for the next twelve months or so, stocks - perhaps with one final hurrah in the interim - might fall heavily as the cycle turns once more.

Commodities, under this scenario, might somewhat counter-intuitively persist with the present move away from recent lows, perhaps recovering to somewhere between their 2011 and 2006 peaks, roughly 15% above here on our DCI © index. Such a confluence - particularly one which might involve the long-awaited breakout of the USD TWI – could conceivably result from a real or threatened supply disruption, perhaps the result of the rumbling international tensions we have discussed.

Recall that, at each of the previous equity highs, commodities managed a counterpoint move of 32% and 42%, lasting respectively 11 and nine months before they, too, rolled over into the ensuing slump. The outperformance, you will note, stretched to 55% and then 84% in those two periods. Who, knows, but perhaps something similar will occur once more when the current mania for stocks at last exhausts itself.


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Tue, 05/27/2014 - 21:48 | 4800512 Tijuana Donkey Show
Tijuana Donkey Show's picture

I thought this article was about Miley Cyrus. #clickbaiting

Wed, 05/28/2014 - 00:16 | 4800836 ACP
ACP's picture

You mean the male version of Justin Bieber?

Wed, 05/28/2014 - 02:04 | 4800979 migra
migra's picture

They are really one in the same.

Wed, 05/28/2014 - 03:05 | 4801049 sodbuster
sodbuster's picture

"She's going down!!" could be almost any of the Hollywood whores.

Wed, 05/28/2014 - 10:30 | 4801658 Jumbotron
Jumbotron's picture

This post dovetails nicely with Eric Janzen's forecast for 2014 and beyond made the first of this year......


Tue, 05/27/2014 - 21:49 | 4800516 dow jones 20000
dow jones 20000's picture

tits up by 2016

Tue, 05/27/2014 - 21:53 | 4800534 Jendrzejczyk
Jendrzejczyk's picture

Miley Cyrus or the market?


Wed, 05/28/2014 - 09:33 | 4801497 astoriajoe
astoriajoe's picture

the market, obviously, as she has none to speak of.

Tue, 05/27/2014 - 22:07 | 4800567 THX 1178
THX 1178's picture

sooner. in 2014

Wed, 05/28/2014 - 02:04 | 4800975 CrazyCooter
CrazyCooter's picture

Anyone that thinks they know when "the end" hits is either an insider buying/selling those options (today link) or is a typical ZH poster short in the tooth.

FACT: I expected this shit to burn down YEARS ago.

FACT: Should it have? Yup.

FACT: Did it:? No.

FACT: Has it yet? No.

So, unless you have something special to share with us, please don't bait the bears. We are busy hibernating ...




UrbanDictionary: Hibernating <verb> When smart people with poor social skills congregate to make fun of stupid people with good social skills.

Wed, 05/28/2014 - 09:46 | 4801534 financialrealist
financialrealist's picture

I agree, i thought we would be well on our way..."the end is near" mantra has been going on for years...with collapsing discount rates, collapsing equities would create a huge multi trillion dollar problem for pensions...something no one wants to talk about…Central banks to by equities? I’m starting to think, this could go one for years…

brilliant...I will use this…

UrbanDictionary: Hibernating <verb> When smart people with poor social skills congregate to make fun of stupid people with good social skills.


Thu, 05/29/2014 - 00:57 | 4804472 dow jones 20000
dow jones 20000's picture

Well the reality is either a slow burn into totalitarianism where we are literally all chipped and herded like cattle by our benevolent overlords to jobs that they haven't figured out how to do with machines yet, or...


The likelyhood of said dark avian occurence increases with each passing day. 

Tue, 05/27/2014 - 22:59 | 4800701 Carpenter1
Carpenter1's picture

More chart porn, but he also said stocks are cheap at these levels. If so, why only 15%-20% rise? Why not 50%? 

Hell S&P to 5000!

Tue, 05/27/2014 - 23:46 | 4800780 jeff montanye
jeff montanye's picture

particularly appealing to prurient interests is this sornette log periodic bubble which calls a 1920 s and p 500 as the top:

Tue, 05/27/2014 - 21:53 | 4800532 ebworthen
ebworthen's picture

Tech bubble, Housing bubble, and now the Bailouts/QE/Student Loan bubble.

Tech and Housing are still part of this bubble, just not in the lead.

The FED has put two pieces of chewed gum in with a new piece.


Tue, 05/27/2014 - 23:02 | 4800705 Carpenter1
Carpenter1's picture

There is no tech bubble, housing bubble, bond bubble, or student loan bubble, all bubbles have fused into one global bubble.


We are in the end game of humanity. Like Keynes himself said, "in the end we all die." 


Congratulations,  you get to witness the truth of that statement. 

Wed, 05/28/2014 - 00:53 | 4800879 The Wedge
The Wedge's picture

End game of humanity? Really? From a cosmic perspective I guess that's true. But I believe the end of humanity is a ways out. A thousand years is but a blip in cosmic time.

Wed, 05/28/2014 - 01:27 | 4800928 ebworthen
ebworthen's picture

Nukes.  India and Pakistan have nukes.

1,000 years is highly optimistic.

Wed, 05/28/2014 - 06:22 | 4801177 The Wedge
The Wedge's picture

I try not to dwell on things that I can't control. While I'm as guilty as anyone at times, I also realize and try to avoid pessimistic thoughts. It's just not a healthy way to live.

Wed, 05/28/2014 - 06:46 | 4801191 Bohm Squad
Bohm Squad's picture

Masaru Emoto.  Photos of water crystals.

Wed, 05/28/2014 - 02:55 | 4801037 Incubus
Incubus's picture

biggest bubble of all: the human bubble.

Oil depencency is such a bitch, itsn't it?


Crunch time.

Tue, 05/27/2014 - 22:06 | 4800536 fonzannoon
fonzannoon's picture

"on each of the previous two occasions that stocks have corrected, their returns have converged to those of the bonds they had so distantly left behind during the upswing"



except this time bonds were not distantly left behind. In 2008 when the market katankered people were able to vacate equities and lock themselves into 5% CD's (for 5 years) and all sorts of corporate bonds with solid yields. This time around there is zirp and just the junkiest of junk for those brave enough to reach. That is the beauty of this bull run. There are literally no alternatives to it. It is going to take one helluva earthquake to get granny to ditch those utilities and telecoms with their 4% yield, and that seems to be good enough to hold the index up.

Tue, 05/27/2014 - 22:14 | 4800586 ms8172
ms8172's picture

Exactly... that is another reason these people are going to lose their asses hanging onto their stocks.  They will eventually get shakened out....and fall victim to buy high and sell low.  Which will excelerate the problem.

Tue, 05/27/2014 - 22:38 | 4800653 BeetleBailey
BeetleBailey's picture

2000 fonz. January. I had packed the place at Dodger Pines CC - chocked full of my retired clients. My monthly seminar to my clientele.

Franklin Funds and SunAmerica sponsored the luncheon. 150 clients.

Good men and women. WWII veterans. Two - survivors of the Bataan Death March. One was on Patton's staff during his dash across France (the stories he told)....most were 70+. One owned 32,000 shares of Exxon.

I had positioned most into tech from late 98, to then. Basking in their enormous profits, my parents were in attendance (may their journey in the afterlife be gentle and kind) - and they were adored as "the parents of the genius"; my Dad - when introduced, got up and clasped his hands, boxer style as the "winner" (that's my boy)....they got a standing ovation.... father - a wise and savvy investor - knew what was my talk that day, in advance.

I had the following as "sales items" - for early 2000


Gold funds

Real Estate


CD's (some, with an 8% interest rate, 7 year duration)

I HAD to get them off the feed bag. Some averaged 145% in the MF mix I put them in. For a little over a year's ownership. One went up 313% in 1999 alone.

45 minutes of haranguing them that THE PARTY IS OVER....O-VER - AND WE NEED TO TAKE OUR PROFITS AND RE-BALANCE.

I even had a TRAVEL AGENT THERE TO SELL THE TOP TEN TRIPS OF A LIFETIME TO THE CLIENTS. my Dad knew, it was going to be a tough sell.....

..and it was. 1/3 eventually listened to me - 2/3 did not.

Got home that night and my Parkinsons riddled father was eating.

"How'd I do coach?"

Without looking up, he replied; "You're clients are greedy"

2 years later, every single client of the 2/3 said something to the effect of "wish I listened"

I sold 10 bonds, 2 CD's and NO gold funds. Real Estate was laughed at....

Greed - overcomes logic every time

True Story....

Wed, 05/28/2014 - 06:35 | 4801183 AbbeBrel
AbbeBrel's picture

Great story. Thank you for taking the time to share it. Dunno how it will end up or when this time, but I suspect it won't be pretty and will last through 2022 (the demographic flatline on dr/dt - delta retirement / delta time).

Wed, 05/28/2014 - 07:31 | 4801233 espirit
espirit's picture

I listened, but wasn't there or heard you.

Most didn't, and had to start over wiser with less to invest.

Sometimes you get a second chance, sometimes you don't.

Wed, 05/28/2014 - 08:30 | 4801349 SoilMyselfRotten
SoilMyselfRotten's picture

In the last crash it took the gold/silver shares right down with it. Will they drop out again if there's another crash or will it be different this time?

Wed, 05/28/2014 - 10:36 | 4801689 BeetleBailey
BeetleBailey's picture

Good for you.

Prvt. Bailey

Wed, 05/28/2014 - 10:35 | 4801681 BeetleBailey
BeetleBailey's picture

It's 100% true Abbe....the look for horror on the reps for Franklin Funds and SA's faces was priceless as I thundered away - telling all the greedy septos the plain an adviser, they paid me to tell them - not make commission off of them....

It hurt me that 2/3 choose not - shrank my revenues as well....

The Franklin rep. had the gold fund prospectuses.....most sat right where they were....but I was also offering a fat person at a smorgasboard...picked over...


Wed, 05/28/2014 - 07:42 | 4801254 chubbar
chubbar's picture

Great, but what are you telling them NOW?

Wed, 05/28/2014 - 10:18 | 4801604 BeetleBailey
BeetleBailey's picture

I manage FX blocks, and ONLY select net-worth clients for stocks and investments.

If you've followed my posts, I;

Buy PM's for them - ongoing. Coins. Gold, silver

Buy and hold high divvie stocks. I let select MF do the picking for this market - but ones that make fucking sense (Royce Funds, Loomis Sayles).

LOTS of clown bucks warming up in the bullpen.

A 7 year shorting plan - indices.....across the board.....most positions are at break even/out of the money....for now....but less than 10% committed so far....and that plan has been in operation for 2 years now.....a nibble here....limit order in here....slowly....

Solid 5% bonds I scooped up (1M) worth in 2008 at tasty discount (800k) - October to be exact...the last one matures this December...sadly...

Along with keeping in contact with them weekly/daily via email/Skype/phone...they are content..

As of today...long Yen vs GBP....USD/CAD long (long term trade), and hedged @ 102 on the buck yen....scalping profits on it back and forth....

Tue, 05/27/2014 - 22:14 | 4800590 the 300000000th...
the 300000000th percent's picture

Yep, time to get off of the USS titanic and onto the rescue luxury liner BITCOIN

Wed, 05/28/2014 - 07:34 | 4801239 espirit
espirit's picture

If you're buying what their selling - you lose.

Try critical thinking and start playing chess.

Tue, 05/27/2014 - 22:18 | 4800602 christiangustafson
christiangustafson's picture

It looks like we have got ourselves a Three Peaks and a Domed House scenario, just waiting to see where we get a final high, point #23 in George Lindsay's famous model.

The pattern returns us to its start, the 1040 SPX area, for "A" down.  After a correction for "B", a final brutal decline, "C", takes us to the bottom of the megaphone on the charts since the year 2000 highs.  The entire mega pattern is an expanding triangle (megaphone), which has ABC triplets for each leg.

After the smoke clears, with the SPX around 550 or so, the $USD implodes.  What a sight that will be!

Tue, 05/27/2014 - 22:22 | 4800611 TheReplacement
TheReplacement's picture

LOL, he said "the cycle" as in "market" like those things are real.

Tue, 05/27/2014 - 22:31 | 4800634 mvsjcl
mvsjcl's picture

People have real dreams, don't they? That means dreams are real.

Wed, 05/28/2014 - 03:11 | 4801053 CHX
CHX's picture

Only cycle that matters now is this. every ~40+ years there is a new monetary system that comes into place.

Wed, 05/28/2014 - 00:28 | 4800854 intric8
intric8's picture

Markets will ultimately go where they are meant to go. They can distort for only so long. Over a 10k gain on the dow since 2009 under arguably the most challenging economic environment in the history of capitalism. How can that be possible without central banking manipulation? Its certainly not the result of a free market economy at work.

Wed, 05/28/2014 - 01:03 | 4800885 starman
starman's picture

a market that is funded and manipulated by the government is no longer a legit market! However there are limits to everything in the universe and when forces collide there will be chaos!

Wed, 05/28/2014 - 01:42 | 4800951 HaroldWang
HaroldWang's picture


Wed, 05/28/2014 - 04:36 | 4801123 intric8
intric8's picture

wheres the dollar go from here, wang?

Wed, 05/28/2014 - 02:26 | 4801005 noname
noname's picture

Yawn yawn dont you think if it was going to happen it would have already. The trend is your friend why do you people continue to fight with it when its been serve to you on a silver platter.DONT FIGHT THE FED YOU CANT BEAT A CHEATING CITY HALL.

Wed, 05/28/2014 - 02:46 | 4801028 q99x2
q99x2's picture

Financial pervert Soros is preaching that everyone should sell stocks and take their money out of the banks.

Fucker must still be short.

Wed, 05/28/2014 - 03:57 | 4801092 enloe creek
enloe creek's picture

should be something to see when credit is curtailed that is all it is about just how or when is a good question china needs less credit and euro needs more so trade can be grown maybe china should buy special euro bonds to jumpstart the economy , sort of a supplier financing arrangement where europe buys more chines goods and lowers trade barriers so china can sell crap there like we have done before, that will boost chinas foriegn reserves and the europeons will get jobs unloading goods from china

Wed, 05/28/2014 - 05:24 | 4801139 hugovanderbubble
hugovanderbubble's picture

Thx Tyler & Corrigan.



Wed, 05/28/2014 - 05:47 | 4801155 ArmyofOne
ArmyofOne's picture

She'll never go down.  They'll just close the totally unrigged "markets" and pen the sheep in.  That is until they repeat there guarantee of never ending happy endings in asset price inflation.  Then its off to another rocord high. 

Wed, 05/28/2014 - 07:29 | 4801224 Quinvarius
Quinvarius's picture

Imagine all this free money and credit the banks get going short, as is their natural desire.  Down is faster than up.  Down is easier than up.  down means you get to sell even more stuff that does not exist or you do not own.  You can have all the money and leverage in the world, but it doesn't mean you will go long with it.  The bankers wish to destroy for easy money.  They will do it again.  Too much money means volatility before all else.

I am not saying I agree with an impending crash.  But the stock market itself is not self-sustaining anymore than the Japanese bond market.

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