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The New Boremal

Tim Knight from Slope of Hope's picture




 

From Slope of Hope: This market has had the "market" beaten out of it. If I had any sense - - or, more precisely, if I had the sense to not have any sense - - I'd just throw charts and reason out the window and dump my entire net worth into SPY calls so I could spend the next ten years cleaning out my nostrils. But I'm not dumb enough to be smart, so I can only sit back and watch, slack-jawed.

Take the chart below, for instance, from which I've removed the price bars; I merely show a trio of exponential moving averages (50, 100, 200) against the S&P 500 index.

1220-spx

The "market" didn't die in late 2008, when the Fed began its massive intervention. Although trillions of dollars of money from thin air gave the market a bottom, which allowed it to commence a turnaround on March 6, 2009, we still had a market to play with. I've marked this section as "1".

During this time, we had a couple of meaty downdrafts. The first was in the summer of 2010, when Europe (and, more specifically, the Euro) looked ready to fall to pieces. The Euro and U.S. equities were virtually one and the same (and in case you hadn't noticed, these two have long since decoupled, since the utterly-trashed Euro, were it still joined at the hip to US markets, would have dragged the Dow many thousands of points lower than it is right now).

Suffice it to say that Europe went "all in" with the kind of insanity that the US Federal Reserve had conjured up, and that crisis was "solved." (You'll have to forgive my frequent use of quotations in this piece, but I find them necessary; were I telling you this verbally, I would be using air quotes.

The second downdraft was the very next year, late in the summer of 2011, when the nation's staggering debt was causing alarm. (I would point out at this juncture that this "staggering" debt was trillions of dollars ago, and Uncle Sam would give his left nut to reduce his debt down to the level of mid-2011 at this point). This time, a spineless John Boehner caved in to Obama, and the notion of any kind of limit to the nation's debt was thrown out the window. The debt ceiling become a permanent joke.

Once these crises were past (and, even then, I was bitching up and down about the market, although at this point I'd give my left nut to get back to those relatively halcyon days) we entered a new period, which I've marked as "2". During this period, a witch's brew of global central bank intervention had calmed things down to a point where the market was not only still ascending, but doing so almost without interruption.

The final phase, in which we are still very much living, is marked 3. This era was ushered in by the introduction of QE3, which was the final nail in the coffin of the "market." By this stage, it was so screamingly obvious that global central banks would jump in at the slightest hint of anything scary to equity buyers, that there was simply no reason to be scared anymore. As you can see by the moving averages, they had been becalmed to the point of utter coma. BTFD was gospel.

What's troubling to me is there's nothing that should suggest anything but a state of permanence to this situation. The five remaining equity bears on Earth are all saying the same thing: "We'll get 'em in 2015." To which I reply: why? What's going to change?

Why, if the market dropped 10%, would the central banks simply not print up a few trillion more? Who is going to tie their hands behind their backs? Why on earth would they not keep doing what they've been doing to the degree necessary to preserve their power and privilege? If the vast majority of the public is too blinkered to understand or care, why should we not accept this never-ending nightmare as a new and very permanent reality?

As a verbal insurance policy, everyone from Cramer on up has been declaring "This will not end well" ever since 2009. The only hard lesson our nation seems to have learned from the financial crisis is that it's important to cover your ass verbally so that you can refer to a cautionary quote uttered at some point and tell the public: "See? I told you so."

But this, to me, is sort of like the magic of Elliott Wave analysis: given two possibilities, A and B, if you provide a scenario in which either may occur, you are assured to be right every single time. All you have to do is recount the waves (or refer to the ancient media quote). There is no one who wants to see sensibility and reason return to worldwide markets more than me, good people. But after all these years, it's hard to sustain any hope that anything is going to change. Put it all into Facebook and Alibaba, you monkeys. Janet's got your back.

 

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Mon, 12/22/2014 - 06:46 | 5580420 Quinvarius
Quinvarius's picture

During the 50's they made it illegal to buy stocks on margin for a while.  The bankers play both sides.  Keep that in mind.

Mon, 12/22/2014 - 09:18 | 5580568 Oldwood
Oldwood's picture

I was always told that it was the fact that people were buying stocks with borrowed money that caused the 29 crash. It made sense then and still does. Margin buying really is little different than sub-prime, no?

Mon, 12/22/2014 - 06:22 | 5580404 AbbeBrel
AbbeBrel's picture

Love the "everyone from Cramer on up" "quote"

Mon, 12/22/2014 - 02:58 | 5580299 Wild Theories
Wild Theories's picture

Watching geeks rant is adorable

with their "air quotes" and less-than-brutish use of "my left nut" analogies, without throwing a single "fuck, shit, wtf" throughout, that still ends up reading more like a grade paper than "plumber Joe" ranting his spleen :)

 

sorry, I'm in holiday cheer mode already, happy silly season y'all.

Mon, 12/22/2014 - 02:29 | 5580280 EndOfDayExit
EndOfDayExit's picture

Great article. Great chart.  I wholeheartedly agree with "why? What's going to change?". It will indeed continue until one day something happens. It is just that nobody knows what it is going to be and when it will happen.  

Mon, 12/22/2014 - 02:06 | 5580252 Kreditanstalt
Kreditanstalt's picture

Except that gradually the promises will have less and less effectiveness.  And then one day the "market" will no longer believe Janet at all...

Sun, 12/21/2014 - 21:09 | 5579662 christiangustafson
christiangustafson's picture

NEVER SAY DIE

Victory or Death!

Sun, 12/21/2014 - 19:19 | 5579261 foxmuldar
foxmuldar's picture

John Boehner is still a joke. He continues to cave for Obama. When will the fools in the House say enough of this BS? 

Mon, 12/22/2014 - 01:25 | 5580199 zebrasquid
zebrasquid's picture

Get about a million people outside the White House and Capitol causing a ruckus and that will get their attention...
I don't know what it will take to get people upset with these duplicitous devils to get them to get out and raise hell.

These tea party leaders need to get out there and lead this thing.
Take the country back while it's still worth taking back.

Mon, 12/22/2014 - 09:14 | 5580563 Oldwood
Oldwood's picture

It seems the only way, but we would likely all end up in a detention center somewhere. Sooner or later.

Sun, 12/21/2014 - 19:17 | 5579253 TheGreatRecovery
TheGreatRecovery's picture

"The five remaining equity bears on Earth...."   I read this several times, but could not find the names of the five equity bears.

Sun, 12/21/2014 - 20:07 | 5579447 armageddon addahere
armageddon addahere's picture

You will find them living in cardboard boxes under a bridge someplace.

Sun, 12/21/2014 - 16:03 | 5578719 bitterwolf
bitterwolf's picture

out of a international monetary failure by ALL players will come a ready made solution that ALL players will willingly sign up for.....no more currency trading lol bu bye PM's....new money coming to a bank near you

Sun, 12/21/2014 - 14:51 | 5578503 AdvancingTime
AdvancingTime's picture

Sooner or later we will be right and this false market will crumble. Many people have been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years. Have these actions really worked or merely masked over major flaws and problems?  I contend that by not demanding the right kind of growth and by throwing money at problems we have only delayed and added to festering issues that face us in the future.

  Modern Monetary Theory often referred to as MMT by its many believers is to remove much of the risk ahead and guarantee that we will always be able to muddle forward. This is a economic theory that turns to newly acquired tools like derivatives and currency swaps that are suppose to allow us to print and  manipulate away problems. This has created an "almost surreal" feeling of indifference towards reality. More on why debt does matter and the system is about to fail in the article below.

 http://brucewilds.blogspot.com/2014/01/have-we-been-lulled-into-complacency.html

Sun, 12/21/2014 - 14:21 | 5578390 kaiserhoff
kaiserhoff's picture

Thanks Tim.

Those of us who have been wrong for five years, might as well be wrong a little longer.

I do think the rate on the 10-year is starting to scare the poop out of the Fed.  It should.

Sun, 12/21/2014 - 14:49 | 5578493 AdvancingTime
AdvancingTime's picture

I agree that bonds should be viewed as the Achilles heel of this low interest rate but inflationary period.  Anyway you look at it I have a problem lending my hard earned money out for a long period of time based on predictions of future government deficits.

These forecast are often formed and made on assumptions based on rosy scenarios or politically skewed to benefit those in power. Like many investors I think the bond market is a bubble ready to pop and won't touch bonds with a ten foot pole. Knowing what we know about the effect that interest rates have on the value of bonds one might deduce that the 30 year bull run on bonds will have to come to an end the moment rates are expected to go up.

To give you a sense of what this may mean to U.S. Treasury Bond investors a 10 year treasury bond issued at a 2.82% interest rate could see a 42% loss in value from a mere 3% rise in interest rates. This means if you’d held $100,000 in these bonds prior to the rise in rates, you would only be able to sell those bonds for $58,000 in the secondary market after the 3% rise. Not only would bond holders be stripped of wealth if rates rise or even worse soar, but it would magnify the nations debt service and rapidly impact our deficit in a negative way. The article below delves into just how big a problem it could cause.

http://brucewilds.blogspot.com/2014/12/bond-market-bubble-has-ugly.html

Sun, 12/21/2014 - 17:21 | 5578958 bcroz
bcroz's picture

"To give you a sense of what this may mean to U.S. Treasury Bond investors a 10 year treasury bond issued at a 2.82% interest rate could see a 42% loss in value from a mere 3% rise in interest rates. This means if you’d held $100,000 in these bonds prior to the rise in rates, you would only be able to sell those bonds for $58,000 in the secondary market after the 3% rise. Not only would bond holders be stripped of wealth if rates rise or even worse soar, but it would magnify the nations debt service and rapidly impact our deficit in a negative way. The article below delves into just how big a problem it could cause."

 

Sure glad you're not trading bonds for me. A 10 basis pt move in the 10 year as about 1 point in principal price. Your example makes absolutely no sense. A move in rates from 2.82 to 3.82 would be roughly a 10 point move in principal ($100,000 to $90,000+2820 coupon) or a loss of $7180 or a loss of about 7%.  Conversely, if rates drop from 2.82% to 1.82% there would be a similar 10 point appreciation in principal ($100,000 to $110,000 + 2,820 coupon) or a gain of $12,820 or about 13%. Trade 'em like you see 'em but at least get the numbers right.

Mon, 12/22/2014 - 09:12 | 5580562 Comte d'herblay
Comte d'herblay's picture

Bpnd "Traders" constitute what percent of Bond Buyers?

Bond "holders till maturity" constitute what per cent of Bond buyers?

Until that question is answered accurately, your contention that the bond market will shit the bed is hollow.

Sun, 12/21/2014 - 20:10 | 5579452 armageddon addahere
armageddon addahere's picture

When he said a 3% rise I think he meant from 2.85 to 5.85. No doubt a radical move, but a rate under 6% is modest historically.

Sun, 12/21/2014 - 13:05 | 5578165 GreatUncle
GreatUncle's picture

They will keep going all in every time the markets look shaky and this is the new normal.

Also reckon this with all the people on minimum incomes and the all in philosophy many are going to find it harder and harder to stay in the game. We are not there yet but a decade from now with all those whose lives were destroyed by this all in behaviour and NOTHING LEFT TO LOSE that is when the proverbial SHTF starts.

The end of the lives of all those born in the 60's / 70's by the number of people and cast aside to starve. Those born in 20 years time seeing the consequence of the end for ordinary people are going to be far more radical.

Why live to die in poverty when you can if you take all you want in your youth?

Sun, 12/21/2014 - 14:07 | 5578343 El Hosel
El Hosel's picture

THe only thing missing now is the name change. When "They" start calling  "The Market" the "Free Money",  I expect we will finally see the long awaited 10% correction.

Sun, 12/21/2014 - 12:51 | 5578133 Vooter
Vooter's picture

The last thing that many Titanic survivors heard was the sound of the grand pianos crashing into the bulkheads as the ship went vertical. Today's equity "markets" have that same cacophonous grand-piano sound to me. But by all means, BTFD...

Sun, 12/21/2014 - 13:08 | 5578176 Just Take It All
Just Take It All's picture

and at that very moment i had just finished re-arranging the deck chairs.

Sun, 12/21/2014 - 22:30 | 5579878 Pool Shark
Pool Shark's picture

 

 

I think that sound you hear is all the 'millionaire specials' paddling away, as all the retail investors locked in steerage get left behind to drown.

"Nearer my god to thee..."

Sun, 12/21/2014 - 23:51 | 5580046 armageddon addahere
armageddon addahere's picture

And when a bug hits a windshield the last thing that goes through its mind is its ass.

Sun, 12/21/2014 - 12:48 | 5578119 Seize Mars
Seize Mars's picture

Well look at it this way. It's all fake, it's all manipulated. That much is widespread consensus. The crazy questions begin when you ask yourself, "there is an obvious collapse symmetric with this much credit creation. Why do this on purpose? Isn't that killing the golden goose?"

In my mind there are only two real ways to wipe the slate clean in a debt saturated world. Financial collapse that is somehow seen as self-driven or unilateral, or war. They've been trying war for a long time. The best candidate looks like Russia, but nobody really believes all the propaganda.

The real challenge here for the PTB, is how to engineer the collapse without they themselves being seen as the problem. I'm not sure they can anymore.

Sun, 12/21/2014 - 13:02 | 5578162 Just Take It All
Just Take It All's picture

they squandered the opportunity with ebola.  or did they?

Sun, 12/21/2014 - 12:42 | 5578111 Just Take It All
Just Take It All's picture

I’LL CALL, JANET
by Just Take It All

ankles strapped to wrists
I await the master’s fist
failed to do her bidding
I didn’t go along with the rigging

though I’ve had quite enough
I’ll not let her bluff
me thinks she’ll back down
when her fist becomes brown

still she could run me through
with her rubber sword built for two
yet I’d rather drown in her muff
than let her get away with a bluff

and while the losses give pain
it’s the mind fuck I disdain
it’s her cheating I abhor
let’s see your filthy hand, whore!

Mon, 12/22/2014 - 10:34 | 5580787 ShorTed
ShorTed's picture

Wow!

Sun, 12/21/2014 - 12:17 | 5578039 no more banksters
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