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Bull Or Bear?

Tyler Durden's picture




 

Submitted by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

The Bull Market in Stocks May Have Ended Already

As expected, Wall Street’s shills were out in force on Wednesday. And the Dow rebounded from Tuesday’s rout – up 293 points. CNBC assured investors that the “U.S. is a place you should be investing.”

 

kick-the-can-down-the-road

The can and the road …

 

 

And Bloomberg explained that, “based on history,” investors could expect to wait no more than four months until the stock market fully recovers:

“The S&P 500 rally that began in March 2009 has been marked by two previous corrections: a 16% sell-off from April to July in 2010, and a 19% slump over seven months a year later. The benchmark recovered within about four months of each. So if history is any guide, the market may not be back at its May peak until late December.”

 

Nikkei, LT

Based on Bloomberg’s “history”, the Nikkei is about 25 years “late”, and it looks like it will be even later before everything is said and done – click to enlarge.

 

But wait… This assumes we’re still in a bull market. As we’ve seen, two factors have been paramount in driving the bull market of the last six years: the Fed’s zero-interest-rate policy (ZIRP) and its QE programs.

And neither of those things is working for the U.S. Now. The Fed’s QE is on pause. As for ZIRP, it seems to have lost some of its zest.

It’s no wonder… As we’ve pointed out many times, lending money that didn’t exist before to people who are already deeply in debt is not a good business model. It doesn’t stimulate an economy. And it doesn’t make people better off. All it does is keep the can bouncing down the road.

And with the Fed now running out of ammo, we MAY no longer be in a bull market. Instead, we MAY be entering a bear market. If so, you can forget about a recovery in four months. Instead, it may take four years… or 40 years… to reclaim the bull market high set this past May.

Remember, from the bull market high set in 1929, it took until 1954 before the U.S. stock market fully recovered. A quarter of a century, and one world war, later. And in Japan, the Nikkei is still roughly 50% below its bull market high set in 1989.

Corrections in a bull market are one thing. Bear markets are something very different.

 

Admit it

In China bears have been outlawed in the meantime – literally (a Blaustein cartoon from Grant’s Interest Rate Observer)

 

Liquidity Dries Up

“Excess liquidity” has floated stocks higher over the last six years, argues our friend and economist Richard Duncan. Not earnings. Not growth. Not productivity. Not savings. Not investments. As he puts it, “When liquidity is plentiful, asset prices tend to rise. When it is scarce, asset prices tend to fall.”

 

richard-duncan

Richard Duncan watches the state of free liquidity. We’re not sure if his view isn’t a little too simplistic – after all, government not only “absorbs” liquid funds when borrowing, it immediately spends them again. Still, he may well be correct that another global synchronized recession is about to start (unfortunately he is also an advocate of big government spending as we have pointed out here)

Screenshot, credit: Financial Times

 

According to Duncan, a basic “liquidity gauge” for the U.S. is relatively easy to construct. When Washington borrows dollars to fund its budget deficit, it absorbs liquidity. When the Fed creates dollars through QE, it injects liquidity into the financial markets.

In the past, the Fed’s central bankers were practically wearing out the pump handles to get more liquidity into the system. During 2013, for example, Washington absorbed $680 billion to fund its budget deficit. And the Fed injected just over $1 trillion through QE. The difference created $320 billion of excess liquidity.

 

Monetary Base

Base money, which the Fed controls directly, has begun to drift sideways since the end of “QE” – click to enlarge.

But now Duncan warns that his liquidity gauge for the U.S. is set to turn negative in 2015. Washington will absorb more liquidity than the Fed is set to inject. And he is forecasting a negative reading every year from 2015 to 2020.

As Duncan recently told readers of his Macro Watch advisory, Fed stimulus is “no longer sufficient” to keep the credit bubble inflated. As a result, he warns, the global credit bubble is deflating, and the world is “sliding back into a severe recession.”

The can is no longer rolling along. Instead, it has come to a near halt, with central bankers and government policymakers desperate to give it another boot. Watch out!

 

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Fri, 09/04/2015 - 12:27 | 6509774 KnuckleDragger-X
KnuckleDragger-X's picture

We're teetering on the edge now and a little push should do it......

Fri, 09/04/2015 - 12:35 | 6509808 Urban Redneck
Urban Redneck's picture

We're already over the edge. but it always took Wiley Coyote a while to figure it out.  Gravity will do its thing, as long as no external force is applied which more than offsets gravity while momentum is weak, but acceleration can be a bitch on the way day down once things get going...

Fri, 09/04/2015 - 12:45 | 6509873 Syrin
Syrin's picture

We've been teetering for a decade and never seem to tilt over.   We might be a weeble wobble.   We seem to be teetering more now than in the past, but you have to wonder if it ever will all come crashing down.  I can't believe it has lasted this long.

Fri, 09/04/2015 - 12:30 | 6509782 Snarf
Snarf's picture

For every action there is an equal and opposite reaction.

Let's see what the opposite of "trillions of dollars of irrational asset pumping" is.

 

I've got a good guess.

Fri, 09/04/2015 - 12:33 | 6509798 LawsofPhysics
LawsofPhysics's picture

Yes, I don't know why people overthink this.  Eventually all those paper claims or REAL assets/labor will seek them out....

Fri, 09/04/2015 - 12:38 | 6509829 nyse
nyse's picture

*retraction

There, fixed it for you. YW

Fri, 09/04/2015 - 13:05 | 6509973 ajax
ajax's picture

 

 

More from Isaac Newton:

“I can calculate the motion of heavenly bodies but not the madness of people.”
Fri, 09/04/2015 - 12:30 | 6509785 Al Huxley
Al Huxley's picture

Come on dip-buyers!  Now's your big chance to BTFD!  Who doesn't want to be long going into a long weekend after a 3 day chinese holiday!  I can't see how that could go wrong, surely after 3 days pause the chinese will be chomping at the bit waiting to buy stocks again!

Fri, 09/04/2015 - 12:37 | 6509788 Snarf
Snarf's picture

hah

Fri, 09/04/2015 - 12:32 | 6509794 LawsofPhysics
LawsofPhysics's picture

Blah, blah, balh...

it's a "mark to fantasy" world now.  There will be consequences for ignoring fundmental principles of accounting and economics like collateral etc.

Fri, 09/04/2015 - 12:44 | 6509866 Uncertain T
Uncertain T's picture

Who needs fundamental principles when you have a convenient counter-party?

Fri, 09/04/2015 - 12:35 | 6509807 orangegeek
orangegeek's picture

bull, bear or unmitigated fucking disaster.  which one of the latter two is it?

Fri, 09/04/2015 - 12:46 | 6509876 rfbear
rfbear's picture

The last two out of the 3!

Fri, 09/04/2015 - 13:22 | 6510068 bid the soldier...
bid the soldiers shoot's picture

Which one would you like?

Fri, 09/04/2015 - 12:37 | 6509817 buzzsaw99
buzzsaw99's picture

wow was that way too simplistic and superficial

zh does a much better job of covering all the bases

Fri, 09/04/2015 - 12:39 | 6509836 rsnoble
rsnoble's picture

I can't wait to hear the rhetoric coming out of Cankles mouth shifting from interest rate increases to QE?(is it really 4, or 8 or 9 it's hard to tell).  Maybe they'll do both?  Why not?  It's free zeros.

Fri, 09/04/2015 - 12:43 | 6509853 Soul Glow
Soul Glow's picture

The diminishing returns of bad credit if any credit in a fiat based money system will only last so long; there turns a point when all the assets were sold to the highest bidder via their cash stockpile and whence the assets are gone the system goes negative because everyone realizes there are no assets left

We are witnessing what will be known as the greatest asset/liability credit/debt crash of all time.

Fri, 09/04/2015 - 12:43 | 6509859 Yen Cross
Yen Cross's picture

  Idiots like Duncan and Krugman need to play with this tool for a little while.

 Calculate the value of $20000 in 1964 - Inflation on 20000 dollars - DollarTimes.com

  $20,000 in 1964 =

Value: $151,981.87

 

Annual Inflation: 4.06% Total Inflation: 659.91%
Fri, 09/04/2015 - 12:53 | 6509907 Soul Glow
Soul Glow's picture

Dude inflation is running sub 2%

They says so

;)

Fri, 09/04/2015 - 12:46 | 6509875 TSA Thug
TSA Thug's picture

By the looks of it I think were going to have a fucking boring weekend in the comment section....

Fri, 09/04/2015 - 12:46 | 6509879 starman
starman's picture

We're on a trajectory to hell! 

Fri, 09/04/2015 - 12:47 | 6509881 franzpick
franzpick's picture

See the DJIA and SPX struggling to remain above their 15 month chart support levels at 16,000 and 1900: See them achieve new 15K and 1800 handles within minutes, or soon, or on a black Monday:

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=DJIA&insttype=&freq=1&show=&time=9

Fri, 09/04/2015 - 12:47 | 6509883 Winston Smith 2009
Winston Smith 2009's picture

"But now Duncan warns that his liquidity gauge for the U.S. is set to turn negative in 2015. Washington will absorb more liquidity than the Fed is set to inject. And he is forecasting a negative reading every year from 2015 to 2020."

As a result, watch for QE4...

Fri, 09/04/2015 - 12:52 | 6509903 World citizen
World citizen's picture

Well, Ms. YELLen... now you know what you need to do... A QE4 please, medium rare, with salad on the side and fries...

Seriously... if the whole talk boils down to creating more liquidity to support the markets, the sky is the limit. Any gov with a money press can do it...

The immediate effect is devaluating the currency, which is good for exports and bad for imports, so it depends on what side of the equation the gov in question is...

In the longer term, though, an artificially supported 'conomy at the end becomes ill, just like any drug addict... once a week is one thing, 3 a days in another...

The cost of pulling out of drugs and QE is high. Govs around the world have cornered themselves into pushing money, and the political responsibility to decide stopping that is... unwelcome.

Short of (finally) some real politician coming up on stage, I guess we will need to wait for an incident to happen

Fri, 09/04/2015 - 13:17 | 6510035 Jstanley011
Jstanley011's picture

The QEs were designed to keep the banksters liquid enough to make loans, period.

The thing is, there's nothing out there to make a loan against except for the same grifts, con jobs and shell games that have been bailed out, via the manipulation of interest rates downward since before the Tech Wreck.

QE4 won't change that any more than one more downshift and pedal to the metal proceedure will keep the school bus from going over the cliff.

The only solution now is what the sole solution has been all along. Let Mr. Market pick the winners and losers. The only downside to that is, at this point, he is extremely pissed off.

Fri, 09/04/2015 - 13:44 | 6510173 RaceToTheBottom
RaceToTheBottom's picture

Bankster bailouts did not go to loans, it went to reserves that they were criminally incompetent in not having and funded their gambling in the stockmarkets

Fri, 09/04/2015 - 13:27 | 6510090 World citizen
World citizen's picture

Mr. Market needs to be back, I agree... But that comes to a cost, especially unemployment...

Just sayin'....

Fri, 09/04/2015 - 13:33 | 6510107 bid the soldier...
bid the soldiers shoot's picture

Whatever fate has in store should come as a surprise for us, pleasant or unpleasant as the case may be.

 

Therefore, I urge Tyler to put up a lot more articles about Russia and China and less about our dyspepsia producing economic future.

Thanks

Fri, 09/04/2015 - 14:26 | 6510317 CHX
CHX's picture

Hurray, we have climbed Mt. Everest. Now what ?

Fri, 09/04/2015 - 14:16 | 6510347 jcdenton
jcdenton's picture

I don't fully get all the doom and gloom. Sure, there is going to be a good 30 to 60 day period of it. But past a certain point .......................................

Well, given proper information, you can figure out the rest ..

https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp

Begin with the 11 minute teaser. Follow bread crumbs from there. Just prepare for a bigger Katrina. There will be some pain and sorrow. We brought this on ourselves. But come Thanksgiving, it should be a pleasant Christmas .. (even though we should be really celebrating Hanukkah [like He did], and the miraculous conception rather than the nativity. [I was actually 2 weeks late myself.])

https://youtu.be/O44nNzRa81Q

So, I would ........... ah, prepare accordingly for the ................. ah, nativity in t-minus .............. ah, SEVEN days! Ol' Greg, (Gregorius Anicius) I guess was not just fully informed. In same/similar such manner as Pacelli (Eugenio Maria Giuseppe Giovanni) was informed about one Simon, son of Jonah, by Fr. Bagatti in '53. Yeah, just .............. ah, honest mistakes .. (that have yet to be rectified in ................. ah, 500+ years!)

Fri, 09/04/2015 - 14:33 | 6510453 toadold
toadold's picture

Actual inflation rate, I don't know, but given the increase in the cost of protien in the supermarket it is pretty high.

 

Fri, 09/04/2015 - 20:41 | 6511872 Abbie Normal
Abbie Normal's picture

Base inflation rate doesn't include food or fuel -- so just don't eat or drive and your annual 2% increase will keep your budget in line.

Fri, 09/04/2015 - 15:09 | 6510670 ParisianThinker
ParisianThinker's picture

Monetary policy will shift to inflation targeting prices, and the Fed's goal is 4% inflation which is coming your way.

Fri, 09/04/2015 - 16:30 | 6511052 GreatUncle
GreatUncle's picture

One question for a central banker ...

How you going to kick the can with no feet? Bet you never envisioned that concept where all your economic tools, your feet were rendered useless.

You need to check out monty python and the holy grail with the infamous black knight... he lost his legs.

Fri, 09/04/2015 - 16:48 | 6511134 Lumberjack
Lumberjack's picture

It's about time! 

 

Sat, 09/05/2015 - 10:26 | 6513050 chilller
chilller's picture

Gubermint spending is like a sucking chest wound....it inhales in capitol like air and exhales its evil like blood and broken lung tissue...

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