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A Market Worthy Of The Line: "Do You Feel Lucky?"

Tyler Durden's picture




 

Authored by Mark St.Cyr,

The now immortal line spoken by Clint Eastwood as “Dirty Harry” (1971 Warner Bros.) has never fit as a descriptor these financial markets more so than it does today. For if you believe you’re investing as opposed to gambling? These markets are now poised to show everyone the difference.

From an economic standpoint; not only has the current October surge in market prices been an absolute absurdity. Rather, just look to where the market as a whole has propelled itself right back to: within spitting distance of taking out the never before seen in the history of mankind highs. And why shouldn’t it be up here? After all, the economy is absolutely booming right? Right?

So one has to wonder exactly how does an economy in which its latest GDP report prints a blazing 1.5% warrant such a valuation? I know, trick question – it doesn’t. However, if one tuned into many (if not all) of the current financial media outlets this question or, reasoning was never addressed in any shape manner or, form.

As a matter of fact, there was praise by many of the next in rotation economists for how it was derived at in the first place, citing the “inventory” figures as a good news catalyst. Only an economist can find “good news” in a GDP print so pathetic it continues to warrant a continuation of extreme monetary policy by this very group.

Oh, and by the way, it was also this same so-called “smart crowd” who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let’s not forget – 1.5% GDP is now formulated with “double seasonally adjusted accounting.” i.e., If the print isn’t what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter.

What does it say when accounting standards have evolved into a discipline more suited for a massage parlor than anything resembling a house of academic standards – and 1.5% was the best print available? What one should infer from that data point alone is well worth contemplating by anyone truly serious about business or, their wealth. For that little number speaks volumes if one truly cares to dig deeper.

Looking at the markets “its hard to argue with price” is the old saw. And that price is, as iterated earlier, extremely high.

That’s just fantastic if you’re an “investor” with the tendencies of a river boat gambler. However, if you’re someone trying to distinguish the subtleties of when to invest precious resource capital into cap-ex projects for the prospects of future growth, or whether or not to expend that capital in hedging strategies to help smooth out input costs – you’re out-a-luck. You have just as good of a chance in flipping a coin for your macro business decisions. For hedging is now “What Fed. official will say what today?” Heaven help you if it’s the opposite of what they said the previous day. Like the title implied, “Do you feel lucky?” doesn’t seem that out of line.

So now here we are, back to levels that should be accompanied with a booming business cycle, yet, there isn’t one. This while all the rest of the corresponding data that should be giving the markets even more of a sure footing has been anemic at best. Consumer spending, housing, et al. All have shown to be going in the exact wrong direction we were told by the so-called “smart-crowd” would be showing otherwise by this time. Remember when people like myself were called “data-deniers” or, (the one I cherish most) “Idiots” for questioning all that supposed data? I’ll just let “the data” speak for itself.

All this once again brings us right back to today’s market strategy of “Do you feel lucky.” Because, “data” today whether good, bad, or adulterated means only one thing: what it means to a Fed. FOMC voting member. For it’s nothing more complicated than that.

“Piece-of-cake” should be the first thing that comes to mind. After all, with a Fed. such as this one with its expressed mission statements for clarity of forward guidance, coupled with its propensity to hit a microphone, TV camera, op-ed, and more harder, quicker, and with more authority than a reality TV star as to make sure the markets have no question to what might be forth coming. One should have no qualms or concerns. However, that’s simply not the case.

The Federal Reserve has delineated more confusing forward guidance than any in previous memory; coupled with more dueling press appearances of “good cop – bad cop” styled opposing viewpoints, all while simultaneously questioning, changing, and reinterpreting what weight should be given to any previously implied data points. This makes what the definition of “is” is, look as obvious as the nose on Pinocchio’s face. Not withstanding how many times they’ve not only moved the goalposts – but rather, switched both fields and games in mid play. e.g., Remember “international developments” and that other new-found interest (no pun intended) via their Dot Plot negative interest rates?

Just what do you think they’ll do next? All the so-called “smart crowd” is putting their money (well, actually yours) on the premise that they indeed feel lucky with what the Fed. will do next. After all; current CME™ Fed. Fund futures are now predicting a little better than 50/50 for a December hike (actually 53.5 as of this writing.) So, coin-toss odds are indeed the investing strategy of this millennium. Feel lucky? Wall Street does. Yet, why shouldn’t they? It’s only your money on the gaming table.

However, let’s get back to that “coin-toss” analogy. For the implications are far more duplicitous than any next in rotation fund manager or, economist will dare let on. Let alone state publicly.

Back in August the markets were beginning to show signs that it was taking the Fed. at its word (sounds just silly today no?) and began selling off in earnest at precisely these same levels today. Remember, there was no catalyst per sé. Just the impending realization that the “inevitable” hike was in play. Then came the real catalyst: China.

Overnight on Aug. 24th the Chinese markets realizing that they too would be at the mercy of the Fed’s rate hike also began selling off. However that selloff turned into spectacular fashion dragging U.S. markets the following morning into historic market moving precedents. e.g., The major index future markets halting and more. For let’s not forget: Fed. Fund rates today, like it or not, affects the global markets in ways far more consequentially than any time previous. Period.

Only after some immediate jawboning and more by officials did the markets seem to calm. Yet, within a little more than a week, they began to roll over once again. Not until the Fed. decided inaction was the action of the day did the markets not only stabilize. They propelled upwards in a near linear non-stop rocket ride boosted ever higher with every worsening data point released that the Fed. was not only painted into a corner of inaction, but handcuffed, bound, and blindfolded.

This October has resulted in being one of the greatest October’s ever for gains, in the history, of the markets. (#4 actually.) If your coin-flip of the Fed’s Sept. meeting implied there would be no rate hike – that bet just paid out in spades.

Forget investing acumen, it no longer matters (as I’ve reiterated for many years) you had gains for October matched only 3 other times in the history of the markets. So now is the real question for today’s investing maven: Do you still feel it? Lucky that is.

Now you have a Fed. with obvious “egg on its face.” And if there’s one thing an intellectual inclined thinker has a problem with is when they are made to look foolish publicly. Regardless whether by their own hands or not.

And if one is honest, the old saying of “Hell hath no fury like a woman scorned.” is only intensified when put into the context of indeed that someone just might be the very one being ridiculed by the markets themselves. A market by the way in which she has probably more power to inflict pain, turmoil, and wrath that Zeus himself would envy. Remember; It’s not their money – it’s Wall Streets. Or, need I remind you: yours.

Now I’m not saying the Fed. would do something such as intentionally hurtful or, out of spite. However, what I am saying is this: All the reasoning’s for not hiking in September seems to have been shown in ways conducive to the Fed’s own criteria as to have been a mistake. In other words, the China or “international developments” assertion along with the market bouncing back in historic fashion along with hovering within historic highs describes a market (via Fed. interpretations) with enough resilience to withstand a rate hike of such minimal increments.

Again, all this has been framed in a media context that “they should have moved.” And by media, I’m not saying just main-stream, but rather, those that the Fed. itself considers worthy such as the ones populated by their academic brethren.

October was a short squeeze of short squeezes. However, if indeed the Fed. is to actually move in December as many now imply is nothing more than a coin toss – what will the markets do from here? For if the Fed. is serious this time and doesn’t want to be the butt end of even more ridicule, it needs to signal ever more with even far more certitude: it’s going to raise come heck or high-water.

It can’t do both this time (i.e., more of the same mixed messaging) and save any remaining semblance it still believes it has of “credibility” if in fact it doesn’t move off the zero-bound in Dec. That luxury is no-longer applicable. They wasted it via their Sept. decision.

Now that the month end “paint-the-tape” market mayhem has closed the big bet is now: Will the markets take their cash winning off the table and go home? Or, will the “river-boat” style investor stay and let it ride calling the Fed’s bluff into a December showdown?

There’s not that much time to think or position. All cards are right now on the table, the stakes have never been higher, and the odds tell us it’s nothing more than a coin-flip odds based decision. Welcome to your investing casino. Where investing prowess, as well as a nations economic stability is punctuated with one’s ability for calling the right side of the coin.

Who’d a thunk it? Economics that required no math. How far we have come. Now all one needs to know is: Do you feel lucky? For along with no math – luck is now the “investing” acumen of the times. Until it runs out that is.

 

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Sun, 11/01/2015 - 15:48 | 6737578 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is watch this movie in 1978, but Russia translation is not so much impact,

"You are anticipate bias in take risk?"

Sun, 11/01/2015 - 16:10 | 6737625 Captain Debtcrash
Captain Debtcrash's picture

With the small exception of silver all major asset classes are overpriced at this point. 

Sun, 11/01/2015 - 16:09 | 6737629 SafelyGraze
SafelyGraze's picture

the question has been updated in the post-dirty-harry zeitgeist.

http://www.wnd.com/1999/04/1356/

 

Sun, 11/01/2015 - 19:30 | 6738064 TwelveOhOne
TwelveOhOne's picture

And even weirder, the question was never asked that way in the first place!

Search for "Mandela Effect" -- to some, he (Nelson Mandela) died in prison in the 80s, not just a few years ago as he has in "this timeline".

However, for this quote it is possible that it was misquoted after the movie, to make it more a question he was asking the perp, because it leaves out the initial "You've gotta ask yourself a question" before the actual quote, "Do I feel lucky?"

Now, that might explain THIS Madela effect, but the one that's freaking me out is the Berenstein Bears.  Growing up I remember asking, "How to pronounce it?  It is 'steen' or 'stine'?"  Now, it's "Berenstain", and there's only one way to read that!  My mom found the books I read as a kid, tattered and aged, and the "e" is now an "a".

 

I blame CERN.  But, possibly, not for the Dirty Harry mis-quote in this article's headline.

https://youtu.be/V7Nci-GVuHE

https://youtu.be/8Xjr2hnOHiM

Sun, 11/01/2015 - 16:59 | 6737736 BullyBearish
BullyBearish's picture

Just like wars, crashes are engineered to happen at just the right time...

Sun, 11/01/2015 - 17:46 | 6737857 algol_dog
algol_dog's picture

This author suddenly woke up and realized we're not in Kansas anymore .... Where you been the last 20 years?

Sun, 11/01/2015 - 15:41 | 6737562 Raymond_K._Hessel
Raymond_K._Hessel's picture

What's a "market", grampa?

Sun, 11/01/2015 - 15:52 | 6737594 Boris Alatovkrap
Boris Alatovkrap's picture

Ignore "invisible hand", but eventually is b*tch-slap those that defy.

Sun, 11/01/2015 - 16:00 | 6737608 Escrava Isaura
Escrava Isaura's picture

 

 

Invisible Hand?

How about the rabbit hand.

Gordon Gekko: The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy?

 

Sun, 11/01/2015 - 15:50 | 6737584 _ConanTheLibert...
_ConanTheLibertarian_'s picture

I know what you're thinking. Are we at QE6 or QE5 ? Well, to tell you the truth in all this excitement I've kinda lost track myself.

Sun, 11/01/2015 - 16:42 | 6737695 PoasterToaster
PoasterToaster's picture

QE has never stopped.  The number after the letters simply punctuates the step up to a higher level of money printing.

Sun, 11/01/2015 - 15:50 | 6737587 Hohum
Hohum's picture

There is no need to write such an article with the word "credibility."  It is, as the author says, a bet.  Investors bet big in October that the Fed won't raise rates.  Since many ZHers feel the same, why not invest in the stock market, sell at the right time, and then put it into gold and silver (physical)?

Sun, 11/01/2015 - 15:54 | 6737599 Boris Alatovkrap
Boris Alatovkrap's picture

Why not invest in market? Because over last 6 year of global recession of economic, Boris is not afford sauce pan to piss. To answer Dirty Harry,

"Boris is not feel so lucky"

Sun, 11/01/2015 - 16:02 | 6737612 Hohum
Hohum's picture

"I feel your pain."  WJC

Sun, 11/01/2015 - 16:07 | 6737626 Raymond_K._Hessel
Raymond_K._Hessel's picture

this holiday season, why not invest in death and chaos?

http://www.thestreet.com/topic/21701/top-rated-equity-aerospace-defense....

you'll be glad you did, young Paduan investor.

Sun, 11/01/2015 - 16:06 | 6737621 UncleSparky
UncleSparky's picture

 

The now immortal line spoken by Clint Eastwood as “Dirty Harry” (1971 Warner Bros.)

 

Can anyone name another event that occurred in 1971?


Sun, 11/01/2015 - 16:10 | 6737633 Boris Alatovkrap
Boris Alatovkrap's picture

Fiddler on Roof, 1971

"If I was rich man, Yubby dibby dibby dibby dibby dibby dibby dum."

Sun, 11/01/2015 - 16:12 | 6737635 rejected
rejected's picture

Bankster wet dreams 'came' true.

pun intended.

Sun, 11/01/2015 - 16:18 | 6737649 Tyrone Shoelaces
Tyrone Shoelaces's picture

Hmmm ... name 'Nixon' mean anything to ya, pal?

 

Sun, 11/01/2015 - 16:18 | 6737648 rejected
rejected's picture

Cops today have taken Dirty Harry to a new level.

Boom!!!

I feared for my life Cap e ton!

Sun, 11/01/2015 - 16:28 | 6737665 RMolineaux
RMolineaux's picture

This author needs an editor.  His English is terrible.

Sun, 11/01/2015 - 16:35 | 6737676 Who was that ma...
Who was that masked man's picture

Probably just another product (victim) of the American educational system, as am I.

Sun, 11/01/2015 - 16:45 | 6737701 antonina2
antonina2's picture

The way the fragmented market is set up there is no need for fundamentals, or anything really for it to go up or down.  Price movement is no longer dependant on the true value of the underlying, but value is assigned to the underlying by the amount of market pieces or liquidity participants it attracts at any point in time.  So, you could say the market or price action has been more or less decoupled from the true state of its underlying.  Supply and demand due to fundamentals was true before hft and multiple exchanges, but can now be skewed in any direction for any length of time due to all the new technology and types of order flow that have been introduced.  As long as people are getting paid to provide liquidity and other people are there to pay for taking liquidity away you can have a market that reaches the moon and beyond while the world is in a deep reccesion.  So, if you think about it, while the pundits will have you believe that the market is priced at true valuations, it's not your Grandpa's market anymore, that is why the market can go up on relatively small volume and shitty data.  It is a whole new game and beside disaterous glitches, the only time positive movement is threatened is when the big fish start placing large sell order blocks.

I was thinking about it today and it would be possible to have completely imaginary markets (no underlyings) that rely on the best algo to win, Darwinism for quantitation.  I guess it would be like the Kentuky derby for computers, may the biggest and fastest server win.  You could dump money into it/invest by betting on your favorite algo.  In my mind the whole thing is pretty complicated, but that's the gist of it.  Anyway....

It is my belief that things have developed in this manner to keep big money in the markets.  So, I guess the question isn't what is up with the markets, but rather why do large holders continue to hold, my guess would be that they don't have anything else they want/need to do with their money.  They say, who cares if Bob, Jen, Greg, and half of America can't find a decent job, we are making more money investing in the market (greater shareholder returns) than by helping to improve the actual economy and investing in more tangible things like people.  It's pretty shitty, but that is how I have come to make sense of the whole thing.  I mean yeah, the market should be about half of what it is now if it followed fundamentals, but it's not and I think that's why.

Basically, in order for there to be the big market crash that everyone constatly talks about, some pretty big institutions are going to have to fuck up big time and receive no help in getting out of it.  As long as there is enough money out there this fiasco can go on as long as people see fit.  We all say, oh the FED is dumb and they are doing the wrong thing blah blah blah and while they are destroying the economy they are keeping the TBTF in the clear and being rewarded handsomly for it, completely aware of their actions.  And to the public, they say fuck em and feed em cake, so just watch, a Republican with a great tax package will be elected in 2016 to satiate the people for the next four years while they continue to go about their business, increasingly bad data is reported and retail investors are like wtf is up with the markets?

IDK, that's just my humble opinion

Sun, 11/01/2015 - 19:40 | 6738087 Arthur Schopenhauer
Arthur Schopenhauer's picture

Hey... I gots to know.

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