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The Market’s Gamblers Are Pumping Air

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

The Fed pricked the financial bubblethis week  as expected. Janet Yellen’s press conference couldn’t have been more perfect for our investment thesis at my new research publication, Stockman’s Bubble Finance Trader. It confirmed that the money printers have come to a stark dead end.

The fact is, the global economy is deflating rapidly and the U.S. is sliding into recession. But our Fed chairman is clueless about what’s happening. She and her posse of money printers are going to get bushwhacked by reality in the year ahead.

She insisted repeatedly that the “economic fundamentals” are sound yesterday. Even though practically everything that matters is going south. This includes business investment, exports, retail sales, industrial production, inventory ratios, commodity prices, freight volumes and much more.

Our Keynesian school marm hangs all of her groundless optimism on the completely misleading and heavily medicated jobs numbers put out by the Bureau of Labor Statistics.

But here’s the thing: You can’t keep saying that the US labor market is in the pink of health when there are 102 million adult Americans without jobs. Or when there are still 3% fewer full-time, full-pay breadwinner jobs than there were 16 years ago when Bill Clinton was still in the White House.

So here’s where we stand after yesterday’s watershed moment…

Yellen officially admitted that, after the lunacy of free money for 84 months running, the Fed is out of excuses. And that it will start draining up to $1 trillion per day from the Wall Street swamp of liquidity.

If the Fed doesn’t follow through on this huge draining action, interest rates won’t go up, even by its trivial 25 basis points target. Its credibility would be shattered.

But if it does start heavily draining liquidity, it will catalyze the current sell off in the massive $2.6 trillion high yield market. That in turn will pull the props out from under the stock market. Here’s why: massive debt financed stock buybacks and mergers and acquisition (M&A) deals have inflated equities to their current nosebleed heights.

Beyond that, Yellen also admitted the Fed is out of dry powder when she stumbled and stammered on a question about the business cycle being long in the tooth. She was also reminded of the obvious fact that the Fed can’t slash interest rates in response to a recession, because it’s still effectively at the zero bound.

So there were two takeaways yesterday. First, the clarification that the Fed has three ways to lose. And our Bubble Finance Trading strategy wins regardless. (We just sold our first position for a 73% gain this morning. And that in about a month’s time.)

The market will plunge sharply in the coming months if…

  • The Fed fails to raise interest rates as now promised; or…
  • If it drains liquidity as now proposed; or…
  • If it is confronted with the recessionary forces and bursting bubbles that it absolutely does not see on the path ahead.

As I warned earlier this week, the “market” staged a relief rally after the Fed’s announcement. But that was as phony as a $3 bill. It was just the work of the robo-machines and fast money traders trying to bang loose some buy orders above the 50-day and 200-day moving averages. Both are right in the 2070 range where the S&P 500 stalled out after the press conference ended.

But here’s the more relevant chart:

Screen Shot 2015-12-17 at 4.43.21 PM

The S&P 500 has been chopping and turmoiling on the flat-line for a full year since it first hit yesterday’s closing price in early December 2014.

It’s tried to rally 34 separate times since QE ended in October 2014, and has failed each time. Like Pavlov’s famous dogs, the market has been trained to buy-the-dips, and for years was handsomely rewarded.

But that is no longer working. It’s only a matter of time before the buy-the-dips mantra morphs into “sell the dead cat bounce”. Like today’s action.

In a selfish sense, these flagging efforts by the casino players to levitate another last gasp “rip” are welcome. They give you a chance to pick entry prices for our Bubble Finance Trader recommendations that offer even more upside when the inexorable bursting of the bubble fully incepts.

They may even succeed in generating one last Santa Claus rally before next year’s recessionary forces spook the remaining gamblers out of the casino. Gamblers, we might add, who no longer have a friend at the Fed.

Like Wile E. Coyote, they are just pumping air and don’t even know it…

 

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Fri, 12/18/2015 - 18:36 | 6941037 Relentless101
Relentless101's picture

No story on the socialist suing his own party? This is hilarious. A guy runs on fighting against crony capitalism is shocked when he is hit with crony capitalism. With a debate tomorrow. Could be good TV. Probably won't be. But I have hope!

Fri, 12/18/2015 - 20:10 | 6941321 sun tzu
sun tzu's picture

They will send him a message. If he doesn't get the hint, he might have an unfortunate accident.

Fri, 12/18/2015 - 18:39 | 6941045 cro_maat
cro_maat's picture

Moneyprinters getting bushwacked!!! Is there a prostitute union Janet can file a claim with?

Fri, 12/18/2015 - 20:12 | 6941331 sun tzu
sun tzu's picture

The dumb cunt should have started raising rates last spring when oil was around $60. 

Fri, 12/18/2015 - 18:41 | 6941051 Two Theives and...
Two Theives and a Liar's picture

I love the smell of Market Desperation on Monday Mornings! I'm gonna need moar popcorn!

Fri, 12/18/2015 - 18:43 | 6941061 Mark Mywords
Mark Mywords's picture

Pricks. That they are.

BTW, take a look at futures. S&P down to 1992.

http://www.bloomberg.com/markets/stocks/futures

Fri, 12/18/2015 - 18:47 | 6941072 sixsigma cygnus...
sixsigma cygnusatratus's picture

Shut 'er down Clancy, she's pumping mud.

Fri, 12/18/2015 - 18:48 | 6941076 franzpick
franzpick's picture

We've all been bush whacked alright, but the market that whacks last whacks best.

Fri, 12/18/2015 - 18:54 | 6941096 eroc66
eroc66's picture

"It was Almost worth suffering the Great Depression, to find out how little our supposed Great Men knew" Will Rodgers. modernised to supposed Great Men and Great Womenm..cough cough.... oh where oh where is a Maestro when you need one?

Fri, 12/18/2015 - 18:56 | 6941106 FreeShitter
FreeShitter's picture

Live by the fed, die by them. Dont fuck with the casino.

Fri, 12/18/2015 - 19:09 | 6941145 SKY85hawk
SKY85hawk's picture

I know you are a whole lot smarter and experienced than am I. 

But, please explain "the Fed is out of excuses. And that it will start draining up to $1 trillion per day from the Wall Street swamp of liquidity."

How big is that swamp? 

Does this 'draining' affect the fearsome derivatives also? 

If a typo crept into your text I would understand.

Thanx!


Fri, 12/18/2015 - 20:22 | 6941362 buzzsaw99
buzzsaw99's picture

the $1T/day was a typo.

Fri, 12/18/2015 - 19:12 | 6941154 Neil Patrick Harris
Neil Patrick Harris's picture

I'm just so glad this is going to definitely happen on Obama's watch. It's a perfect way to end his shit legacy.

Fri, 12/18/2015 - 19:27 | 6941192 FreeShitter
FreeShitter's picture

Obama was selected to bring an end to the old world order, he does not give two shits about his legacy in the practical sense

Fri, 12/18/2015 - 19:29 | 6941204 Neil Patrick Harris
Neil Patrick Harris's picture

I disagree. The man never appears in public without a teleprompter, perfect lighting, a team of makeup artists, and several handicapped children of color.

Fri, 12/18/2015 - 23:12 | 6941856 The Dogs of Moar
The Dogs of Moar's picture

agree.  he didn't return the peace prize.

he's out to top Dr. King in the Guiness Book of Negro Records. 

Fri, 12/18/2015 - 19:17 | 6941168 gmak
gmak's picture

Slight exagerration.

 

"Yellen officially admitted that, after the lunacy of free money for 84 months running, the Fed is out of excuses. And that it will start draining up to $1 trillion per day from the Wall Street swamp of liquidity."

Fri, 12/18/2015 - 19:20 | 6941176 Mark Mywords
Mark Mywords's picture

I think that's $1 trillion in total being drained from the swamp.

Fri, 12/18/2015 - 19:18 | 6941170 db51
db51's picture

If any of you fuckers believe this sinking ship won't lurch to the surface Monday....you're going to be in for a very rude awakening.   There is no end to the financial accounting fuckery yet to be uleashed on the muppets.   

Fri, 12/18/2015 - 19:43 | 6941263 Winston Churchill
Winston Churchill's picture

 Fed cat bounce only, Tuesday is popcorn day.

Fri, 12/18/2015 - 20:48 | 6941434 conraddobler
conraddobler's picture

There is the QE we know about and there is the QE we know about but they don't admit to.

I'd be careful trading anything in light of the fact that really it's anyone's guess what they really intend here. 

If it's all above board and they mean to end QE it will go down faster than a 2 dollar whore, on the other hand if they are just saying it but in fact doing something else by stealth then we can levitate around here for a lot longer than any shorts can stay solvent.

Fri, 12/18/2015 - 23:23 | 6941880 The Dogs of Moar
The Dogs of Moar's picture

QE4 was silent.  Next will be QE5.

Fri, 12/18/2015 - 23:01 | 6941823 The Dogs of Moar
The Dogs of Moar's picture

 

And God said, Let there be war: and there was war.

God saw war, that it was profitable:

 God divided war from peace.

 

And God called war terrible

And wonderful called God peace.

 

But the Tribesters fancied God was sarc:

And war would goose a sluggish economy.

  

Sat, 12/19/2015 - 10:30 | 6942701 Latitude25
Latitude25's picture

Is Bloomberg trying to hide the coming collapse?  Hugo Salinas Price thinks so.\

http://www.plata.com.mx/Mplata/articulos/articlesFilt.asp?fiidarticulo=279

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