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Guest Post: The Junkie in the Pool and False Idols: Faith in Wall Street and The Fed Has Eroded

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

The Junkie in the Pool and False Idols: Faith in Wall Street and The Fed Has Eroded

The Debt-Junkie Market has been pulled from the pool, gasping for breath, but nobody thinks he's healthy: faith in the Fed and wall Street has been irrevocably lost.

Oversold rallies notwithstanding, the Debt-Junkie Market just stumbled into the pool and was barely saved from drowning. The stock market party isn't over for strictly technical reasons, though the technical damage is severe.

The party's over for a much deeper reason: faith that the Fed can fix the economy has faded, and participants no longer believe Wall Street's self-serving hype about the recovery and rising markets. Oh sure, people go through the motions of expressing faith in the market, in corporate profits rising forever, in official pronouncements of the Fed's omnipotence, and in whatever snapback rally is in play at the moment, but it's all for show; nobody really believes any of it, they just don't want to be the odd man out by confessing their loss of faith in the false idols. America Is Just Going Through the Motions (November 19, 2010).

The financial Status Quo has an unsolvable problem: reality isn't swayed by propaganda. Does anyone really believe another couple years of low interest rates and a snapback rally or two will fix what's broken in the U.S. and global economies?

Hasn't it been made abundantly clear that super-low interest rates only fuel speculation and malinvestment?

This loss of faith is not a temporary phenomenon but rather a sea change in the zeitgeist, somewhat akin to the loss of trust in a partner caught cheating: you can never go back to what existed before, even though you go through the motions of a return to normalcy.

I have covered this systemic loss of faith in the Status Quo many times--a process of delegitimization that is reflected in declining participation, withdrawal of funds, and increased skepticism of official pronouncements and statistical "proof" that the Status Quo is healthy and sustainable.

When Belief in the System Fades (March 12, 2008)

When Belief in the System Fades, Stock Market Version (March 26, 2010)

What we're seeing is a gradual, generational abandonment of the stock market as a trustworthy place to secure wealth. The closest analogy is the 1970s, when participants' euphoric belief in the permanence of the go-go stock market of the late 1960s was slowly destroyed, along with their wealth.


There are plentiful signs that the quasi-religious faith in stocks has reached an apex and begun a long, slow slide. For example, the Q ratio leaped to previously unimaginable heights, and is still far above its previous lows registered when people had lost faith in the market and its institutional cheerleaders (The Fed, Wall Street, etc.)


The value of the stock market relative to the GDP (a proxy for the real economy) has been at historically high levels for decades:

Here's what markets look like once institutional credibility has been lost: note the long decline in the Dow through the 1930s and the Nikkei market in the 90s. Yes, there were rallies lasting several years, but the markets never recovered the wealth that had been wiped out in their declines.


Faith in the Fed and Wall Street has eroded because their bailouts failed to repair the real economy or household balance sheets. If all the Federal/Fed backstops are included, the total exceeds $23 trillion, but let's see where the most visible $10 trillion ended up:


Over on the fiscal side, the Federal government has borrowed and blown some $6 trillion over the past four years in debt-enabled "stimulus." And how much did that torrent of debt accomplish? Looks like it yielded a negative return: the experiment was a failure.

Meanwhile, back in the real economy, labor's share of the national income has dropped:

 

And so has household income.

 

Rather than question the loss of faith in the Fed's magic wand and Wall Street's perpetual cheerleading, we might ask why it's taken so long for people to realize the Fed is a clueless cabal of cargo-cultists in servitude to the rigged game known as Wall Street, and the only solution is to opt out of playing the market.

The Debt-Junkie Market has been pulled from pool, dripping wet and mumbling, but the onlookers' frothy party conversations have dwindled to whispers. Yes, the Market has been "saved" once again, and the Fed will undoubtedly continue announcing new Methadone treatments that it promises will work wonders.

But anyone looking at the haggard, bent wastrel standing on the pool deck, arms scarred with tracks from previous Fed "treatments," is forgiven for excusing themselves: the party's over, even if the hosts are loudly declaring it has barely begun. escape.

 

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Wed, 08/10/2011 - 14:14 | 1547408 TruthInSunshine
TruthInSunshine's picture

Rumors and desperate inteventionism are all they have left when the CON in confidence becomes apparent to the sheep, which I honestly believe is happening to a larger degree than I've ever seen in my lifetime - the sheep might not know the specifics and technicals of their shearing, but they can hear and feel the razor.

When average people buy gold or silver, they're rebuking the system and voicing their lack of confidence in the CONfidence people (the governments and central banks and 'markets').

Vote the masters of CONfidence, who are corrupt or incompetent, into oblivion, I sayeth!

Wed, 08/10/2011 - 14:35 | 1547509 problemfixr
problemfixr's picture

Well said, my friend, well said.

Wed, 08/10/2011 - 14:38 | 1547521 CH1
CH1's picture

+1

Wed, 08/10/2011 - 14:53 | 1547583 Ricky Bobby
Ricky Bobby's picture

My postion has always been that buying Metals is first and foremost an act of REBELLION!

Wed, 08/10/2011 - 15:08 | 1547636 TruthInSunshine
TruthInSunshine's picture

Real money, unmolested and unraped by Central Bankster diseased criminals, still in its pure, virginal state, is a beautiful thing.

I don't like my money or women debased.

End the Fed!

Wed, 08/10/2011 - 15:20 | 1547673 NumNutt
NumNutt's picture

All those mother fuckers with Obama sticker on their cars might want to start scrapeing them off.......

Wed, 08/10/2011 - 21:28 | 1549484 StychoKiller
StychoKiller's picture

As someone so eloquently posted before:  "If you voted for Obama in 2008 to prove you're not a racist, who're ya gonna vote for in 2012 to prove you're not an idiot?"

Wed, 08/10/2011 - 14:13 | 1547414 Vitautas
Vitautas's picture

I think we are too pessimistic right now. Italy and Spain are saved:

 

http://www.bloomberg.com/apps/quote?ticker=GBTPGR10:IND

http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND

 

Spain pays now lower interest rates than abginning of the year!

 

Wed, 08/10/2011 - 14:40 | 1547535 Waffen
Waffen's picture

ahh hell no. At the Germans expense I take it.

Wed, 08/10/2011 - 14:16 | 1547424 the not so migh...
the not so mighty maximiza's picture

great article

Wed, 08/10/2011 - 15:04 | 1547623 flattrader
flattrader's picture

Just go to dshort.com

CHS relies heavily on his work for regurgitable material.

Best read in the orginal.

See shadowstats.com too.

Wed, 08/10/2011 - 14:25 | 1547461 Praetorian Guard
Praetorian Guard's picture

Move along, move along... all is well DOWn coming back... ;) hahahahahahaha - its still a polished turd...

 

 

https://www.gunsgrubandgold.com/forum

 

Wed, 08/10/2011 - 14:33 | 1547495 TruthInSunshine
TruthInSunshine's picture

2:30 or 14:30 est  - Storm clouds and technicals say to ride the coming wave down on this beeeyotch.

Wed, 08/10/2011 - 14:33 | 1547499 espirit
espirit's picture

Global Financial Crisis is the new buzzword.  Who could have seen that one coming?

Wed, 08/10/2011 - 14:34 | 1547505 sunnydays
sunnydays's picture

http://thehill.com/blogs/on-the-money/budget/176261-gop-announces-its-pi...

the new super congress has been announced.

 

some are trying to get people to show their displeasure and start flying the U.S. flag upside down, which I think is a good idea and not illegal.  At least it is one way of standing up and maybe if enough did it, it would get media attention.

http://sherriequestioningall.blogspot.com/2011/08/if-there-was-ever-time...

Wed, 08/10/2011 - 14:42 | 1547537 CH1
CH1's picture

I am highly sympathetic, but you might want to consider that America - as many of us thought of it - is OVER, and it is not coming back. The system is irredeemable.

Time to forsake it and rebuild separately.

Wed, 08/10/2011 - 15:16 | 1547664 toady
toady's picture

I saw some of that 'super congess' stuff...

Kyl? Are you fucking kidding me? The man is Satin himself. If it was up to him we would all be chained to our workstations and paid in bowls of rice with a little rat meat.

And Kerry? Mr. Cave-in-all-the-time-EVERY-time?

This will end up like the last go-around where the R's talk tough and the D's say 'please don't hurt me'.

OK, thats all the politics I can stand for a while.

Wed, 08/10/2011 - 14:39 | 1547529 MoneyWise
MoneyWise's picture

"and is still far above its previous lows registered when people had lost faith in the market and its institutional cheerleaders (The Fed, Wall Street, etc.)"

Of course it is and will be higher.. Where you think
money will go??? In 0% Treasuries? Or what? Sit in cash and wait? Yes, Markets will be pumped much
higher (in little while), don't know how higher, but
Goldman target 14000 on S&P at
least sounds reasonable in 3-5 month Time Frame..
Mean while trade it daily.. while VIX is too high
I wish somebody shot f*king down S&P rating agency,
at least till VIX dropped below 20.. Those mf& just
asking for trouble.. Too much negative activity lately.

Wed, 08/10/2011 - 14:46 | 1547566 TruthInSunshine
TruthInSunshine's picture

In the event you're actually being serious, and DIDN'T forget the sarcasm tags:

 

Are you high, brah?

You think anyone is going to do anything but bleed out investing in these so called markets?

You got your Abby Joseph Cohen on, brah.

Wed, 08/10/2011 - 14:49 | 1547574 Rodent Freikorps
Rodent Freikorps's picture

How come you are doing Hawiian Pidgin?

Is it a Spam thing?

Wed, 08/10/2011 - 14:57 | 1547595 TruthInSunshine
TruthInSunshine's picture

I use the term 'brah' whenever I think someone is higher than a kite.

It may annoy some, but no other term expresses incredulity so succinctly.

Wed, 08/10/2011 - 15:00 | 1547604 MoneyWise
MoneyWise's picture

See? you are depressed junkies and cannot see clearly.
Brainwashed by reading all this depression BS..
Ask Tyler, why his 1$ target Chinese scam stock
(SPRD)
still trading at 14.50??? Actually didn't even drop
since DOW dropped 1000+ points.
What you say??? Hah?
Or how about Pandora $2 price target???

Momo's?? Or what? :))) Look at the facts..
And all posted here is Negative sh*t collected from
whatever sources.. Nothing positive or Objective
Just a pile of negative Trash..

Wed, 08/10/2011 - 15:06 | 1547621 TruthInSunshine
TruthInSunshine's picture

Even Mark Zandi is folding. He's tired of the barbs, slings and arrows, and bailing from his utter bullshit story on expansion.

 

Recession 2.0 Would Hurt Worse - Project Economy News Story

-- The risk of double dip recession is rising. ... agree on one thing -- a new recession would be worse than the last and very ... said Mark Zandi, chief economist at Moody's Analytics. ... "It really does matter where the economy is when it gets hit by these shocks," said Zandi. ...

"Going back into recession now would be scary, because we don't have the resources or the will to respond, and our initial starting point is such a point of weakness," said Mark Zandi, chief economist at Moody's Analytics. "It won't feel like a new recession. It would likely feel like a depression."

 

You have to know when to hold 'em, and know when to fold 'em. Watch Zandi increase his now 33% odds of contraction (not so long ago at 0%) to 99.9% within a few more weeks.

By "'em," I'm speaking of the once touted magical qualities possessed by The Bernankincide.

Wed, 08/10/2011 - 15:14 | 1547647 MoneyWise
MoneyWise's picture

Well yeah, DOW 1100 in (2011) = 6500 in (2008), because DOW inflates as well, same as gold. Unless you forgot, Stock prices are nominated in US Dollars, value of which is declining. That is your double deep. Buy stocks selectively.

Wed, 08/10/2011 - 15:15 | 1547659 TruthInSunshine
TruthInSunshine's picture

Keep buying that already depreciating asset class in real terms (and in nominal terms, too - 1998 forward), and catch that falling waterfall of boxcutters.

I wish you well.

Wed, 08/10/2011 - 15:27 | 1547698 MoneyWise
MoneyWise's picture

Sure, thanks, I'm not buying and holding forever... And shorting too, if need it.. Now it's though of course with such high VIX, have to be alert. Good luck to you as well, I wish Silver go much higher, cause I have much more Physical Silver than Gold.

Wed, 08/10/2011 - 17:06 | 1548422 TruthInSunshine
TruthInSunshine's picture

Sure.

You  buy on the intermediate or short term near lows and sell on the near highs.

Consistently.

Gotcha.

Wed, 08/10/2011 - 16:03 | 1547899 Jason_1sandal
Jason_1sandal's picture

Hahahaha you don't get Zero Hedge at all do you. Do you think you are the first person to call Tyler out ? Many members here have, even long time loyal members. I would say we are some of the least brainwashed people on the planet. If you don't like what goes on here leave. I guarantee you, you won't be missed.

Wed, 08/10/2011 - 17:30 | 1548028 James
James's picture

Okay MoneyWise, Please explain all the positive things going on today.

I want to hear them all.

Hey,let's just extend and pretend. It will all work out!

Currently, the U.S.suffers from political,regulatory, judicial, and military capture by the vilest cretins who ever roamed the face of the earth. And no one to stop them.

Everyone of those four mentioned bodies swore under oath to protect the U.S. from enemies foreign and domestic.. Must've had their fingers crossed.

Not to mention the White House is fullof full fledged Marxists.

The American people have been sold out.

And their is not one man/woman of character that is going to stop it.

But hey, I'm organising a BBQ this Saturday @ noon. Bring your friends and family.Don't forget your   flag!

USA,USA USA,USA!

Wed, 08/10/2011 - 21:32 | 1549500 StychoKiller
StychoKiller's picture

Looks like folks are selling Yen and Euros to buy Au, I would suggest that everyone do the same.

Wed, 08/10/2011 - 14:44 | 1547556 LetThemEatCake
LetThemEatCake's picture

Another excellent article

Wed, 08/10/2011 - 14:46 | 1547563 Rodent Freikorps
Rodent Freikorps's picture

Faith? The Fed has PROVED they cannot overcome the sucking chest wound of ObamaCare, and full-fleged communists in charge of the executive agencies.

We have reached a point where the parasites have multiplied to the point that the host is dying, and the host refuses to acknowlege anything is wrong.

Wed, 08/10/2011 - 14:57 | 1547596 Ricky Bobby
Ricky Bobby's picture

+10 Burning cities coming to the USSA.

Wed, 08/10/2011 - 14:54 | 1547587 TruthInSunshine
TruthInSunshine's picture

Sweet!

They're going to speak more words....and cliches....and shit.

That's going to work out so well.

 

/sarc-a-lark-a-sarc/

Wed, 08/10/2011 - 14:59 | 1547603 Ricky Bobby
Ricky Bobby's picture

"Only Thing We Have to Fear Is Fear Itself"

I feel so much better now!

Wed, 08/10/2011 - 15:22 | 1547684 toady
toady's picture

'Ask not... Ah, well, fuck this..'

Wed, 08/10/2011 - 14:54 | 1547588 RobD
RobD's picture

Nothing good will come out of that meeting.

Wed, 08/10/2011 - 14:53 | 1547582 slewie the pi-rat
slewie the pi-rat's picture

personally, i'm starting to think that people are having waaaay too many hallucinations about the FED...

...even tho they're not addicted, themselves, of course...

might i suggest we all take things a day at a time, till friday? 

then, we can all spend the weekend hallucinating like crazy!

i just spoke with a canadian friend who had not realized the equities sell-offs could possibly be due to a recessionary scanario.  the sell-off is b/c "they" didn't get the debt ceiling raised "in time to avoid the down-grade." 

i asked if he thought the DOW was well-priced @ 12,500.  fuk no, slewie!  the economy sucks!

well, then maybe that's why people are selling stocks. 

eh?

 

Wed, 08/10/2011 - 15:00 | 1547607 Kokulakai
Kokulakai's picture

I assume they want to get their stories straight.

Wed, 08/10/2011 - 15:03 | 1547618 BeetJuice
BeetJuice's picture

The Wall St bubble is collapsing.

Wed, 08/10/2011 - 15:12 | 1547648 bania
bania's picture

I say we all take one final dive into the pool before heading home today. it's 3:15, who's with me?

Wed, 08/10/2011 - 15:21 | 1547675 Greater Fool
Greater Fool's picture

Sure. Seems like as good a day as any to tank the close and set up for a short-killing Thursday.

Wed, 08/10/2011 - 17:34 | 1548561 James
James's picture

I'll have to pass on that bania. But you go ahead.

When you're swimming and encounter three warm spots those will be where Obama, Geitner, and Bernank pissed in the pool.

Wed, 08/10/2011 - 15:14 | 1547656 espirit
espirit's picture

Even sheeple know when they're being CONfidenced.

Wed, 08/10/2011 - 15:15 | 1547661 Sudden Debt
Sudden Debt's picture

Yes but the Wallstreet money will trickle down to... WHOEHAHAHAHAHAHAHAHAHAH!!!!

 

Wed, 08/10/2011 - 15:49 | 1547804 Bastiat
Bastiat's picture

Great piece: the right data and right to the point.

Wed, 08/10/2011 - 16:00 | 1547878 automato
automato's picture

The problem is that both retail and institutional investors do not believe a word coming from the mouth of anyone. The solution is to shut the f*** up! If your company is worth a billion and your stock is worth a million then buy it all back and shut the f*** up! If your company is worth a million and your stock is worth a billion then sell every share you own and shut the f*** up! If your company NEEDS it's stock to be worth a certain value then YOU ARE SCREWED! In today's climate talking is NOT viewed as strength.

 

Wed, 08/10/2011 - 17:07 | 1548434 oogs66
oogs66's picture

great article..i like the mention of bear market rallies...can't ignore them..but right to have the bearish view

 

 

Wed, 08/10/2011 - 18:10 | 1548700 jomama
jomama's picture

i loves me some pretty charts, these are succinct and really well done.  thanks!

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