"You Are Here": Echoing The Cognitive Dissonance Of September 2006

Tyler Durden's picture

With an almost perfect six-year lag, the S&P 500 appears to be following the same path as it did into the Subprime crisis from the Feb 2003 lows - almost too accurately. The analog is stunning 'optically' and even more concerning from a behavioral perspective. By this time in 2006, we had seen the US Home Construction Index drop 40%, Subprime lenders going bankrupt left and right, Magnetar Capital had started to create CDOs with the express intent of failing, and Nouriel Roubini had just given his IMF presentation on the forthcoming US housing bust and major recession. Despite all of this, which in hindsight was extremely worrisome, the S&P 500 managed to gain 200 more 'the Fed has our back'-points before cognitive dissonance finally gave in to the reality that the 'music had stopped' - first out wins, and large crowds and small doors don't mix. With the current market rising on ever-decreasing volumes (in futures and stocks - so it's not about the high-price equities), divergence between the new highs in equity indices and falling 'net new highs' in NYSE stocks, and near-peak post-crisis level of complacency in options prices, it seems risk and reward are at best skewed neutral, and at worst flashing red warning signals.

The '03-to-'08 Analog...


This time we have energy and food price inflation soaring; debt soaring; Advanced economies at ZIRP (and some NIRP); asset prices levitating; Europe in tatters; and China's growth gone... and yet, we keep buying - as the golden carpet ride of Central Bank malinvestment blinds us to the reality that we 'need' a devaluation... It is no different this time - we are behaviorally the same humans with all of our greed and avarice and self-important status-quo defending to be done; As Darth Vader might have said if he was still around (in the future?): "The Cognitive Dissonance Is Strong In This One"


NYSE Net New Highs Are Bearish-Diverging...


S&P 500 Options Implied Skewness (the amount the distribution of returns is different from normal and biased away from downside moves) is at near-peak post-crisis levels of complacency... and rising...


We can only assume that TPTB know this - and the jawboning that has managed to stabilize our markets for the last month has enabled enough protection/hedging to be put on as to provide comfort to those that really matter when this thing cracks.


(h/t Brad at NewEdge)

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death_to_fed_tyranny's picture

Tired of the jawboning! God please get it over with! Oh. And. FUCK YOU BERNANKE!

spastic_colon's picture

bottom line they will say everything and do nothing....that way the markets are good until the december meeting....it is perfect strategy

Muppet of the Universe's picture

I love how ZH just puts on chart on top of the other, squeezes it to fit, and calls it reasoned assessment.  I never knew the truth smelled so much like bullshit.


You wanna see something special?  Check out 30 year bonds versus the Dow or S&P, over a 20 year period.  & line the peaks with the troughs...  notice the bubble shape formation?  LOL, that is about as legit as it gets, as long as your using charts like this to predict the market.  LOL

q99x2's picture

Stay long and sayonara suckka.

Ar-Pharazôn's picture

calling others bullshit while posting youtube videos.... LOL

go and enjoy your brainwashed life

ultraticum's picture

" . . . as long as your using charts . . . . "


" . . . as long as you are using charts . . . "


". . . as long as you're using charts . . . "


I was beginning to think you might have an argument worth taking a look at.  But when I saw the 3rd grade grammar mistake, I opted out from clicking the link.  Call me superficial.

slaughterer's picture

So, I guess no shorts until ES 1780. Thanks ZH, you are the greatest.

max2205's picture

Two years to keep dancing!

Doubt it'll take that long though.

old naughty's picture

Déjà vu.

"we can only assume that TPTB know..."

So they are doing god's work? Providing a lesson for us, again?

vast-dom's picture

who knows anymore how long the inevitable can be postponed. i had sept of LAST year as the CRASH and now we are at highest levels...you can't run calcs and make sense of ANYTHING when QE and ZIRP have skullfucked the markets into pure hopium stupor distortions!

prains's picture

just enough time for one more hit of crank boys, back up the truck

intric8's picture

This is exactly why you go long and yet feel horrible about it. This artificial inflation via the PPT is nothing but thin ice over a very cold lake. The depth of that lake is unkown, but its a long ways down.

YesWeKahn's picture

AAPL wasn't 670, AMZN wasn't 260, FB wasn't public. So, dream on, SP will not be above 1500 until Bernanke is fired.

r3phl0x's picture

Stop thinking, and go long anyway. The iPhone is on track to replace the US Dollar as a global reserve currency by 2015.

AUD's picture

has enabled enough protection/hedging to be put on as to provide comfort to those that really matter when this thing cracks.

Is this a joke?

Rollerball's picture

Gold bricks buried deep.

Dead Canary's picture

Deja vu ain't what it used to be.

crusty curmudgeon's picture

Haven't I seen this post somewhere before?

Jlmadyson's picture

2016 tops but it will be one hell of a bumpy ride before then. It might not even last 3-6 months at this rate.


Those dealers are having to drink all the kool-aid they can take and more.

Collateral needs are breaking the shadow banking system.

Rehypothcate can only go so far.

All the warning signs are flashing.

For how long? Who knows.

A lot of talk about the next 4-8 weeks and there is good reason for that. One little overnight bump and this thing is going down.


Lets be clear too the system would have broke shortly after MF Global had they not broken out the swaps again. The jawboning has been going on for far too long.

Diamond_Dave's picture

I would say there are a couple of mirror points on that trend comparison, and if we mirror from here looks bad for next two years. Is that train leaving? Toot-toot; next stop Clarksville.

mayhem's picture

i am starting to think this is going to be a slow, painful pullback in late Sep. Nothing to move politics. Hard to trade. i would prefer a reset and mayhem  

SafelyGraze's picture

well .. maybe minus the mayhem (no eponymous offense intended)

JohnG's picture



Just wait til Friday at Jhole.

I'm not always short, but when I am, I short everything.

Stay thirsty my friends.

otto skorzeny's picture

I think you will get stung. QE means that market will go up til election, no QE means that Fed thinks economy is in OK shape so market will go up also. these markets are too controlled to touch

JohnG's picture



There will be no outright QE.  Jawboning works, but is having a decreased half-life, just like QE.

What the FED *thinks* is irrelevant.

Also, I made no mention of HOW I short everything.  I lean hard on the hedges.  Hope to lose on those.  Don't think so.

In any case, in the medium term, this market is going down without plain outright QE.  Unless the ECB forces Bernank's hand, there will be no outright QE.  Merkel is smarter than that.

edit: Didn't junk you, I only upvote sparingly.  Everyone's entitled to thier opinion and I read and appreciate mostly all except trolls.

TraderTimm's picture

While I support short selling in all its forms, I'm not so sure if it will be this particular juncture. I wish you the best, but this market is clinically insane.

OpenThePodBayDoorHAL's picture

No QE at JHole, Dow drops 100 but then recovers

fonzannoon's picture

Are we all talking about the same thing here? Are we discussing a possible 10% correction in the markets? I am thinking this is like a rope that snaps and decapitates the people holding it.

adr's picture

The iPhone5 failing to sell 1 billion units in 24 hours to support Apple's share price will be the 2012 Lehman moment.

New_Meat's picture

Four Legs Good--wait, patience, mon ami. - Ned

TraderTimm's picture

Given the timetable of approximately 10 months, I'd say we have until iPhone6 before it all goes to hell.

Dr. Engali's picture

I simply can't imagine we will advance beyond S&P 1450 regardless of what they do. We are coming into a critical couple months and if they don't do QE3 there is no way they can keep a market this illiquid afloat.

knukles's picture

The psychology out there is absolutely a disaster.
I know doctors getting real estate licenses (holy shit!)
Gubamint employees retiring early to get in the "senior" most secure position with retirement benefits.
Neo-Cons going absolutely ape-shit with the Romie-Rand ticket thinking that the world's been saved (watch out for any surprise win or loose, not...)
My friend in the investment biz think it's all warm and stinky while their employer official line is Everything's Coming Up Roses....
Commercial property lease and sale signs flooding the market anew,(supposed to be a lagging indicator, so if alls good shoulda been disappearing by now)
Got buds under water starting to panic.... even tho can handle the payments
Got bunches of ex-dem and ex-repubs who were all for Paul gonna either not vote or write in Paul, taking away the independent base Roomie needs to win....  And we may say there's no difference but I'll take a change right now....
Nothing is right, correct, A-OK, supposed to be...
Dismal shit.

Very dismal shit.

Fuck this.  Time for some entertaining reading. 

Or maybe Lizard Lick Towing or Storage Wars, the new employment opportunities of the New Normal

While the US sinks, China dives and Europe disappears.


fonzannoon's picture

Knukles I had a beer with one of my best friends last night. This was the conversation...

Him: I have been reading about China lately. It's crazy what goes on with their government. It seems like real Orwell type shit with the government controlling information and cracking down on people"

Me: You are fuckin with me right?

Him: Eh?

Me: nevermind.

schatzi's picture

To my friends and colleagues I paint a similar frustrated picture of doom and gloom (in the European core busy paying 50% income tax + social security - Jeez I'm pissed off just being reminded), yet I get dismissed as a dumbfuck loonie, because the government here has everything under control.

ultraticum's picture

Knukles - very accurate summation.  Agree with everything except the compromise on the Romie ticket (I think that's what you were saying).  RNC dirty tricks, and totally disenfranchising their constitutional/small-government base, is going to blow this thing wide open.  Those of us refusing to vote for the lesser of two evils may indirectly cause the blue fascist to get elected instead of the red one this time, but that's the pain it's going to take to wake people up to get out of this one party dick-tatorship.  As somebody said recently:  whether it's a blue or red condom, we're still being screwed by the same dick. 

Good article on RP and the liberty movement here:


Cognitive Dissonance's picture

".....the S&P 500 managed to gain 200 more 'the Fed has our back'-points before cognitive dissonance finally gave in to the reality that the 'music had stopped' - first out wins, and large crowds and small doors don't mix."


You rang?

And I never give in without first waging a fierce ear to ear fight. You ain't seen nuttin' yet.

buzzsaw99's picture

Time to start drinking in the mornings again. I found a recipe for homemade irish creme for my coffee. See you-all bright and early in the a.m..

Atomizer's picture

Subprime loans “affirmative action” - Andrew Cuomo


The financial world did not collapse because of 15,000 loans from this one settlement, but this case did not exist in isolation. Cuomo held this press conference as a warning to all lenders that the Clinton administration intended to enforce the CRA broadly with all lenders, and in fact he explicitly stated this. When that didn’t free up credit as quickly as Clinton desired, he and Congress mandated Fannie Mae and Freddie Mac to purchase more subprime paper — which Cuomo baldly admitted was riskier and would have a higher rate of failures — and to turn them into mortgage-backed securities, which they marketed as low-risk investments based on implicit government backing.

This did what the heavy-handed enforcement of the CRA could not: it made lenders enthusiastic about subprime lending. Why? They could make short-term profit on every mortgage regardless of the borrower’s ability to repay, because Fannie and Freddie would buy them anyway. With the risk removed from lending, subprime loans became quick-buck rackets for all lenders, predatory or not. 

The second half of the video relates what we already know about Barack Obama. He sued Citibank to force more subprime lending, and his ACORN partners did the same elsewhere, initiating actions like the one Cuomo heralds here as a great breakthrough in affirmative-action lending. Obama bears responsibility at the edges for the beginning of this disaster, and more for his inaction while in the Senate as Alan Greenspan warned them of the coming collapse. Most of this falls on the Clinton administration and Congress in 1998-2000, who set this brush fire alight and then kept the firefighters at OFHEO at bay by calling them racists. 

How we forget the failure by many examples to keep the peasants on the plantations. Look, another one escapes… 

Who Let Her Off the Plantation???!!!



hannah's picture

the last time, the fed could still put trillions into the market because oil was $30, corn was cheap and chinese labour was cheap. lets seem them put a trillion dollars in with oil at $90 and corn at all time highs.


no way they get away with it this time.....oh they will try but we cant survive continuing $90 oil. much less $140 oil.

Jlmadyson's picture

It will cook the system that is for sure. Bernake on a tightrope while being smacked from both sides of the aisle.


Heck we are at $3.80 plus on the national average without QE. It shall be fun.

r3phl0x's picture

The Fed can print as much as they want, because the money never ever reaches the lower / middle classes who would bid up food / oil. It goes straight to banks, who short commodities and occasionally crash the latest real estate / equity bubble-du-jour, to keep the QE flowing.

taraxias's picture

Yeah, I know what you mean, they SHORT commodities so much that Brent is riveted over $100 and food related commodities are at all time highs.

////// snark

HaroldWang's picture

Looks like 1800 SPX is just around the corner. Funny thing, I watched "Trader" again the other night about Paul Tudor and they were overlaying crash scenarios to then modern charts. It's amazing that it worked out and the market crashed. Guess history does rhyme.

Whiner's picture

They are still pumping and humping: FHA, FHLB, Fannie, Freddie, Student Loans (on to one trillion next year)100s of billions in new derivatives, etc., ad nausium. The leverage in the system is as taunt as the last flood room on The Titanic. Whe she goes, I say she goes fast as digits can fly, and she goes deep to the bottom of Davey Jones locker. I don't know where to hide except phys. PMs. Keep a wad of fiat under the mattress, things to barter, stock of meds and ammo.

mirac's picture

  lolOK.  If your going to give me a New Highs chart, ya shudda supplied a New Low chart...now I have to go and find one!