Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."
"I’m tired of being outraged!"
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."
Yes, it is that magical week leading up to Christmas and the subsequent low volume push into the new year. It is "magic time" as hopes are high that "Santa Claus" will come to WallStreet. "Ignoring valuation – ignoring risk – is a recipe for disappointment and is the thing that is most likely to lead investors to ruin"
The Swiss establishment has been reliant upon the public’s ignorance, but now they are up against a formidable opponent in Egon von Greyerz. Not only that, but they can clearly see that, as elsewhere around the world, the public is fast becoming disenchanted with the status quo; and that is potentially very dangerous for these people. What is important to understand here is that if the initiative passes it will be part of the Swiss constitution IMMEDIATELY - as some are suggesting. This means that the government and parliament cannot touch it. Only another referendum can change it. This is proper democracy for you. The closer we get to the vote on November 30, the bigger this story is going to become, and the bigger it becomes, the higher the chance that the yes vote wins. Should that happen, it will undoubtedly set off alarm bells throughout the gold market, as yet more physical gold will need to be repatriated and another sizeable, price-insensitive buyer will enter the marketplace.
"...much like when the Germans bombed Pearl Harbor, nothing is over yet. The Fed has not undone its extraordinary loose monetary policy and is just now stopping its direct QE purchases... Paul [Krugman] will continue to be mostly wrong, mostly dishonest about it, incredibly rude, and in a crass class by himself."
One of the biggest mistakes that investors make is falling prey to cognitive biases that obfuscate rising investment risks. Here are 5 counter-points to the main memes in the market currently...
Day in, day out, we hear it... It's "the most unloved rally"; Stocks are in "the Rodney Dangerfield rally"; there's still all the "money on the sidelines." Well, it seems, judging by Investors Intelligence surveys of those "not bullish" (bearish or expecting a correction), that investors have never (ever) been more lovingly, respectfully, all-in with this rally... (but that's just the facts speaking - not the asset-gathering, always stay long, commission-snatching soundbites).
Despite the constant clamor of money-on-the-sidelines (which Cliff Asness has summarily dismissed as being idiotic) and strength in US equity markets being 'the most unloved rally of all time', the following two charts suggest people are anything but unimpressed by it. Citi's Panic/Euphoria sentiment model has hovered in the clearly "euphoric" levels for a month and now the AAII Bull/Bear split is back near exuberant highs. Of course, as we noted yesterday, the real strength behind stocks is the incessant non-economic irrational and indiscriminate mystery buyer - corporate buybacks - that are creating their own mal-investment signaling exuberance in the always efficient stock 'markets'.
While the defenders of HFT continue spouting their usual platitudes (with the latest piece of "anti-hyperbolic" fluff coming from "Mr. Quant" (but don't call him an HFTer) Cliff Asness himself who said overnight that "markets are "rigged" in favor of, not against, retail investors"... so - rigged?) the reality is that while one can debate the ethics of HFT frontrunning orderflow until one is blue in the face (or until Goldman tells the DOJ to slam the hammer on the high freaks once and for all), the biggest adverse impact from HFT continues to be the inherent instability that algo trading creates in the market. For empirical evidence of just this, we once again go to the usual source which everyone ignores until months after the fact is seen as having been right about everything, Nanex, which looks at one particular aspect of market instability, namely Limit Up, Limit Down circuit breakers and finds something very disturbing.
"Stock-Picker's Market" is the term we hear again and again, but, as Cliff Asness blasted "I think they mean, "We will have to pick stocks now because the market isn’t making us money the easy way." As the following chart shows, the picture for most people's portfolios is a very different one from the index all-time highs that are tritted out day after day as indicative of the wealth that the Fed has created. As Asness concluded, perhaps talking-heads should more honestly explain, “Our market-timing forecasts are mostly useless most of the time, but right now, they are completely useless,” as the average member of the S&P 500 is 6.5% off its highs (as the index pushes ahead).
Five years ago, we were the first to bring the world's attention to the staggering profitability of several firms that engaged in 'high frequency' trading that presented themselves as 'liquidity providers' and suggested (in our ever so humble way) that mark liquidity was in fact shrinking and this could lead to a 'black swan of black swans' long before the flash crash was even dreamed of. Fast forwarding to today, after hundreds of articles, not only is the mainstream "getting it" but such behemoths as Cliff Asness - who happens to run one of the world's biggest quant funds - are forced to pen a WSJ op-ed to explain it's all a fallacy and blame a lowly blogger (or digital dickweed) for starting all this naysaying five years ago.
The market correction that begin in January appears to be subsiding, at least for the moment, as Yellen's recent testimony gave markets the promise of the continuation of Bernanke's legacy. With the markets back into rally mode, for the moment, this week's "Things To Ponder" focuses on some of the bigger issues concerning the effectiveness of QE, investing and "77 reasons you suck at managing money."
With your local friendly asset-gatherer constantly promoting the cheapness of stocks of the TINA (there is no alternative) to BTFATH, TV talking-heads jabbering over 'stock-pickers' markets (infuriating Cliff Asness), and CEOs trotted out day after day to espouse how bright the future looks (even if outlooks in the immediate future are down-down-down-graded); it is hardly surprising that sentiment among the sheeple is so extremely bullish. So, when we saw the chart below... we could only ask - what do the insiders know that the average-joe-investor doesn't?
This morning we showed several charts that "Market Bulls Should Consider", as the mainstream media, analysts and economists continue to become more ebullient as we enter the new year. This weekend's "Things To Ponder" follows along with this contrarian thought process particularly as it appears that virtually all "bears" have now been forced into hibernation.
Cliff Asness would politely request people stop saying "It's a stock picker's market." While pairwise correlations have dropped to post-crisis lows, they remain elevated to 'normal' levels but, as Asness rages, perhaps asset managers who rely on this 'weak' phrase should more honestly note "I think they mean, "We will have to pick stocks now because the market isn’t making us money the easy way."