Policy, Profits and Propping… that is without a doubt the underlying fundamental support for a massive and growing phase of market speculation that becomes more dangerous with every week that it lurches forward. Once again, the chart that proves this in no uncertain terms:
‘Policy, Profits & Propping‘ courtesy of SlopeCharts
Note the 3 humps on the S&P 500 (orange). Again we review…
- Hump #1 was a massive speculative surge that separated the stock market from all reasonable measures of fair valuation. It was the terminal phase of a great secular bull market in US stocks.
- Hump #2 was not over valued compared to corporate profits, which were generally instigated by the Greenspan inflation that began in 2001. From this inflation sprang a massive bubble in commercial credit. Wall Street took over and sold the inflation to the world in the form of dangerous securitized 'investment' instruments. As long as it worked, corporate America flourished; especially financial corporate America.
- After the liquidations that inevitably followed Humps 1 and 2, the Bernanke Fed instigated the mother of all monetary inflation attempts as ZIRP (zero interest rate policy) was initiated in December 2008 and remains an accepted, almost forgotten part of the macro landscape to this day. Add to this an automated regimen of Treasury and MBS 'asset' purchases (despite the ‘taper’ jawboning that periodically hits the media) in an attempt to keep long term interest rates down and deleverage the previous bubble, and you have policy working over time. Introducing Hump #3, who’s time is coming due if it is to match the roughly 5 year lifespans of Humps 1 and 2.
The point of the chart above is to illustrate that those with an agenda to ride the trend and look smart are correct when they state that the US stock market is not particularly over valued… if one shuts off one's brain and accepts policy (blue Monetary Base line, which is but one of several money supply measures) as being at all normal or healthy. Corporate profits (green) are doing great. All's good as the S&P 500 is merely keeping up with its fundamentals.
But these fundamentals are 100% dependent upon some quasi financial institution's will or ability to continue the inflation. Or, as with Hump's 1 and 2, the public's willingness to continue the speculation. A secular bull market blew out in 2000 as the final speculative surge by the public and wildly imprudent financial 'professionals' just expired and fell apart. In 2007 something went wrong with the Ponzi racket certain big institutions had going, in which they enriched themselves at the expense of the public through an officially supported commercial credit bubble.
Today we are asked to believe that policy, profits and propping can go on indefinitely, and in the most optimistic views, into a new secular bull market. The public generally believes that a new bull market began early this year after having sat out the first 4 years of the still-ongoing cyclical bull that began in March of 2009. This is going to end very badly, whether sooner or later. March of 2014 is 5 years, but there is no guarantee this bull will reach that nice, round number.
The following graphics courtesy of Sentimentrader.
The public (largely dumb money) is now lovin' itself some stock market.
In fact, in the tradition of the great blow off in 1999/2000, big tech is the center of the speculative attention. This aligns with the recent post A Cyclical 'Mini Me' to a Big Secular Event. This is not a new era, and it is a bubble; in policy making or more accurately in market participants' willingness to believe in policy making.
Ben Bernanke is the same man that everybody hated in 2011. The Fed is the same chronically inflating entity. It is just that this go round the inflation is 'working' toward the ends that would appear to benefit the most people, and as with previous inflation-instigated speculations (in crude oil and silver for example) speculators are jumping on this one. Go have a look at the charts of crude in 2008 and silver in 2011. Or how about the Nasdaq 100 in 2000?
NDX monthly, from NFTRH 261
This chart was produced in NFTRH 3 weeks ago to illustrate the extent of participation in this echo bubble (again, the bubble is in policy, not so much stock prices this time), which is a cyclical version of the secular thing that blew out in 2000. Does NDX look vulnerable to you? How about when considering the Sentimentrader graphs directly above? Or Rydex cash levels (a lack thereof)? Or current margin levels being employed by stock market speculators? The list goes on.
Bottom Line
Bubbles can go on and on until they expire and meet a furious end. I am sure many people think they will get out at exactly the right time. It’s just a game of musical chairs. Was yesterday's hard drop anything to be concerned about? Well, recent high flying bubble stocks like FB and TSLA are showing some cracks (and topping patterns). MSFT seems to be blowing upward with hot money thinking it better get a hold of the likes of dependable old Mr. Softie, leaving the high flyers and high valuations behind.
This bubble can endure out to next spring by my work. It can also end tomorrow… or yesterday. The point is that the Federal Reserve, through its automated and destructive policy, has indeed instigated another bubble with speculation running high. A big change is coming. Don't get played. Forget the 3 P's; go with the 3 C's… Caution, Clarity and eventually, Capitalization.
NFTRH is managing events in a clear and grounded manner, in the weekly letter and by in-week updates at the site. It seems clear that one year from now the landscape is going to look very different than it does today. The only way to be in alignment with changes is to see and evaluate the potential and timing for these changes in an ongoing manner, subjecting the analysis to various acid tests along the way. You arrive at your destination intact and ready to capitalize through unbiased and consistent work, not through predictions or holding to dogma through thick and thin.
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There are no 'retail investors' unless one means pension funds, which will also be blown out as the ultimate limits of credit inflation are hit -- no simple krach this time around but destruction of most fictitious capital.
GAMBLERS in The Great Wall Street Casino (Formerly The Stock Market), borrowing cheap Fed money, will continue to pump the bubble until it finally bursts with a BIG BANG! The bogus "rally" is exactly what the Fed needed to create the illusion of a "recovery" and "prosperity". The Fed can easily defeat any chart pattern and prevent any serious correction by increasing one or more of several pumps until the roof caves in.
And another thing. The market has retail investors *exactly* where it wants them. Anybody who's not been in the market for most of the year is dying to get in, High, low, fear, greed valuations....whatever. It's too late to go long and shorting this is such a fool's game that even amateurs can see it. The second most pwerful force in the market is what I call "performance envy". The number of funds that have beaten the SP this year is, as I've already said, is vanishingly small. The laggards have to get their numbers up. It isn't their money.
Unfortunately, you can't or won't do with your own money what folks are who aren't afraid of losing it will do.
>>In short.....there's nothing to do but to already be long.<< That's the ideal spot for Wall St and it's hazardous for the small investor. I believe you really have to wait for a pullback here...and you may not see one til sometime in December; perhaps after OE in November, though that would be pretty obvious.
And if you're not....IMO you do yourself a favor and stop watching it. There's nothing left here but bear capitulation.
Al you're just a cockeyed optimist!!!
Get in, get out, double down, go short so what are you trying to say?
The market does what the market does so follow the triangles and manage your stops????
So really what's one to do guru?
Exactly! More of the same double-speak.
Stay in or get in but you could get burnt badly as a consequence.
Stay conservative on the sideline and miss the continuing lucrative melt-up.
Even though we're overbought, we can stay overbought for a long, long time.
At these levels, only the dumb money gets in now.
etc., etc., etc.,........................................................
Really, what is one to do? What is one to do?
wonderful article ..... thx ..
Yeah, it's fake, phony, contrived. Meanwhile, someone who bought SPY 2 years ago and not made a single trade has probably devastated 99% of traders. To be clear, I am in the second part of that statement. People I know who know nothing about the market, don't particularly watch it...long SPY have destroyed my performance this year. Gruesome.
With respect, you leave out three factors, IMHO.
1: The market is largely applauding the government-centric economy created by the mechanisms of a: Issuing regulation after regulation that crushes small business. Additionally. this administration b: demands tribute in the form of campaign contributions, or, will extract it in the form of punitive measures and investigations. To overstate it, it's classic fascism, in which only businesses closely allied with government can really prosper.
2: Where and for what is the preference for cash? (and maybe this should be #1) When you sell a stock, you get cash and exit perceived risk or capture maximum (to you) value. What do you now use that cash for? Bonds? Commods? No. Another stock. And now you have entry risk. You are better off staying with what you have ESPECIALLY if have the 20% this year has provided. You can ride out quite a bit up that much. This market has seen the end of the world 20 times over the past few years. The implosion of Europe. Heck, the implosion of the US for that matter. Crappy employment numbers. GDP absolutely dominated by the accounting fiction of QE being part of GDP when the injections are simply sitting on bank balance sheets at the Fed. Blah, blah, bl;ah. There is no other place to put the cash, and when you can buy great US companies with great management (and don't think I am being polyanna, I am as skeptical and bearish as you are) and take home a 4-5% dividend in COP, MO, even INTC, companies that nobody has to even look hard for...what's the attraction for cash? Dip buyers have been rewarded EVERY TIME in this market. Any fire drill, the authorities come in and prop it back up. Which odds do you want? Win 20 out of 20 times or lose every time being short?
3: This is the time of year when shorts get really, really pissed off at how badly they did all year and double down, and I am telling you from the most direct of personal experience. if you want to have the crappiest holiday season imaginable, curled up crying on the floor in a fetal position, then go ahead and keep shorting this.
Just telling you to consider the opposing view. I'm not razzing you.
I want try make some up