Monday, January 25, 2016

WHAT TO BELIEVE.....WHAT TO DO?

WHAT TO BELIEVE.....WHAT TO DO?

Deep down we human beings are social creatures. We seek acceptance from the group and we herd without thinking. This is why conformity is so much easier than standing apart from the crowd, even when the crowd makes poor choices that make little or no senseAnd those who don't conform and think independently are labeled radicals. Politics and our financial system are great examples of this.

Common sense and reason have been made obsolete and replaced by Keynesian economic lies where mathematics have ceased to be the science of record and the bedrock upon which logic and certainty could be achieved.... they were replaced by mainstream delusion and lunacy.

Printed money has factually been worthless with no redeemable value since it is not backed by anything of value such as gold or silver. The great myth is that one end of the current economic rainbow is the federal reserve and the other end is a pot of gold at Fort Knox. Both are mainstream mirages. The federal reserve is merely a mislabeled "Charmin" Paper plant, run by greedy ass wipes, and Fort Knox is actually an Army tank training base, the pot of gold is pure fantasy.

A majority of Americans have bought into the lies and will continue to believe whatever their masters tell them.

The fact is that today, financial markets are constructed by parasitic vertebrates using lies, imaginary math, fantasies, con games, pyramid schemes, civil, corporate and government corruption and cronyism among many other things and, trust, honesty and truth are nowhere to be found.

The powers that be have spiked the punch bowl with so many lies. Home prices always go up. The debt doesn't matter because we owe it to ourselves. We can always print more money.

None of this nonsense is true and any thinking person knows this. But the media and financial establishment tells it is so, in fact the media repeats it over and over again until hundreds of millions of people believe it. And anyone who dares question the sanctity of these lies is labeled a radical.

It hardly seems radical to look at objective, publicly available data and think "wow, this entire system is built on a house of cards…" nothing but smoke and mirrors, large very breakable mirrors.

If you believe that stocks are expensive - even after the recent sell-off - and that a global economic time bomb is ticking because of unprecedented intervention by governments and central banks, then you are not a radical, you are on the right path, and thinking for yourself.

The parallels between market action so far in 2016 … and the action during the bear market of 2007-09 … are uncanny. Investors are ready to believe almost anything... But over the long run, there is reality.

The powerful waterfall declines.

The massive oversold readings they generate.

The intense (but short-lived) bear-market rallies that follow, usually inspired by some policymaker somewhere trying to come up with a "solution" to save the markets through even more intervention. 

With another crazy week coming to a close, the market discussions are really heating up

Despite the small rallies on Thursday and Friday of last week, the dow still finished in the red for the previous 5 days of trading.

Dow  16,094  -570   Down .36%

The indexes are still on track for heavy monthly losses, down between 7% and 9% since the beginning of the year.

Friday, European Central Bank President Mario Draghi tried to sell investors on the idea that there are "no limits" on what monetary magic he can perform. That apparently is his next catch phrase, now that "whatever it takes" was already used up.

The problems with Europe's financial markets are systemic. They are the expected result of their foolish policies. They only have two choices: Continue their policies until all of the liquidity is concentrated into what will become a financial black hole OR admit failure and defeat and walk the 'line' of public scorn and consequences.

Then over the weekend, markets heard increasing chatter that Bank of Japan Governor Haruhiko Kuroda will act next week. Then he said in Davos, Switzerland that he has "many options" and "further room" for more QE. The comments gave asset prices another boost.

But here's the thing: Draghi already threw the kitchen sink at the markets in December. Investors weren't impressed, and stocks tanked not long after. The BOJ did the same thing, launching so-called "supplementary" easing steps. Investors weren't impressed with those, either, and stocks tanked not long after.

This refusal to buy (for more than a few hundred points or a few hours/days) what central bankers are selling is a key reason we're heading into a bear market. Investors now appreciate this important point: If any of this spaghetti being thrown against the wall actually worked, we wouldn't need more central bank pasta every few months.

The World Economic Forum in Davos is submerged by a tsunami of denials, stating there won't be a follow-up to the Crash of 2008. Yet there will be. And the stage is already set for it.

The world's central banks can't save us anymore. That was the message from some of the world's most prominent investors at the World Economic Forum in Davos, Switzerland, on Friday. Each was resistant to putting on fresh positions and expected asset prices to head downward. In short, they say, the only winning move is not to play the game. The trade now is to hold as much cash as possible.

The only thing we can do at this point is to continue to extend credit which we would not normally do, and that leads to an accident waiting to happen. Absent structural changes led by governments, there was little reason to hope this will end well. If central banks double down on their policies of QE, ZIRP and NIRP, it could cause a loss of confidence in central bankers, paper money in general, or one or more currencies, and lead to a collapse in bonds and stock prices. For investors who rode the central bank wave for over half a decade, the fun is over. We call it the new abnormal and we better get used to it.

The US has been in a cycle of bubbles, busts, and crashes since at least 1995, and more likely since Alan Greenspan became the Chairman of the Federal Reserve in August, 1987. It has become a machine for transferring income, wealth, ownership, and power to the very top. This is not 'the new normal.'  This is financial corruption and the erosion of systemic integrity. 

Politicians will do what is best for their national political future and the consequences for the national economy, outcomes for citizens or businesses are of little consequence to them.

Give a small number of people the power to enrich themselves beyond everyone's wildest dreams, a philosophical rationale to explain all the damage they're causing, and they will not stop until they've run the world economy off a cliff. Wall Street is not being made a scapegoat for this crisis: they are the architects, they really did this. The greatest tragedy would be to accept the refrain that no one could have seen this coming, and thus nothing could have been done. If we accept this notion, it will happen again, in fact it is happening again.

The global economy has had its artificial boom and CapEx frenzy already and years of deflationary liquidation and correction lie ahead. Money printing has failed. Any effort by the central banks to double down on another $20 trillion of bond purchases would blow the world's financial casinos sky high. Contemporary central bankers function like a team of monetary wranglers, herding the retail cattle toward the asset gathers. At the end of the day, the asset gathers will profoundly regret what they are clamoring for.

The "risk parity trade" could never exist in an honest free market. You couldn't create algorithms to safely pump out volatility and milk the market on alternating strokes because the regularity of the waves on which it is based are not natural; they are the handiwork of central banks that have been taken hostage by the casino gamblers. In an honest financial market in which debt is priced by the willingness of savers to fore go current use of their money, there could be no "risk parity" trade because the price of stocks and bonds would not be inversely correlated. Indeed, the price of government bonds and blue chip corporates would fluctuate only modestly over time owing to secular changes in the propensity to save, but they would absolutely not vary inversely to the stock average on a short and mid-term basis.
 
In a rigged financial market in which stock and bond prices are continuously rising over time owing to systematic falsification of financial asset prices by the central banks, you can make tons of money being long. This is what has passed for financial genius for the past 6 or 7 years. This era is coming to an end and the geniuses have no idea about what comes next let alone how to avoid the coming collapse.

It is only a matter of time before the risk parity machines and their imitators and confederates trigger a massive selling crescendo that will evolve into a long term crisis of trust. This time there can be no central bank rescue. They have already shot their wad - expanding their collective balance sheets from $2 trillion in the mid-1990s to $21 trillion today. 

Because of QE, the global economy has had its artificial boom and CapEx frenzy already, buying forward many years of production based on nothing but financial delusion, we have years of deflationary liquidation and correction ahead of us.

Central Banks continue to speak their soothing 'confident' words. Words that are today interpreted as the very sign of weakness they're meant to circumvent. People are stating to understand that money printing has failed. Any effort by the central banks to double down on another $20 trillion of bond purchases will simply collapse the world's already wobbly financial casinos.

Markets need to retreat from dependency on central bank stimulus which they falsely believe provides the magical elixir that fixes all economic and financial market woes.

In December markets tried to rally on positive seasonality and a temporary cessation in the selling in key markets like junk bonds. But we continued to see signs of behind-the-scenes turmoil in corners of the credit market, in foreign equities and bonds, in leveraged loans, and elsewhere. We also saw ongoing under performance in more credit-sensitive small capitalization stocks and financials.

Those were the very same indicators that first warned of trouble in stocks last spring. They were some of the very same indicators that alerted us in 2006 and 2007 that a major bear market was looming – what we were seeing was a brief respite amid a broader downturn that was nowhere near over, in short,
 the rally was total bunk and we are seeing the same thing today.

The appropriate course of action was to refuse to let the bounce shake us out of longer-term bearish positions. 
That approach was richly rewarded as reality came crashing down for overinflated stocks in early 2016. 

So far we have seen a lack of panic selling. The declines are weirdly orderly, and the VIX has remained relatively tame — despite several days where the Dow swung by hundreds of points. That isn't what we've seen in true short-term selling crescendos in past bear markets. 

That brings us to the late-week rally last week. Will it last? Will it go further? What does the playbook say to do next?

Frankly, it looks like all of the rallies in a bear market on the way to the ultimate low. Spurred on by Federal Reserve and other central banks. 

None of them hold — not until all the policy mistakes and economic excesses of the bubble are wrung out … all the vulnerable companies who went crazy during the boom went broke or got taken over for pennies on the dollar … and all the bullish investors who kept chasing every short-term rally finally give up.

I don't see signs of that being the case yet. I still see too much hope, too little panic, and too much blind trust in failed policies that we know don't work. 

Let the rally run its course. It could last for a few more days since the BOJ and Fed meet next week. We could even see 16,500-16,600 on the Dow if enough momentum buyers get excited. But don't get sucked in. Use any significant bounce to lighten up on any vulnerable positions you didn't already unload. The current market drama has barely begun, it will be take awhile to play out.


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