As the previous post "No Fool Left Behind" shows, the overall stock market (S&P 500) has been on a thirteen year roller coaster ride to nowhere. Meanwhile, the market's paltry dividend yield is historically low, as insiders tap corporate profits like they're their own personal ATM machine. They issue stock options to themselves and then use company profits to buy back the newly issued shares to "hide" the dilution. It's the biggest con game in U.S. history - insiders have taken trillions out of the stock market in the past decade while the retirement funds of the general public go nowhere. Meanwhile corrupt investment advisers do their part by brain washing the public into believing that the only way they can retire is if they buy and hold stocks. I would submit that owning stocks is the only way that people won't ever retire, given that they are being milked incessantly by corporate insiders who are now getting paid an all time high 244 times what the average worker earns in a year. Companies have outsourced their profit margins to the highest levels in 70 years and all the Middle Class has to show for it is fewer jobs than six years ago, stagnant wages, and stagnant retirement savings. The bottom line is that the sheeple at large, stewing ever so slowly in their own juices, have been pulling money out of the markets for the most part of the past four years - a trend that only reversed recently. So on the other side of another "correction" we can fully expect them to take what is left of their depleted savings out of the casino and cash in their chips for good...(FYI, if you don't believe me, read this article from the WSJ of all places which says the exact same thing, albeit in a more politically correct fashion).
Below are the charts I find most compelling at this juncture...
Russell 2000 small cap index, leading the charge...
There's a saying: "Mo In, Mo Out" - Momentum In = Momentum Out
Dying Stock Market:
As we see below, the exodus from the markets is well underway
Juxtapose the below chart of NYSE volume with the above parabolic chart of small cap prices
- Even with the ascendancy of High Frequency Trading in the past several years, NYSE volumes have fallen almost 50% since 2008. When you take out HFT, what is left ? and how stable are the prices shown above, when sell pressure increases amid rising volume?
Stocks v.s. Treasury Bonds - One Chart to Rule Them All...
Stocks represent speculative risk appetite. T. bonds represent the "safest" long-term asset. I circled the periods when each of the major QE debt monetization programs started. Notice when QE1 started back in 2009, bond yields jumped higher along with the stock market, in anticipation of "reflation". QE2 saw a similar jump, although more muted. Now with QE3 and QE4, while the stock market powers higher, bond yields are essentially comatose. Bond investors don't get paid to take risk, so they only care about the level of economic activity and the expectations for future inflation. As we see, one of these two markets is signalling the growing weight of deflation on the economy. The other is totally oblivious...
The same divergence in 2007 resolved to the downside for stocks. The divergence now is far larger. As far as T-bond risk, we've crossed the "debt ceiling hurdle" and the "monetization" hurdle, which I highlighted in the deflation decision flow diagram - neither of these events have led to higher interest rates. We haven't even had the "Minsky Moment" yet and still T-bond rates are now solely attuned to deflation. Those who don't understand the overwhelming importance of this divergence (far right), will be ploughed under...
The same divergence in 2007 resolved to the downside for stocks. The divergence now is far larger. As far as T-bond risk, we've crossed the "debt ceiling hurdle" and the "monetization" hurdle, which I highlighted in the deflation decision flow diagram - neither of these events have led to higher interest rates. We haven't even had the "Minsky Moment" yet and still T-bond rates are now solely attuned to deflation. Those who don't understand the overwhelming importance of this divergence (far right), will be ploughed under...
Gold:
- Not feeling the "inflation"...
Gold stocks - monkey hammered:
Apple - demonstrating what happens when overloved and overowned risk assets reverse hard down i.e. the canary in the coal mine for the overall stock market
Apple - demonstrating what happens when overloved and overowned risk assets reverse hard down i.e. the canary in the coal mine for the overall stock market
