Risks Have Grown For Four Years Straight
Central banks have created the ultimate moral hazard in financial markets, the results of which are already playing out in plain view. Over the past four years, as Minsky would predict, the masses at large shed their risk aversion and once again embraced financial leverage. When global stock markets fully join the volatility party i.e. the last link in the chain - then the move lower will be swift and brutal.
Zero % Probability of a Happy Ending
Yesterday, the algos sent the S&P through the key level - 1654 - that Prechter & Co. (EWI) said was terminal to their near-term bearish case. As you can tell, I was not impressed that the most bearish newsletter on the planet decided to switch to a bullish stance after four years, even if it was only a "short-term" prediction. Now is not the time to be fucking around with fancy short-term squiggle counts when the majority of financial assets assets are already heading lower. If it's one thing we have learned the hard way this past decade is that financial engineering never works in the long-term. Short-term it can levitate markets, but longer-term it misallocates capital, amplifies risks, and engenders complacency. There is zero probability that any of this can end well.
[Charts Updated: July 11th, 2013]
[Original post: July 9th, 2013]
People ask me all the time, what would it take to make me bullish...
Let's see:
First I would have to believe that the indistinguishable political buffoons in power, who turned a blind eye to the debt crisis, can now borrow our way out of it, even as they campaign non-stop and otherwise ignore the floundering real economy. Then I would have to believe that the Wall Street Greedbots who got us into this fiasco with their weapons of financial mass destruction won't somehow find a new leveraged mechanism for self-destruction, even though there was no accountability after 2008 and they were just handed $9 trillion plus of cheap money. Next, I would have to believe that the economists at large who tell us that it "takes time" to recover from a debt crisis are clued in to the fact that the economy has been outsourced to China and won't be floating back any time in the next century - at least in its current ponzi-style incarnation.
Unfortunately, this is all of course a massive historical headfake. There is no question that the robo market makes it hard to stay focused on reality, since we have all been brainwashed incessantly to believe that a rising stock market is a sign of a healthy economy. Unfortunately, as has been learned many times in the past decades, artificially levitated markets go up hard before they go down even harder.
The Idiocracy Has Discovered Effortless Wealth i.e. Debt Monetization
As you know, I have been showing a lot of fractals from other years lately - most notably 1987 - so that I can get a handle on what robo-market has up its sleeve. I think that the 1987 fractal comparison is now bent if not broken by this latest low volume robo-rally from the recent lows. The key point is that this isn't 1987 or 2011, this is 2013. There has already been massive structural damage to the economy and the financial system, that has in no way been repaired. Therefore comparing today's situation to one in the past, I admit, is somewhat of a fool's game. Because what happens on the other side of the next "discontinuous price discovery" will make 2008 seem like a minor event thereby pulling back the curtain once and for all on our Wizard-of-Oz-like thought dealers who believe that they have discovered the secret to effortless wealth i.e. debt monetization. It will be that key revelation - that the global economy is run by a bunch of aged man-boys who can't manage their way out of a paper bag, that will stain the Idiocracy's underwear big time.
In the meantime, we search for more clues...
The Russell 2000 - The leading U.S. Index, with a nice overthrow. Unfortunately, trees don't grow to the sky:
Walmart getting in synch with the broader market, as it was in 2008...
BTFD (Wilshire 5000):
