BTFD: Take It To the Limit One More Time

As one would expect at a critical juncture, the markets are eerily calm.  Volume and volatility are at multi-month and multi-year lows.  It's times like these when it's tempting to doze off, wander aimlessly at the beach, or otherwise assume everything is A-OK.

Meanwhile, as usual, the financial pundits at large are pontificating upon all of the various 'indicators' du jour to parse the tea leaves and determine what it all means.  And of course, they are ignoring the bigger picture context and the looming Tsunami that bears down upon us with each passing minute.

So while not one to dwell on the minutia, I will nevertheless lay out some key indicators at this juncture that have me less than sanguine, not withstanding the flatlining market.

Attenuation

This current flat lining of the market is exactly what we would expect at a critical top in the market.  It's the concept of attenuation (loss of signal) writ large.  As I have shown for some time now, the Russell 2000 small cap market is attenuating in tighter and tighter fractals.  And the German DAX is clearly doing so as well:

R2K

DAX

Junk Rally:

This latest rally leg, which represents the tiny far right "v" in the two charts above was led by the worst performing stocks of the past year e.g. Research In Motion, Caterpillar, Cummins and First Solar.  Meanwhile, the top performing stocks of the past several months i.e. the high dividend paying stocks such as Philip Morris, Kimberly Clark and yes WalMart were all rolling over.  So when considered relative to the the non-existent volume, clearly it was a short-covering rally, not the start of a new bull market in Blackberries. The high dividend, consumer non-discretionary "safe haven" stocks always hold up the longest...

New Highs Diverging

The following chart shows the New Highs - New Lows (black line) against the market.  Most of the time, the line tracks the stock market well - as it should.  Look to the far right.  This divergence indicates a narrowing of breadth, as one would expect as fewer and fewer stocks are participating in the rally.

Transports Still Lagging Industrials

A lot of people have noted that there has been a major Dow Theory non-confirmation for months now - wherein the Industrials are trending higher and the Transports are trending lower.  The key point I would make is that at the recent top in April, the Transports were the last sector to "tick higher" before the whole market rolled over.  What did Transports do today?  They outperformed the market...

The Dollar Wrecking Ball is Coiling

They call the much maligned U.S. dollar the "wrecking ball" on Wall Street because when it rallies it takes away all of Wall Street's treats and goodies.  Two ways:  First it kills earnings for multinationals which have to translate foreign earnings back to U.S. dollars at a steeper conversion rate.  Secondly, it kills the beloved carry trades in which dollars are borrowed at 1% in the U.S. and "invested" abroad at 5x the interest rate.  Add in copious leverage, wait 12 months and shit a massive bonus on Dec. 31st.

The dollar is in an uptrend off of a well-established base:

Gold

It's a shame about gold.  It's the most beloved trade of our time - the Dotcom trade of the 2000s.  There are more ads on the internet for gold than for car insurance and boner pills put together.  The markets have been in "risk on" mode since early June yet as you see below gold is going nowhere, despite the fact that Hedge Funds and China are are once buying gold in quantity.  Shouldn't that mean that gold is going up?  Hedge funds buying gold during "risk on" just means that they will be puking it out under "risk off", as margin calls force them to sell anything that isn't bolted down.  And gold is not a liquid asset.  Also, gold is priced in dollars, meaning any dollar rally automatically lowers the price of gold, so gold would have to outperform the the dollar in a flight to safety.  As for EWI, they say that gold will either go up or down from here - ok, thanks...Lastly, gold tanked 30% in 2008, so again, am I to believe this time will be different?  Other than that, gold is great...

Those Terrible Treasuries 

If we think the dollar is maligned, well Treasuries are outright despised.  Mostly because despite all of the great 'reasons' treasuries should tank, they refuse to do so.  Just the other day the greatest bond guru of all time (according to CNBS), Bill Gross, indicated he was shorting Treasuries.  Well, he was wrong last year, so I am not sure why we would believe him this year, unless we had the attention span of a coked up flea...  He readily admits in the LA Times article that you have to own treasuries in a slowing economy.  Well, guess what's coming.   Clearly, the main (unspoken) reason why Treasuries are universally "hated" by Wall Street is because no one can make any money off of them (income-wise).  What other reason can there be to short the one and only asset class that held its value through 2008 unless you assume 2008 can't happen again ?  

So what are Treasuries doing now?  They are correcting off of a multi-year high i.e. they are trading inverse to stocks, exactly as one would expect of a safe haven.  My overall Treasury thesis is here (Invest at your own risk).

Long-term (30 year) Treasury ETF: TLT

Rio 2016: What to Expect

The Olimpycs (once again) sponsored by Coke and McDonald's:

Simple Jack - Newly elected President of the IOC
I'm Lovin' It !!!

As was strictly enforced in London, Coke and McDonald's are the only brands allowed.  Security will be provided by the TSA who are the "Official Gropers of 2016".  According to the IOC, the TSA was automatically selected due to their unparalleled efficiency at throwing away things we need.  So anyone caught with real food will have it ripped out of their hands by a TSA agent.  

The Official Condom: "Usain's Bolt"

Also as in London, only official condoms will be allowed.  The official condom of 2016 will be the new brand "Usain's Bolt" part of a line of products that includes boner pills (Warning: If you experience an erection lasting more than 17 days, it may just mean that you are in fact Usain Bolt - #1, The Best, The World's Greatest, The Fastest, The Hardest etc. etc...). 

All condoms will be inspected by the TSA before, during and after use.

New Sport: Nude Women's Beach Volleyball

Yes, the sport we (men) have all been waiting for.  First it was real volleyball, then it was scantily clad women on a beach volleyball, now finally, the real deal.  Many fans had complained in London that the women were overdressed in the beach volleyball events, so the IOC came up with a solution.  This of course, will be an exhibition-only event and only men and bearded lesbians will be permitted in the stands.  The only permitted competitors will be large-breasted Swedish women.

Other new sports being considered:

1) Handball:  No, not the sport seen in London that no one has ever seen before, the real hand ball we played as kids hitting a ball against the wall

2) Leap Frog: This will be borrowed from the gay Olympics.  IOC officials are confident there will be fewer delay of game penalties as in the GO

3) Drinking booze while running cross-country: Borrowed from the Hash House Harriers

4) Synchronized Walking

5) Standing on One Leg 

6) Synchronized standing on one leg

7) Basket Weaving

8) Watching TV

9) My Kids' Favourite: Playing 'Call of Duty' for 16 hours straight

The Last Bull Market: Machine Guns

Invest at Your Own Risk

The ROI on an M16 A2 (that's a .50 cal above), since 2004 has been 50% and as you can see below, the price has risen on a slow but steady basis.  No asset class has held its value better than the machine gun in the past 25 years - not stocks, bonds, gold or real estate.

[Via machinegunpriceguide.com}

Supersized Idiocracy

Full Retard: The Olympics, sponsored by McDonald's

Comfortably Numb

You don't Say...(Bernanke on the long-term effects of Quantitative Easing):

"One disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument, which makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public."- Ben Bernanke [October 2010]

BTFD: Deja Deja Deja...Vu

Compliments of Central Bank Dopium, HFT computers, and delta hedgers (aka. volatility sellers), the markets have now carved out what can only be described as the mother of all bearish rising wedges.  This pattern which has developed since the low in 2009 is obvious to even a blind man, although likely not obvious at all to the recursive computer algorithms generating this attenuating fractal.  Volume is duly collapsing (lower pane), per the text book definition of a rising wedge.  We have been back and forth through this 1375-1400 level about 10 times since 2007, so mark this area, because it's where most of the bodies are likely to be buried - metaphorically speaking, of course...

As I have said before, selling options volatility into a multi-year top is analogous to selling fire insurance right before fire season - it works great, until it fails catastrophically i.e. it's just Wall Street's latest sky dive without a parachute.  Clearly, as this article confirms, some people didn't nearly get the message from 2008.  So, the market will just have to try harder this next time.

(p.s. to be fair, the above article does end with bankruptcy guidance, so at least it gives people assistance for when the strategy fails - as always, you can't make this shit up...).

Dr. Copper Prescribes Ritalin for Stocks

Copper, which is far less prone to emotion, speculation, and Central Bank manipulation, has a different out look on the global economy than stocks.  In the chart below, in both prior instances when copper topped out, stocks continued on briefly to new highs but then succumbed ultimately in the direction of copper (down).  Now, on the other side of point (3), the divergence between stocks and copper is enormous compared to the prior instances.  Meanwhile, the fact that copper has gone from the upper left to the lower right quadrant is yet another roundly ignored sign of global deflation and impending recession.

Spectacle 2012: Peak Denial

What good is a collapsing global financial system without spectacle to distract the masses from the catastrophe unfolding in plain view.  Something for everyone...except reality of course.

But we have to thank politics for giving us our best spectacle of 2012 - Robama v.s. Obamney.  The world breathlessly awaits to see which of these Harvard drones will be chosen as the face and voice of the 14,000 special interest groups operating in D.C.