Financial Market Bear Fatigue – Bad News For The Bulls?

A friend of mine coined the term ‘bear fatigue’ the other day when we were talking.   I think it’s more than appropriate given the dynamics we see in markets - short interest imploding and Wall Street enthusiasm at a level not seen since before the collapse. 

We were talking about the steady rise in some monetary numbers, and while many regard these as bullish, I do not.  There are a couple of dynamics in these numbers which are actually reflecting how bad the economy is as opposed to an economic recovery as a surface view of the data would support.   A few of those dynamics are, 1) Record foreclosures.  Record numbers of Americans  have chosen to either default or cannot pay their mortgage.  That leads to greater increased demand deposits as less money is put toward mortgages, associated taxes and in some cases, even utilities.   S2) The amount of cash in the money supply is rising greater than the money supply.  This is likely due to illegal activity and an underground economy as both good and bad money respond to government corruption and the lack of rule of law.  In other words, an underground economy that we know was so large in  the Soviet Union, pre-capitalist China and other corrupt societies.  3) We already know that unemployment rate continues to rise regardless of the statistics and political lies as new workers enter the workforce.  That means any wealth recreated through Federal Reserve and political activity is even more concentrated in corporate profits and the top five percent of the population.  If this wasn’t the case, the government would not have spent 70% of national income last year as we noted in a prior post.  And 4) People are cashing in their retirement accounts or liquid financial assets to stay afloat are padding certain monetary figures. 

The money Bernanke flooded the banking system with over the last two years has landed in the hands of the very few just like the neoliberal policies instituted by both political parties before the 2008 collapse.

This injection of money is no different than an automobile running out of gas and now we have put more gasoline in the tank.  But we have no more money to buy additional gas, but continue to drive to our destination.  All seems well until one actually looks at the gas gauge and yet, we cannot seem to institute policies to put money in our wallets but instead keep putting small amounts of gasoline in the tank.  And we are doing it on our credit card.  Government could be solving our problems but it is making them worse.

There is no cash on the sidelines for 95% of Americans.  Nor is there any retail investor outside of the investor class.  People who live in this life of delusion have no idea what is going on in the underlying economy.  And why should they?  They are systemically-incompetent.  And these losers are only in positions of authority because they pay our government billions of dollars in bribes to remain in positions of authority.  The market would have buried them decades ago.  Nine out of ten Americans have some small handful of thousand dollars at best in the stock market either directly or through corporate 401K plans.  So, these people are not hurt one bit if financial markets collapse.  They are only hurt through the fact that we have neoliberal policies of trickle down economics.  And as the rich are decimated by  collapsing financial markets in coming years, they too will suffer once again without another bailout.  Remember, this is the cycle the rich get taken out.  That will happen as their savings are destroyed both by loss of business and financial assets.  That is, unless our government wakes up and institutes democratic economic policies. 

 

Above is a linear regression of the S&P 500 over the past few months.  The S&P and the German Dax are just about the only financial markets going up in the world right now.  The regression analysis is as near to perfect as perfect can be as price clearly has a near 100% affinity for this analysis sans a mild hiccup in the middle – a pattern we have already discussed as Linday’s theory of middle sections in both price and time.   (In other words, this pattern is nearing exhaustion.) 

This is clearly a market that is being manipulated.  This pattern is a sign that bears have been wiped from this market similar to our post on Apple and countless other bubbles.  A market controlled by only bulls could pull this stunt of incredibly low volatility and near 100% correlation to a regression analysis.  There is no randomness of buyers and sellers within a rising, listless or falling trend.  That likely means everyone is on the same side of the trade in the S&P.  Something we said would come to pass time and again since the collapse.  And, now to go with it, we have bear fatigue.   Seemingly, the bears have thrown in the towel.    All at a time Wall Street is very bullish. 

Global markets which have been completely correlated for years due to Wall Street’s Frankenstein finance are coming unhinged.   This is a very serious development that no one is discussing. 

I think we are going to look back on this environment and see this rise in the S&P over the last few months was driven by hot money being repatriated into the U.S. from abroad.  The Bovespa, the Sensex, the Shanghai Composite, the Paris CAC and other foreign exchanges have gone down or gone no where during the exact time of this rally.  And so has emerging market debt.  Emerging markets are raising rates and even putting on capital controls as we have discussed.  Wall Street hot money does not want to be in these bubble economies when the poop hits the fan.