Equity Market Update–The Great Con Game Continues

This is an update to an update we made a month or so ago on the absolutely unusual price activity we have seen on this rally. It is unlike anything I have ever seen. Not only that, but it is in the face of many market factors which are deteriorating in the light of this very, very, very low volatility rise.

Let’s look at an update of the linear regression line we showed a month or so ago. ALL broad U.S. stock indices have the exact same pattern as the S&P below. In other words, markets are completely correlated and the patterns are exactly.  We can attribute this to manipulation.  Not manipulation in the sense that some little man is sitting in a room turning the knobs, but in the sense that the only major players that are left participating in equity markets are the purveyors of Frankenfinance and they are all using the same algorithms.   We have uniquely said repeatedly on here since the rally began in early 2009 that this would eventually happen as monopolies crowded out other market participants in a rigged financial game.   This is a  derivatives-based rally (manipulation) as opposed to one driven by sustainable factors of intrinsic supply and demand.

A linear regression line is a mathematical representation of price over the time frame of the plot.  That said, every time price has started to stray from this linear regression line by more than one percent as shown below, price has been brought back exactly back in line as shown by the arrows.   This is clearly manipulation.

In normal circumstances, everyone being on the same side of the trade always lead to a price correction or in extreme cases, such as 2008, 2000 and 1987, we see an outright collapse. But here is the key point.  Wall Street has been able to subvert the normal cyclicality and price action of markets because the Federal Reserve continues to feed Wall Street endless free money to buy financial assets. So, it hasn’t mattered that that everyone is on the same side of the trade. In other words, sentiment or normal supply & demand characteristics have been failing as a predictor of short term market behavior just as it failed to the downside in 2008 for the exact same reason but in reverse. In other words, sustainability of natural supply and demand phenomenon of markets has no relevance in today’s market.  Theoretically, Wall Street could push the market to infinite under these circumstances.  But they won’t.  And there is a very simple reason why. 

Remember, we have written over the last six months or so that this environment is eerily similar to past environments where Wall Street thought it was invincible. Where they believed they had found a new magic and as we remarked, this time the perceived magic is endless backing of free money to manipulate financial markets courtesy of the Federal Reserve.

Given this is a linear, very low volatility, (the average true range for this move is eerily low ) manipulated move in a nonlinear, expanding volatility world that cannot be manipulated endlessly, this manipulated move will break at some point.  Eventually, not only will this manipulation break at some point but all financial market manipulation will break.  It’s just a matter of what exogenous and unforeseen factors will cause it.  Even though I have been anticipating such an event, no sell signal seems to develop.  All this means in this Orwellian world of a false reality is the bigger the bubble, the bigger the mess in its aftermath.  As I wrote back before the 2008 crash, Wall Street will push and push and push until something breaks. That is how society eventually realizes an unbridled financial system has reached its limits of insanity and/or collapse.  When it is too late.  It’s all just a matter of when.  Honestly, that has lasted longer than I could have imagined.

Too many people think with their eyes.  I have talked to too many people that have bought this Orwellian view of reality.  The same people also buy the Orwellian view that we are seeing massive inflation which we are not!  More on that in the future.  As we have written endlessly, wealth is not created by rising stock prices (pushing around paper) as Greenspan, Bernanke, Obama, Paulson and other clowns in the investor class have come to believe in their deluded view of economics.

Our economy is in much worse shape today than it was back in 2008. We have more debt. We have less people employed. We have more and more people entering the labor pool with no job prospects. We have more foreclosures. We have more bank failures. We have more personal bankruptcies.  We have even greater concentrations of wealth.  We have people falling off of government assistance programs that politicians now want to cut even more than they did under Clinton. (programs only needed in large part because of massive theft and corruption) And we have an economy that, without trillions and trillions of backstopping and trillions and trillions of dollars of government spending, would collapse.  Who really buys the bullshit?  Anyone?  Bueller? 

That the stock market and financial markets have gone up means what? It’s a mirage of fraud that will again fail. With an economy that worsens by some measurement every single month, equity markets require more and more false liquidity or manipulation(not provided by wealth creation but through debasement and fraud) from the Federal Reserve to prop it up.

As I wrote some time ago in response to lunatic comments made by President Obama and Soviet prime minister Bernanke, the stock market going up is proof the economy is not recovering. Wall Street is taking free Federal Reserve money that should be used to invest in our economy, and instead using it to speculate.  Not for the benefit of society but for the personal avarice and greed of the great satan Wall Street actually is. All while the underlying economy continues to deteriorate.