Tuesday, March 05, 2013

Orwellian Financial Market Dynamics Part Five - Rising Prices With Collapsing Demand


This is the fifth in a series I started in the fourth quarter of last year.    Positive volume, or demand, and price are always correlated in any functioning market.  In other words, without demand or with waning demand, prices fall.  That is, unless prices are rigged in a nonfunctioning market.  With a fall or collapse in demand, prices eventually follow suit as we learned with all of Wall Street’s past criminal enterprises.  That includes the Great Depression, the Reagan-inspired S&L Crisis, the Internet Bubble, the commodities bubble, farmland bubbles, the mortgage-backed securities  bubble, emerging market bubbles, the housing bubble and on and on.  But, at some point, I have noted at least a dozen times since 2008’s collapse, it will eventually be Wall Street holding the bag as financial markets see a collapse in demand.  And, we know that because Wall Street’s monopoly has traded counterparties out of functioning markets.  We don’t have functioning markets.  Anywhere.  This is going to have dire consequences when the day or reckoning arrives.

Recovering asset prices are an illusion created by the rigged markets, rigged demand and a rigged political system.   Rigged markets and rigged politics are simple to understand.  Rigged demand is derived through many more esoteric factors.  We can easily appreciate massive leverage of derivatives and endless free levered Federal Reserve money to turn America and other pliant nations into a Ponzi scheme.   But rigged demand also includes the corporate earnings bubble, rigged wealth-shifting schemes used by elites and an and on.  There has been no recovery.  Only the attempted reflation of financial assets for the benefit of the criminal class of looters who derive their control and power from the valuation of those assets.   The Wall Street and corporate bailouts only re-ignited the largest financial and asset bubble in world history as has been discussed on here countless times.  

The only substantial entities left in financial and tradable paper or contract markets are hedge funds, Wall Street banks and the small percentage of people in this country who own nearly everything.  That includes politicians who use a Congress-created and self-granted loophole to illegally trade on insider information as noted on here before.  It’s illegal because it’s illegal for you and me.  That our masters have granted themselves special privilege above the law doesn’t make it anything other than corruption.   Essentially, all of the bailouts since the Reagan-inspired S&L crisis were for Washington politicians and both political parties as much as they were for Wall Street.  Any major asset decline is going to obliterate the investor class.  That includes the political class of looters.   That should be no surprise to long term readers because it has been a regular thesis on here. 

Above, in blue, is my cumulative volume advance-decline line for the NYSE.   It is overlaid on the S&P 500 for the last dozen or so years.  This algorithm is constructed in order to minimize the amount of manipulation that now drives Frankenstein finance or Wall Street’s Ponzi schemes.   And, as such, it looks far different than the “official” NYSE volume advance-decline line that continues to skyrocket almost parabolic over the last decade.  I don’t have data going back 200 years, (I don’t think that data actually exists)  but I suspect this might be the longest and most substantial disconnect between demand and price in U.S. stock market history. 

There are many known and likely unknown dynamics involved in this disconnect given the complication and pervasiveness of the Ponzi schemes and esoteric macro factors we see today.  But, I suspect the main reason for the disconnect is that supply-side economics is finally failing on a systemic level.    If that is an accurate interpretation, and there are many reasons to believe it is, and if you really understand what this means, the above graphic will make you very uncomfortable about the future of all asset prices.  Because if that is indeed what is happening, that means the Federal Reserve will be completely powerless to stop any type of asset price reversions to reality from this point forward.   (More on this topic in my next post in this series)  

Regardless, for all of 2012 I became very cautious and made a few very accurate economic predications for that year.   One of the most important was that I said corporate earnings were collapsing at a faster rate than at any time in the last decade.   Faster than 2008.  And, I said it months before those earnings were actually released and Thomson Reuters subsequently remarked that earnings declined faster than at any time under Bush or Obama.  With the benefit of hindsight, we see from the above area highlighted in red that demand for equities also imploded in all of 2012 and has not recovered for what is now 14 months.   Negative 4Q GDP was not an anomaly driven by Sandy or Republicans or other nonsense.   The entire democratic world saw negative GDP in 4Q.   This is consistent with another 2012 theme.  That is, money was draining out of the global economy at a faster pace than 2008.  If you don’t remember or don’t follow economics that closely, in 2008, the U.S. was the sole crisis while other economies chugged along with generally positive growth.  How the world has changed.   Just as I said it would for the last eight years.  ie, That the back end of this economic crises would be focused substantially outside of the U.S.

We may or may not be close to another major peak in the S&P.  We are definitely seeing the erosion of the risk trade as I type this.  February saw a major turn date for equities and the economy so I expect we have hit somewhat of a wall to the upside over the next four months.   Additionally, commitment of traders data is wildly extreme and bullish regardless of any type of sentiment (rhetoric).  ie,  I don’t listen to rhetoric but do watch what people do.    What is left of the status quo appears to be”all in” on this rally – something that really caught my attention is that Lloyd Blankfein, who helped bring us the last collapse, was just quoted as saying this could be the beginning of a new bull market.  And today’s most popular headline at Bloomberg is that markets climb on central bank optimism.  Blankfein is obviously “all in” on supply-side economics creating new demand where none actually exists.  None of this means that a stock market or asset price collapse is going to happen tomorrow.   An increasingly volatile topping process is more plausible for the first half of this year.  I’m also not a big fan of a major price dump in the first half of this year for many unresolved and powerful cyclical reasons.  And, one must grant some level of credence to the powerful forces of life and cyclicality.   Additionally, there are too many “pretenders” who don’t have any appreciation for esoteric factors affecting volatility or cyclicality that are calling February “the” top in the stock market.    Market volatility is starting to return and if we see a continuation of the pulling back of the risk trade, price rises will eventually abate or fall. 

That said, I do suspect we are getting very close to a peak in all asset prices.  Let me be clear; price not time.  The bigger unknown is always time.  In other words, price or demand is likely to be close to exhaustion across all assets.   So, I do expect a substantial chance we will see assets make a major peak this year.  But the time factor may not yet have been reached.   If we do see a major peak in asset prices, it may be the second half of this.    Plus there are lots of fun dates slated for the second half of 2013.  That includes what I believe may be the biggest turn date in our nation’s history.  More on that later this year in a post on an esoteric topic I have only mentioned on here.  That is mundane astrology or how the cyclical energies of the universe affect life, evolution and events on earth. 

In the graphic above we have three distinct examples of the S&P at this price level.  That is in 2000, 2007 and 2013.   Three times as much demand was needed to drive the markets to this level in 2007 and 2013 is actually making new highs on collapsing demand.   Both the massive demand swell leading into the 2007 peak and the lack of demand into this price range again in 2012 represent bad news in my book.   In other words,  we could be seeing a secular shift in fundamental demand that has been leading prices higher.   Mind you, this is a wildly expensive stock market as noted on here dozens of times in the last eight years; wildly more expensive than 1929.  Don’t listen to the attractive Tobin’s Q or low PE ratio nonsense.   Those are useless measurements that only worked when we had a functioning economic, credit and monetary system.   We have none of those today.  Frankly, we haven’t had either since at least the elections of Ronald Reagan and Bill Clinton.

We really don’t know if there are any covert efforts to inflate asset prices at the Fed.   Conspirators love to tell us this is happening without any proof.  In a period of great secrecy and corruption, that another 15 million or so people are on food stamps since Obama took office and the stock market is back to all-time highs may be proof enough for many.  But I doubt they are directly buying financial assets beyond that which we know about on their balance sheet.   They are trying to inflate housing through asset paper purchases and they are giving Wall Street and hedge funds all of the free money they could ever use.   Wall Street is the arm of the Federal Reserve buying assets.   Think about that – paper purchases.  Hahaha.  I was probably the first person to remark that the Fed could and should print a fair amount of money back in 2008’s crisis.  But I never said give it to the criminals.  Printing money can create wealth or it can destroy wealth.  The Fed’s policy’s are destroying wealth by deploying money into more paper-pushing bullshit while the underlying wealth-crating economy continues its implosion.   Implosion too dire for you?  50% unemployment in what were once industrial powerhouses like Detroit.  25% real unemployment rate.  The highest usage of foodstamps ever.   35% unemployment rate for new college graduates.  Implosion. 

Regardless of whether the Fed is directly buying assets or whether the banks are doing it for them, the end result is the same.  The Federal Reserve is the backstop for this activity and absorbs the risk.   Additionally, central bankers around the world are directly buying financial assets.  And they are doing so for yield.  ie, As an investment.  In other words, they have succumbed to the risk trade their own Ponzi policies have created

This means we could eventually see a global collapse of central banks if their policies of asset reflation fail because of their purchases of countless assets.  All in an attempt to recreate their artificial perception created through inflated asset prices.   You know, like all past Wall Street-created price bubbles.  A collapse in assets would then require political policy action to save not only banks but central banks and remonetize what would be imploding balance sheets.   Again.   Not only could this lead to central banking crises but it could also lead to a collapse in some banking systems and currencies as well.   Frankly, the outcomes surrounding a central banking crisis would be incredibly horrendous for global corporatism aka fascism and could even lead to the collapse of both political parties in this nation.   If supply-side economics is starting to fail, this could be the beginning of the end for the fascist public-private central banks as we know them. 

Regardless of exactly how, in a great bout of irony typical of dysfunctional behavior seen in those who seek authority and control, it will be the very actions of the status quo themselves that will lead to their own self-destruction.  Obama, Boehner, Bernanke, Blankfein, Dimon – they are all laying the seeds of their own self-destruction.  That is how economic, monetary, political and banking systems always fail.

The Federal Reserve needs to be nationalized and placed under direct control of the Treasury or some electable body as a democratically-controlled public institution.  That would restore our democratically-granted right to print  or “coin” our own money and end the tyranny of Wall Street-Federal Reserve fascism and all of its evils.

The greatest leverage on earth is the leverage of one percent of a population destroying life, liberty, human rights, economic determinism, the rule of law and democracy for the ninety-nine percent.   The parasitic elite’s accumulation of crony wealth is tied directly to the monetary-banking corruption that is enabled by the public-private Federal Reserve-Wall Street monster and its unique ability to literally steal everything from democracy.   If that dynamic unwinds, destabilizes or collapses, look out below.

posted by TimingLogic at 9:59 AM

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