Thursday, November 07, 2013

S&P 500 Update: Fumes And Vapor


I have never actually shown the trading workbench on here but I have shared some specific data points that allow readers to get a better understanding of markets.   This is one such post. 

Above is a tick-based algorithm overlaid on the S&P for the past three plus years.  Tick in itself is generally not terribly useful data.  For those who don’t know what tick data is, well…..   simple way of describing it is that captures buying and selling intensity on the NYSE.   (Not to be confused with Treasury TIC data.) 

I am capturing ticks and other exchange-specific data in this algorithm and then manipulating it arithmetically.  The data is printed across the x-axis so when it is printing positively, the market should be trending higher.  When it is below, market weakness or excessive supply should be evident in the market.  

Interestingly, most of 2013’s move in equities is clearly either contrived or all of the large market participants are using the same algorithms or this move is driven almost exclusively by derivatives or some combination of “something unusual and unsustainable”.   Financial firms using the same algorithms could create a recursively self-fulfilling move that simply appears contrived.  And given Wall Street is an inbred oligarchy that is only successful because it operates on a constant stream of insider information (feeding at the free money trough of the Federal Reserve and rigging the economic rules to the game with our government), I would be more inclined to believe all major players are essentially  using some variation of the same algorithms.  I say this because not once has the S&P broken its supporting trendline created off the 2011 flash crash shown on the left.   Many people believe the Fed is also buying equities.  I have no idea if they are or not but as I highlighted on here before, other central banks have clearly remarked that they are over the past two years.  This move off the 2011 flash crash is a very, very low volatility rise of about 666 S&P points that has the appearance of being very, very contrived.   (I made sure I put that number in there just to send a few willies through some people’s minds.  It’s closer to 700 points.  The bottom on the S&P in the 2008 crash was also 666 on the S&P) 

We are experiencing the strongest unabated rally in the last few decades as measured by points.   This at a time when unemployment, underemployment and poverty have risen each of the last three years.  And in the last few months we have risen above the long term logarithmic trend line I showed some time ago. 

Since we reached the level of the prior 2007 peak in equities in March of this year, (the 1550 area on the S&P) something extremely odd has happened.   For lack of a better explanation, the market has been defying reality for the last eight months.   We have added 200 S&P points on fumes and vapor.  My experience is that this dynamic is unprecedented.  Either the move beyond 1550 is a false break out to the upside, possibly manipulated or the result of arrogance and greed and the market is going to give that gain back, likely swiftly, or we must see market dynamics improve. 

I find it interesting that both Goldman Sachs and a record number of millionaires in the U.S. have become wildly bullish (record bullishness) in the last few months; both of which have been noted on here.    The mega rich and Wall Street crooks are bullish exclusively because of the price rise of Federal Reserve-manipulated assets.  The top one percent effectively own all of the assets in this country.  They sure as hell aren’t bullish because corporate capitalism has been creating a stream of McDonalds and Wal-Mart jobs or because of any virtuous actions by our government or by the said plutocracy.  They are bullish because they are selfish, vain, vacuous, greedy, exploitative and predatory.

The status quo isn’t brilliant.  They never have been.  They are simply “in power” because of corruption and rules-rigging.   Because they are willing to do anything and everything including stomping on the face of their fellow man to claw their way to the top of the class-based power structure in their efforts to become gods over humanity.  They are extremely ego-driven and that means their bullish sentiment is based on ignorance.  The ego is the source of all attempts at control and the ignorance it creates.  Which, quite frankly, is why our society has become so ignorant.   The dumbed-down corporate state idiocracy starts at the top. 

We don’t have a meritocracy.  We have a plutocracy of ego-driven ignoramuses.   Their level of ignorance and incompetence is becoming very apparent to society as more and more of this system is exposed.  The ignorant, incompetent, self-interested, deceitful and brutally violent behavior of those at the top is becoming more and more apparent. 

Just a few closing remarks on this topic.  We have seen a continuously decreasing participation rate in equity markets since the 2008 crash.   Wall Street has created an environment in financial markets that is only about stealing other people’s money.  The value of financial assets simply tells us the extent of the bubble and if the status quo is in control at that moment.  With Wall Street paying more than $50 billion in fines since the 2008 crash, and involved in endless lawsuits and investigations into their criminal behavior, we see a pattern developing here.  I think people have to ask themselves a question.  Who wants to trade with a crook?  Do you frequent establishments or businesses that you know are literally trying to steal your money and use any method, legal or illegal, just or unjust, they can get away with to do so?   That is the state of financial markets. 

Ayn Rand was abhorrently wrong about free market corporate capitalism but she was right about a few things.  Monopoly and corruption trades other legitimate players and legitimate investment out of markets.  Or, as Gresham’s Law notes, bad money drives out good money.  That not only applies to the underlying real economy and investment in our society and our citizens but it applies to financial markets.   Who the hell wants to willfully purchase a U.S. Treasury?  Or willfully wants to own the Russell 2000 with a valuation discounting more than 80 years of earnings?  Or own stocks trading at 5, 10, or 20 times replacement value?  Or own stocks discounting 1,000 years of earnings?  Only the most ignorant people in our society.  That would be the plutocracy.

Today Twitter came public.  It ramped at the open and is now trading at a market capitalization of $25 billion.  Yet it has never made a profit and admits in its prospectus that it is plausible it never will.    In the last quarter Twitter reported revenue of $168 million and a loss that expanded from $21 million to $65 million dollars.   Are you actually kidding me?  $25 billion for a piece of shit?   Even in this time of corporate and media excess, Twitter is not making a profit.  But they are making it up in volume; expanding losses are always a good indicator of brilliance in my book.  Hey, look at the U.S. idiocracy.  They seem to be doing just fine on ever-expanding government girth and borrowing and our nation’s ever-expanding trade deficits.  

Other social media companies whose business models, like Twitter, are actually built on the corporate takeover of Amerika; Facebook, LinkedIn and Google are making money.  For now.  Their future crises are preordained.  

A quick review of the top 10 Twitter accounts yields Katy Perry, Justin Bieber, Lady Gaga, Barack Obama, Taylor Swift, Britney Spears, Rihanna and Justin Timberlake.  The other two of the top ten are not actually people but other corporations.  A tour de force of humanity on the Twitter most active list.  Our idiotic, dumbed-down corporate state culture awaits with bated breath the next tweet of the celebrity idols we are encouraged to worship.  For-profit, obviously.   In our society being famous is most often nothing more than a sellout to corporate power, be that a president, a congressperson, Hollywood or whatever.    People sell their souls to corporations who “manufakture” an image for the benefit of exploiting them for-profit regardless of the consequences.   If those that are exploited no longer serve a purpose of exploitation and profit, they are then kicked to the curb like a bag of trash.  Rihanna, our disabled armed forces personnel, our senior citizens, the unemployed and underemployed, those without health insurance, what’s the difference?  Seriously?  They’ll dump them all like a bad habit when it’s expedient.  We are truly living in a madhouse.   The insane IPO of Twitter and its absolutely ridiculous valuations is just another example of that madness.  Our monetary and financial system is dying and the fact that more than half of all Americans don’t have a pot to piss in but a corporation, Twitter, can raise $25 billion dollars on unfulfilled promises and delusions of future profitability is certainly a perfect sign of that death.

As I have noted on here time and again, this cycle is going to obliterate the investor class, those that benefit the most from the idiocracy.   Today what works in all asset classes is momentum whether that is art, collectibles, gold, equities, real estate, commodities, bonds, stocks, etc.   That is, buy at any price because prices are going higher.  And, by the way, appear brilliant in the process.  Momentum algorithms and momentum investing are insanity defined.  Valuations are irrelevant.  That’s because every Wall Street firm and hedge fund has an ample supply of free money provided by the Federal Reserve to ram everything it touches into the stratosphere.  The biggest bubble in world history.  And the unprecedented leverage afforded by derivatives simply magnifies the wall of money exponentially.  The day of free money will come to an end.  It’s simply a matter of when and what triggers it.  Then we will see that the masters of the universe on Wall Street, in corporate board rooms and in Washington were actually the most ignorant, incompetent and dumbed-down people in our society.  Just like we saw in 2008, in the internet bubble, in the 1990s bond bubble, in the Reagan-created S&L crisis and on and  on.

The dumbing-down of America starts at the top.  It starts with class-based corporate capitalism, Wall Street and corporate state politicians that create a social control culture derived from their own idiocy.   Stupid and evil has their jack boots on the neck of the American people and we need to get off because it is choking our citizen’s abilities to be divine, brilliant, creative, kind and humane. 

posted by TimingLogic at 4:18 PM