Why Today's Stock Markets Are All About Confidence and Gullibility

Historical precedents illustrate that the public is easily deceived, but I still have a difficult time comprehending how any intelligent person can possibly buy into Abby Joseph Cohen's statement that "We do think the new bull market has begun." (Cohen is chair of Goldman Sachs' investment policy committee.) Given that global stock market behavior seems to reflect so well the Consumer Confidence Index with particularly close correlation between the US Conference Board CCI and the behavior of the US S&P 500 index, perhaps the CCI should be renamed the Consumer Gullibility Index.

The last time I specifically wrote an article about an imminent US market crash titled, “Will US Markets Crash Now – or Later?” on April 23, 2008, the S&P 500 peaked just 17 business days after I made that call, at about 1,440, and then proceeded to fall until it bottomed at about 673 in early March of the following year. I think that we would all agree that a plunge of more than 50% aptly qualifies as a crash, yet if you visit that article, you will see that the bulk of comments that followed my article ridiculed my prediction back then, even though I was supremely confident of that my prediction would manifest itself. Today, by my estimation, there are just two possibilities to a global stock market rally that has occurred on the backs of government deception and financial industry executive lies.

(1) Once the low summer volume trading ends and the computerized trading programs of Goldman Sachs et al cannot manufacture fake rallies, the market will crash; or

(2) The bulls will be right about US and other global markets rallying another 10% to 20% higher from this point, as anything is possible given markets that are driven by fraud; but this surge higher will ultimately end in a crash as well.

So which scenario do I think is more likely? At this point, I believe scenario (1) is more likely, though it is entirely plausible that scenario (1) may coincide with scenario (2). Though Abby Cohen calls for a new bull market, any intelligent person will tell you that a sustainable bull market is not possible when unemployment in the US is hovering at about 20% and likely going to worsen in the future, when foreign institutions are not only not buying US Treasuries anymore but have been dumping Treasury debt on a net basis for many months now, and when the US manufacturing base has contracted and exports of real goods have fallen at the quickest rate in decades. Of course, there are “official” government statistics that will refute what I just stated here, but since I have already written extensive and detailed articles about why the bulk of all key economic indicators released by governments worldwide are fake and unreliable, I’m not going to re-hash these issues here.

To understand why people like Abby Cohen make such bold public predictions such as new bull market developing now, just refer to the Consumer Gullibility Index chart below and it should be immediately apparent why fraud and deception is the number one export of governments and financial executives worldwide. And should this market eventually crash as I believe will happen, I am also quite sure, despite Abby Cohen’s very public call of a new bull market, that Goldman Sachs will be on the right side of this trade and make significant profits from the downside as well.

A true bull market should produce a sustained rally for several years with periods of moderate, not steep corrections. If, when I dug well beneath the surface of the mindless “expert” banter that states that signs of economic recovery are everywhere, and I saw significantly improving economic fundamentals, I would be the FIRST PERSON to state that the economic crisis is over and a new bull run is on its way. Unfortunately, I cannot make this call because this is NOT what I see right now. I see a confidence bubble forming that when reality causes it to burst, will drag down stock markets once again.

In the above chart, the solid red line represents the CCI and the jagged S&P500 chart has been superimposed over it.

Steep corrections in markets happen after Central Banks create huge bubbles, a.k.a. distortions, in markets through the creation of artificially low interest rate environments and when investment firms use TARP money and computerized trading programs to manipulate markets against the grain of free market behavior. We live in an investment environment of unprecedented and systemic fraud, and one can quite successfully argue that it is foolish not to account for how this fraud will affect the behavior of stock markets.

Furthermore, it is prudent to generally predict that the majority of the general public will be fooled by this fraudulent activity. For now, deceptive earnings reports allowed by deceptive accounting techniques combined with dishonest statements from government and financial executives and manipulative actions undertaken by large commercial investment firms have created a massive rally. In fact, on June 2nd, 2009, I wrote an article whereby I expressed my belief of how the current fraudulent activity would affect US stock markets titled, “Telltale Signs that a Significant US Market Correction Won’t Happen in the Immediate Future”. Though we are getting much closer to the next crash, I still need to see more signs and conditions develop before I will say that we are on the brink of the next crash. And sure, this rally could continue even beyond the expectations of the bulls. But is this scenario likely?

Again, the failure of the general investing public to realize that they were being fleeced in early 2008 was quite evident from the reaction to my “Will US Markets Crash Now – or Later?” article written in late April, 2008. In response to Goldman Sachs alumnus Abby Cohen’s prediction of a new bull market, the only way I can assign any credence to her prediction is if you define a bull market as one that is driven higher by fraudulent activities and one that will certainly end in massive failure. If that’s your definition of a bull market, then it is possible we may have a new bull market.

However, if your definition of a bull market is a strong market built on a solid foundation of a recovering economy that doesn’t wipe out the wealth of its participants with a big future crash, I guarantee you this is not the situation we have today. If you wonder why Abby Cohen predicted a new bull market, just sneak another peak at the CCI chart above and realize that financial executives and high government officials are the biggest pimps of deceit-manufactured confidence in the world today.

But one thing you must realize is that though they are the biggest pimps of deceit, they are also the biggest profiteers off this deceit and will be properly positioned to take advantage of the bursting of this “confidence bubble”. As they manufacture these confidence bubbles, they are the best positioned to know when they will burst as well. That is the irony of this whole game. They benefit to the upside and downside because they create the upside and downside. If you are interested in seeing just how the financial elites manufacture false confidence bubbles that inevitably must burst, watch US Congressmen grill Goldman Sachs' Hank Paulson about his behavior when he was US Treasury Secretary at this video blog.

Again, to reiterate, I can only see two future outcomes of this current rally (1) A big failure or a (2) massive failure. I just don’t think the odds of a moderate correction in the midst of an ongoing rally that takes markets to significantly higher heights are favorable or likely unless somehow (1) Wall Street has figured out how to use their computerized trading systems to permanently rig markets on an unending path higher; or (2) economic fundamentals drastically change in an unforeseen fashion by the end of this year. And if this rally continues unabated (especially in US markets), the steeper it climbs, the more quickly it will likely fall.

As I stated above, it is foolish not to consider how fraudulent behavior can cause a disconnect between stock markets and economic reality and thus produce irrational rallies that last for an irrationally long period of time. However, it is equally foolish not to consider and account for the multiple factors that can and eventually will cause a sharp reversal in the same aforementioned irrational market behavior. Account for and closely watch these factors, and if you’ve been on the long side of this rally, you will know with a fair amount of certainty when is the apropros time to step off this hot-air balloon ride.

The last time I called a market crash in April, 2008 and it happened, I basically made the call because I saw nothing fundamental that could sustain that rally despite the load of hot air that the financial media was distributing throughout the mass media about “recovering” fundamentals (sound familiar?) This time around, I’m quite certain that the same people that were fooled and hurt in Round One will be fooled and hurt in Round Two of the investment and monetary deception game.

While it is a shame that those that purposefully fuel such games of deception and fraud and ruin the financial lives of millions end up on TV instead of in jail, it is truly up to each individual investor to dig deeper to discover the facts for oneself as the truth about this economic and monetary crisis will never be freely offered through the mainstream media. When considering what to do at this point, if I were an investor that still believed in investing in the major indexes of world markets, I’d rather be on the sidelines now and miss another irrational 15% higher climb (if it happens) rather than remain on board and experience the plunge during the scary ride down.

Comments

[doubleshortetf:]

Why we're near the very top:

1. Goes up on bad news from MSFT, AMZN, AXP's poor numbers results few weeks ago.

2. The investment gurus and analysts who got blind sided by last fall's fall and March low (boy weren't they pessimistic) are now in unison as bullish as ever, even with heck of a run since March.

3. Bears are hiding and appear to be capitulating on short covering. One can say the bears were "early" smart money.

4. Russell 2k has been on a tear. Speculation galore or halcyon days are back?

5. CNBC has special on Dow 9k and Cramer is pounding the table with buys and the lemming retail and professional investors are piling in. So much for the lows we had in Oct/Nov and March.

6. And even Barron's sounding bullish sans Abelson?

7. Historically Sept is the worst month followed by Oct. Just around the corner.

8. Low volume on recent rally in last month or so despite program trading. Volume proceeds price. Lack of volume on follow-thru to S&P 1k and Nas 2k portend downside ahead.

9. Lowry’s Buying Power Index nudges record 1933 low. Few breadth studies are as insightful as those provided by Lowry Research since 1931.

"The key to Lowry’s is not the absolute level of its Buying Power Index. It’s the relationship between Buying Power and Selling Pressure. The span between declining Buying Power and rising Selling Pressure hit a 78-year record distance of 807 on July 8. The wider the span, the more bearish the situation.”

Takeway?

My 2-cents is that we'll see 50% retracement to March low in Sept/Oct.

Aug 11 12:47 PM

[Swashbuckler:]

I could understand a gal being promoted to a top position based on her brains. Or even her looks, if she was discreet enough with the right people. But Abby Joseph Cohen? How did she get to where she is, other than having a lifetime track record of always being wrong at the major market turns?

Aug 11 12:49 PM

[nopunditz:]

That comment about AJC by Swashbuckler is appalling. She hasn't been any more wrong or right than any other major wirehouse forecaster.

Aug 11 01:05 PM

[doubleshortetf:]

I forgot to add #10:

10 - Very heavy insider selling. Insider selling to buying is 4.16 to 1 in July compared to 0.76 to 1 in March.


On Aug 11 12:47 PM doubleshortetf wrote:

> Why we're near the very top:
>
> 1. Goes up on bad news from MSFT, AMZN, AXP's poor numbers results
> few weeks ago.
>
> 2. The investment gurus and analysts who got blind sided by last
> fall's fall and March low (boy weren't they pessimistic) are now
> in unison as bullish as ever, even with heck of a run since March.
>
>
> 3. Bears are hiding and appear to be capitulating on short covering.
> One can say the bears were "early" smart money.
>
> 4. Russell 2k has been on a tear. Speculation galore or halcyon days
> are back?
>
> 5. CNBC has special on Dow 9k and Cramer is pounding the table with
> buys and the lemming retail and professional investors are piling
> in. So much for the lows we had in Oct/Nov and March.
>
> 6. And even Barron's sounding bullish sans Abelson?
>
> 7. Historically Sept is the worst month followed by Oct. Just around
> the corner.
>
> 8. Low volume on recent rally in last month or so despite program
> trading. Volume proceeds price. Lack of volume on follow-thru to
> S&P 1k and Nas 2k portend downside ahead.
>
> 9. Lowry’s Buying Power Index nudges record 1933 low. Few breadth
> studies are as insightful as those provided by Lowry Research since
> 1931.
>
> "The key to Lowry’s is not the absolute level of its Buying Power
> Index. It’s the relationship between Buying Power and Selling Pressure.
> The span between declining Buying Power and rising Selling Pressure
> hit a 78-year record distance of 807 on July 8. The wider the span,
> the more bearish the situation.”
>
> Takeway?
>
> My 2-cents is that we'll see 50% retracement to March low in Sept/Oct.

Aug 11 01:31 PM

[Robert0713:]

This earnings period has been characterized by
1) lower revenue
2) draconian cost cutting (dis-employing people, mostly)

I see no way this charade can be done again for 3rd quarter. The Ides of October, or sooner may haps, will be the time to be in cash.

Aug 11 03:34 PM

[Robert0713:]

That's not necessarily a sign of a coming crash. It can be just profit taking after a year of penury (for them, anyway).


On Aug 11 01:31 PM doubleshortetf wrote:

> I forgot to add #10:
>
> 10 - Very heavy insider selling. Insider selling to buying is 4.16
> to 1 in July compared to 0.76 to 1 in March.

Aug 11 03:36 PM

[wetIndian:]

I agree with the basic premise that the U.S. market is due for a major correction and possibly back to March lows. However to stretch that out to include as heading for disaster the international ETFs is not persuasive. True, there will be a pull-back, but not to the extent that the final recommedation of this article is to get out of global index funds is justified.

Aug 11 03:49 PM

[lavalamp:]

I'm looking forward to Mr. Kim providing an actionable call to go short.

Aug 11 04:17 PM

[Alex Trias:]

Nobody can predict the stock market. You might make a call that turns out to be correct by chance. You might do that a few times and think you can see the future that others cannot. In the end, the law of averages will catch up with you and prove that the future is unknown. That's exactly what makes the future.... well.... the future.

Best we can do is describe the market. This article describes the market as one driven, in effect, by fraud and stupidity. The author concludes that in time, truth prevails, and overcomes the forces of fraud and stupidity, generally with trend-reversing consequences.

This raises several issues:
(1) It's tough to keep a conspiracy going for more than a nanosecond on Wall Street. Try it. You'll see.
(2) If investors can be stupid for a month or two, they can be stupid for a decade or two.
(3) In business and investing, truth is worse than irrelevant. If everyone thinks the Earth is flat, you can't make much money trying to sell globes. By the time you convince everyone the Earth is actually round, that guy who's been selling "flat Earth" products the whole while you've been preaching has long since eaten your lunch. If the market is saying the Earth is flat, invest accordingly until the market starts to say the Earth is round.

Aug 11 05:24 PM

[Ames Tiedeman:]

This market looks extremely dangerous. Look a the Dow and the S&P 500, and the NASDAQ. They are all hitting up against resistance. I would not be surprised to see the market trend down from here into November. Be careful.

Aug 11 06:28 PM

[Piza Manure:]

I'm confused, as usual.

I'm short US equities and long commodities and emerging market ETFs.

Is Kim suggesting we move out of emerging market ETFs until the correction/crash?

Aug 11 09:46 PM

[Piza Manure:]

I'm confused, as usual.

I'm short US equities and long commodities and emerging market ETFs.

Is Kim suggesting we move out of emerging markets until the correction/crash?

Aug 11 09:50 PM

[ron_paulite:]

Good article Kim !

"Though we are getting much closer to the next crash, I still need to see more signs and conditions develop before I will say that we are on the brink of the next crash."

Please do remember to write here again when we are on the brink of the next crash .... Thank you.

Agree with everything you wrote.

Aug 12 02:05 AM

[ron_paulite:]

emerging markets are ripe for a correction too!

cash will be king again.
yes, the usd will be king once again -- if only for a while.

slowly accumulate physical gold, silver and real assets like real estate.


On Aug 11 09:50 PM Piza Manure wrote:

> I'm confused, as usual.
>
> I'm short US equities and long commodities and emerging market ETFs.
>
>
> Is Kim suggesting we move out of emerging markets until the correction/crash?

Aug 12 02:09 AM

[mfrnd:]

We're all like farmers listening to the weatherman make his predictions and hoping that our crops will grow despite the predictions. Sometimes they're right; sometime not. If we take the high road and work at what we do best as financial farmers, then we reap what we will reap what we sow.

Aug 12 01:31 PM

[ken3602:]

That Abby Cohen's bold prediction is either a call which is similar to GS call of $200 oil when oil reached near $150 (last big push before dumping) or she lives with a very different sense of time (like her each second is much longer than others) which would make her feel last 5 months almost like 5 years.

Aug 17 10:25 PM

[sheeple123jump:]

I like the ideas expressed,as to the dishonest,deceitful,ri... game. Among the important questions it raises,is just how much In Control of this game are the GS/government/central bankers/new world order controllers... have they been developing the ability in recent seasons, and years... to control the markets, now control the world markets...with such skill and cleverness, that this level of manipulation and control that we Do see ,is just the surface level of what might be a many layered,tightly controlled completely controlled system the power controllers have established....in other words,what they are doing and plan to do is like what a chess grand master does ,completely thought through 30 moves ahead ... which would mean, they are carrying forth a plan that already knows where they will reverse the next high, and how far down they will allow the plunge before they issue the next critical stick save, and move the market back and forth to create the right looking double bottoms at support,while issueing propaganda announcements that will inspire new confidence in the fearful minds of the public, they are playing the public mind like a violin.... so somewhere in the jumble of all this is a logical vision about the mass psy op they are doing to the public mind..... here's the next big thing they need to do at some right moment if their game is going to continue to work..... they know that because of the big crash last fall, and this spring, that investors are watching and waiting for the next collapse wave with Great fear. which means that the slightest draw down below the next big support line will ignite that panic....they dont want that to happen,they want to create a few key stick saves (as theyve already done ) to establish a clearly visible support level, followed by a great chorus of propaganda about the "worst is over' etc.... to reinstill confidence among the public. they may need to rinse and repeat this process a few more times for the rest of the year. It will all be the same manufactured fake market movement controlled by the Game controllers.but it will work, as it has been working thus far.

When will it stop working? It may not . it may become the 'new normal'....just like "money" is now just a million combinations of numbers in computer systems that talk to each other every nanosecond.
We may need to just figure out how to adapt to the new normal, how to play the new improved fradulent game and make a buck.
like instead of waiting and expecting Gold to soar past 1000 on its way to 5000, maybe we need to forget about gold altogether and ask ourselves if there might be better investments in different sectors, or different countries. things like Water, or farm land, or .... chinese fertilizer companies..... something Real instead of fake. something that wont become a bubble mania.

Aug 18 07:25 AM

[sheeple123jump:]

......You're betting that the Deceiptful fraudulent Game Controllers will not be able to maintain their control and keep this rigged game going.
The other side of the bet is the idea that.....they Will be able to keep controlling it and do whatever they want with it.
I guess I'm thinking the trick investors need to learn is to do a Mind Meld with them and figure out what their game plan is and make the right moves accordingly.
Have you seen any indications so far that they have failed to maintain control? I havent.

Aug 18 07:36 AM

[Graham and ...:]

Abby Cohen is a bull because she "knows" that Goldman Sachs traders will drive up the market. And of course, they know her "views." No "Chinese wall" there.

Sep 10 04:06 PM

[frank90291:]

A sure way to make money is to bet against AJ Cohen...... I remember her in 1999 and 2000 telling ppl to buy buy buy. How wrong she was...... Another thing: I still own GS and had some OPY during the recent run up but I would never buy their mutual funds....... pure crap.... They are clueless when it comes to investing but are experts at screwing the public with the assistance of their corrupt ass-wipes in Washington.... One should always have a good reason to own a particular stock and my reason for owning GS is: they are the biggest crooks in the World of crooked finance!!!

Sep 19 08:44 AM