Why Today's Stock Markets Are All About Confidence and Gullibility 34 comments
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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.
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Call it a "bull" market.
Call it a "bull" market.
However I do not understand your statement on the "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; "
If we do not know how the computer works, then how do we know it will crash?
By the way, I call it BS market!
> and treasuries again, for awhile.
Unless, of course, it's a Treasuries or dollar value crises. Which seems like a reasonable near-term possibility, causing or occuring concurrent to a stock market correction.
The latter is certain to correct itself and when it does things could wind down fairly quickly. This economy is crippled and by the time the statist regime in power is done imposing its view of dystopia, it will be amputated. Growth in the economy and in profits will remain anemic.
Setember has historically been a difficult month for the market and my hunch is that the present disconnect between the market and future fundamentals will become better understood with a substantial correction to the downside. If anything goes wrong with the China story, look for a violent correction.
Hopefully, this next circus market grand finale won't bring the housing market down like last time. Rather, they may choose just to burn the whole market down. Well, don't expect the gawkers to leave. I don't expect a crash until at least a cool $1 Trillion is dumped all over Washington's best friends. They just love it when it rains money. And this time it's gonna pour.
Yes it is going to pour down rain but not in the areas of drought.
I also see a lot of propaganda and manipulation going on in the stock market. But I don't think that personal gain is their only motive. Many people in the government and among investment banks see their manipulation as a way to improve the economy and not just to profit from rising stock market prices.
The only problem with using the stock market like this is that the P/E ratios of companies get out of hand. The stock market becomes a pyramid scheme where the only way to profit is to buy at lower prices and sell at higher prices to someone else. And prices built on people's willingness to pay ever higher prices have a tendency to crash once in a while.
But as long as these stock market crashes are years apart. Many people forget how they've been deceived earlier. And they fall for new stock market pyramid schemes again and again.
Such manipulation stops working only when the debts in the economy build up to such an extent that increasing the collateral value of companies and creating the wealth effect among consumers doesn't help the economy as much as before.
In such circumstances, stock market pyramid schemes begin to crash every few months rather than every few years. And after a few frequent crashes like that, many investors learn and stop participating these stock market pyramid schemes. Which leads to reasonable stock market valuations for a period of time. Until people pay off their debts and forget. And then new stock market pyramid schemes become viable again.
I've heard enough of what's come out of her yap not to think twice about calling her a well paid buffoon.
The circus freak of Wall Street
OR
maybe the car crash of Wall Street
You see her and you wince, but you can't turn away and the more you observe and listen, the wider your mouth opens.
(Drive by a horrific car crash at 5mph and you'll see the analogy clearer)
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.
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.
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.
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.