Binging on Empty Calories

This Bull Market may be the greatest in our investing lifetimes. Bigger and faster than the “Peace Dividend”, more broad based and adding more market capitalization than the “Tech-Bubble”. But each of these past huge bull market moves were based on some measure of real value. And those values were even perceived as ‘real’ during those booms.

What we now have, culminating with Apple’s huge debt offering (even though it has a hundred and fifty billion dollars in the bank), is based on the greatest IOU in history. And most are debts that cannot and will not ever be repaid. My guess is that most of the Sovereign portion will be “forgiven” or “extinguished”. I’m  wondering if Central Bankers even have to repay debt.

For markets, the inmates have completely taken over the asylum. This is Attica and the authorities don’t even know where to begin to control the situation. But as long as markets are rising, there will be no call for bloodletting or the chopping off of heads. All country bond yields will hover just above zero, yet there will still be outrageous demand because there is simply so much money, so much liquidity that must find a home outside of cash.

We’ve been harping on the reality of the “Fantasy Market” for a couple of years now without trying to bet against it. QE has so perverted and warped the investment process that the markets have bought into a version of the Stockholm Syndrome because free money for markets are benign and good. For example, I pleaded for everyone to buy Verizon (VZ) around $30. Wall Street told you not to. I begged! And those who bought had to wait a year. Some even lost patience. Now the stock 80% higher and its yield has been cut in half. Yet it is now parabolic and you are told to buy it.

Now even the most bearish have thrown in the towel knowing that the trillions of dollars plunged into then markets has so changed the psychology of big investors as to prevent the liquidation of any real portfolios. Sure, there are flash crashes and big and fast moves. But the liquidity pumping from all corners has assured everyone that everything will be “market-perfect” until it ends, regardless of economic fundamentals. As long as we are “left alone” and the liquidity stays locked in the “closed loop” of the financial system, there is no limit.

But if you want to be anachronistic and think that chart patterns make a difference, or that “sell in May and go away” has a chance, please notice the formation of what may be a perfect near-term double top combined with a series of negative divergences. Historically, this is a very bearish pattern. I would lighten up if I was trading near-term but I am not prepared to bet against the greatest shift in investor psychology with endless liquidity in history.