The Bears Are Dead! Now A Proper Pullback Can Begin!

I don’t have much to say.  I am alone.  All my brethren have been killed.  Everyone I know who was a bear has flipped on me.  I am not talking a couple people and their PA.  I am talking friends here and in London who command billions of equity and hedge fund assets.  Now they were not short per say but they were cautious.  No More! TINA rules the day.  To a man and woman they have given up fighting the central banks.  Mind you they have not been fighting them the whole time but over the course of the last 6-12 months.  The high priest central bankers have converted everyone.  Apparently revenue and EPS misses are ok now because it means more stimulus which of course means higher equity prices.  No one cares about the deteriorating fundamentals like the fact that semi-conductor companies are missing big on the top line.  They are usually early warning indicators of economic weakness across the board.  It just doesn’t matter.  The central banks are no longer subject to the cyclical laws of nature.

However, what if the death of the bears was a problem for the central bankers? The marginal buyer of equities has been companies purchasing their own stock, Europeans chasing dollar asset momentum and stubborn bears covering their shorts.  Last week I wrote about multi-asset class turning points.  It appears to me that the U.S Dollar has peaked and is heading lower, bonds yields look like they want to rise and gold is showing signs of life.  We also have potential for a bullish reversal for the Yen and the Euro.  So essentially the last of the bears went long and there are no shorts below us to cover when selling begins, the europeans are up to their eyeballs in the US Equity Strong Dollar Trade and look to become net sellers as the dollar weakens.  In addition, bond yields look set to rise which could slow down the debt fueled corporate stock buyback binge.  Buying power may be drying up for the time being.  The market today felt exhausted.  Friday’s minor new high had only 18 new 52 week highs on the S&P.  A very poor reading of strength.  In addition, all sorts of exotic technical voodoo triggered last week which suggests at least a reversal.  We are close gentleman.  Bull markets end when there are no more bears.  Well the bears are dead and now the bulls are next.

 

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“Money, capital, has a life of its own. It’s a force of the nature like gravity, like the oceans, it flows where it wants to flow.”

Maxwell Emery-Chairman, First New York Bank from the Movie Rollover 1981

I have consulted the charts and burned some entrails…I come to only one conclusion…capital is about to flow in different directions from the prevailing trends as the fiat currency quickening accelerates.  New trends are already emerging and some appear to be on the Horizon.  The most important piece of this puzzle is the Dollar.  It appears to have topped or will shortly in the near term and is entering a correction mode that will prevail for weeks perhaps months.  I think the Euro and JPY will rally in response to the dollar weakness.  Oil and other commodities have already sniffed this out.  Oil looks poised for a sustained move up.  How high and how long remains to be seen.  Gold looks poised for a big move.  I have chatted with OA and he agrees.  A big move is coming.  I am biased up given my near term view on the Dollar.  Bonds look ready to fail here potentially and I think yields begin to rise.  And finally US Stocks look ripe for a significant correction from all my measurements that I follow.

Sentiment on most of these currencies and assets classes are at extremes in the direction of the prevailing trend.  Cycle work suggests major turing points.  The boats are too loaded to one side and we are about to flip.  Some of you might ask “What is the catalyst?”  There does not need to be one but lets use Greece as the current excuse.  I am looking to perhaps go long gold and/or the miners if it breaks above $1220 and potentially short QQQ or SPY on a break.  I think we should see the speed of the markets pick up and volatility increase.  I am looking for this to begin over the next 2-4 weeks.  Of course I could be absolutely wrong so I will wait for some confirmation. Don’t worry the world is not ending…just changing

Long-term I expect the dollar to go much much higher as the emerging markets de-lever their $9 trillion in $ debt.  However, trends don’t go up or down in straight lines.

 

 

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We are officially a Banana Republic.  Ben Bernanke has announced his intention to Work for Ken Griffen of Citadel as an “advisor”.  He will not get paid a bonus and it will not be dependent on the performance of the Fund instead it will be a fee arrangement.  Sounds like a straight up payoff to me.  When I saw the headline I thought it was the onion.  Zero Hedge, the supremely pessimistic financial alternative news site, has been claiming for years that The Fed has been using Citadel as their equity trading proxy to manipulate the equity markets.  I must say this smells to high heaven. Being the shit stirrer that I am, I tweeted the “Fed Hating” Rand Paul that he contact Zero Hedge and look into this matter.  Ladies and gentleman we are not in Kansas anymore.  Let the fireworks begin and get your pop corn ready.  I demand congressional hearings!

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For those of you old enough to remember Monty Pythons “The Meaning of Life” the fat man (AKA Bulls) is stuffed to the gills.  The waiter brings one more wafer thin mint and the fat man Explodes.  This weekend all the talk was of a blow off top coming in US equities.  Pro Traders were talking about the potential to really explode from here.  Of course today’s action suggests we retest the lower band this week.  We could fail and continue lower, however, I think we bounce and run to 2140.  Why? Because this market is designed to kill both bears and bulls.  I think bears try one more time this week and get the Heisman.  Then the bulls take one last glorious wafer thin mint run at an ATH before they explode in a spectacular fashion.

Seriously, the market is at a critical juncture here.  I will be Zen about this and observe.  Will the US stock market demand Fed action and correct to test their resolve or do we follow the other indices into an ending parabola? Either way the Wafer Thin Mint scenario is not that far off in my opinion.  I have some exposure but I will act more decisively when the evidence presents itself.

A technical guru I respect suggested that the first week of May has a potential set up like the one we had on 9/19/14.  Who knows but we have warnings from Druckenmiller and El-Erian.  Two gentleman that may know a thing or two.

 

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While running on the beach I was stopped out of half my positions for a modest loss.  Obviously I was not expecting this to happen.  Basically there is an outside chance we go bat shit crazy parabolic.  Why do I say that?  The DAX, SHANGHAI, CAC and now the HSI have all gone parabolic this week and all are up huge YTD.  The SPX and DOW are basically flat YTD.  The Fed this week may have inadvertently set off the parabola phase of the bull market.  I will not use their names since they are fools who may have unwittingly unleashed the bear killing Kraken.

No Name number one said that if the economy weakens we will do QE4.  A mere 2% from the highs and we get talk of QE4.  Mind you these dopes were just thinking of lifting off on rate hikes a month ago.  The other No Name said that if the market goes up we will raise rates and if it goes down we will wait on raising rates.  So there you go folks…the stock market owns the Fed.  The implications are staggering.  There is no more pretense as to what this fake economy is all about.  So this can go down two ways.  1) The Market tests the Fed’s resolve and we get our correction that we have been trying to set up for the last year and they unleash QE4 or 2) The market participants lose their minds and lever up even more in the belief that the Fed will never let the market go down and we have a parabolic rise to top this off.  Trust me, for the health of the investment business you want to see a correction.  Parabolic rises are multi year ending moves that devastate economies.  Think Japan in 1989 and the US in 1929.  I certainly hope the Fed understands what they might have done and if not I hope someone on the inside tells them.  They should come out and talk the market down before lift off.

I am still 60% thinking correction and 40% the Kraken Parabola.  We are at important levels with the technicals, VIX and BBs suggesting an imminent correction.  I will revisit my risk positions as this evolves.  I will either re-short or get long.  Make no mistake this market has become a traders market. Fundamentals have long ago left the building because if they did matter we would be rolling over as S&P numbers are being cut at peak margins and peak valuations.  I still suggest telling non-investment folks to start raising cash and taking some profits for a rainy day.

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I have been blogging for almost a year.  For those who have been following me know that I Have been stalking the top of the US equity market and in that time the SPX is up about 9.6%.   About a minute before the close on Thursday I increased my short exposure to 175% from 100%.  This is the most exposure I have had since beginning this journey.  I do not not advocate shorting this market if you are not a professional.  Shorting is not for the faint of heart.  I think it is time to spread the word and save our relatives from pain.  I advocate increasing cash positions.  I will post more this weekend about why I have such high confidence in my stance.  Happy Easter to my Christian Brethren!

 

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On Monday we were greeted with a Tweet by Ben Bernanke introducing his new blog.  His first two blog entries were to discuss why interest rates are so low and why Larry Summers Secular Stagnation thesis is wrong.  Well well well! Where do I begin.  I feel an epic rant coming coming on.  I will try to contain myself.

Apparently the reason why interest rates are so low is not primarily due to the Fed but primarily due to the state of the economy.  Ahh I see…of course.  This guy sounds like my 11 year old son trying to spin his way out of why his 9 year old sister is crying and there is a red mark on her face.  “Did you hit her?” “Yes but she….” As you can imagine whatever comes out of his mouth next is just utter nonsense.  He is not supposed to hit his sister.  Interest rates are low but not because of the Fed but because of the economy.  Just absolutely absurd.  If we did not have a Fed the interest rates would be set by the market.  Ben needs to understand that the Fed does not exist in a vacuum but that their actions have an effect on the economy in complicated feed back loops.  Had we let capitalism do its job many companies would have gone bankrupt in the financial crisis and the recession would have been worse but guess what we would be recovering by now with a true secular recovery and a real bull market.  We would have restructured the debt and recapitalized companies and households with debt loads that could be serviced by the existing income.  Instead we have kicked the can down the road and put impaired private debt on the Global Governments balance sheets which will make the the last down turn look like a cake walk compared to the coming horror show.

Instead we have an abortion of a recovery that was forged in a forced credit expansion.  Ben in his wisdom decided to solve a debt problem with more debt.  That is the definition of insanity.  To keep doing the same thing over and over again hoping for a different result.  It stopped the bleeding temporarily but solving a debt problem with more debt needs continual expansion of credit in order to prevent defaults on the outstanding debt.  The problem is that eventually the market reaches a point were it say no mas!  We may be close to that point.  How do I know that? Currencies, commodities and credit spreads are suggesting that we are quickly approaching the end game.

In his next blog he decided to challenge Larry Summers about secular stagnation.  He does not believe we are experiencing that.  I contend there is secular stagnation and that his Debt creation is the direct cause of it.

Ben since you decided to enter the blogosphere I challenge you to debate the fact that I believe your policies have caused secular stagnation and your QE is directly responsible for the deflation that is currently raging across the globe.

In May of last year Einhorn commented on how his meeting with Bernanke scared the crap out of him:

“I got to ask [Bernanke] all these questions that had been on my mind for a very long period of time, right? And then on the other side, it was like sort of frightening because the answers weren’t any better than I thought that they might be. I asked several things. He started out by explaining that he was 100 percent sure that there’s not going to be hyperinflation. And not that I think that there’s going to be hyperinflation, but it’s like how do you get to 100 percent certainty of anything?”

Read Ben’s blogs for yourself and you will come to realize that these folks that you think are Gods have no idea what the hell their policies do in the real world.  They are academics who are clearly book smart but do not operate in the world in which you and I live in.  They have never managed P&L risk.  His blogging does not come at a good time for the omnipotence of the CB meme.  The more he talks the more people will realize that Fed Chairs are little men and women behind the curtain and not the all powerful OZ! God help us all!

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-inaugurating-new-blog

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/31-why-interest-rates-low-secular-stagnation

 

 

 

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