September 13, 2018
Besides being a dyed-in-the-wool capitalist, I am an ardent independent voter as in R. Reagan/B. Clinton, so I feel fine publishing this brief. I have some nagging voices from the 1950s rule not to mix politics and business, but the observation here has no political bent.
My analysis has more factual foundations compared to popular conspiracy theories like the Lizard People aka “Reptilians” are Running the World or the Attacks on 9/11 was an inside job, etc.
Along with the mollycoddling of the younger generations not to be afraid of risk to the arrogance in the pundit’s bullish pronouncements, I feel vindicated speculating about the powers that rule on Wall Street.
In 2007 it was clear to almost everyone that it was time for a change at the white house. Traditional thinking was the Republicans could not win in 2008, because a two-term administration seldom wins a third term for the same party.
Well the Dems sense that as well and on February 10, 2007 Barack Obama, then junior United States Senator from Illinois, announced his candidacy for the presidency of the United States. Along with Hillary Clinton the polls did not look good for the Party of Bush.
Some say the powers that the Treasury’s connections to Wall Street in 07 pumped the market up in 2007 in the face of the growing sub-prime debt bubble with the goal of dumping the news events going into the 2008 election. Their goal was dumping a bear market, one that turned into the WFC, in the lap of the Democrats, believing if not hoping the Dems would not be able to deal with it. They almost got their wish.
However, in 2008-09, in the face of the calls for austerity by the Tea Party the Dems used centralized sequestration, engaged socialism for big biz, and bailed them out. Yes, centralized ownership of banks and companies “too-big-to-fail” that brought an end to the WFC along with the Fed’s QE.
Well the same Wall Street power faction may be in the play again today. With one clear goal. They know, they cannot win in November and the Trump Republican Party will be under attack from at least the lower house of the Congress with signs from current polling and Senator McConnell that the Senate can be taken back by the Democrats.
So the question is can the “powers that be,” (PTB) feeling their power coming under treat, keep what remains of the bull market pegged at these higher levels? Because to help Republicans stay in power, the economy is the only positive factor they have to sell in the mid-term election.
Given Trump’s dismal approval ratings of 32-35% and declining, the market should be declining now in expectation of the regime change and it is not.
Given the weight of the evidence, a secondary peak after the January 26 high should be happening in current time frame yet they (PTB) have the averages on a trade war yo-yo.
Now they are trying to push through more tax cuts to encourage more share buybacks to keep the market inflated.
At this late stage in the recovery, another tax cut would be like putting gasoline on the barbeque, again.
Their plan is to deflate the market – pull the pegs – after the November election when the Democrats win thus giving the Republicans an excuse for the market hitting the skids. They can blame the Dems and use the market as their issue in 2020.
My bearish view was joined by Morgan Stanley in early August 2018 when the headline was “Morgan Stanley: The biggest sell-off since February is coming and it’s going to hit the average investor hard.” Today, Ray Dalio’s Seven Bubble Indicators Are ‘Flickering But Not Flashing.’” I am in a position to say they are flashing. I will post them on the blog shortly.
The majority of analyst point to the A/D line in gear at the new highs and that it is a perfect leading indicator of a top. Hence without the divergence, there cannot be a top.
What they miss along with coincidental A/D peaks like January 26, 2018 among other issues is how out of gear the S&P sectors are; and how it is only a handful of sectors at best that is holding up and forcing new highs.
What the majority is overlooking is the emotional state of who invested in 2017. This is one of the key factors in Ray Dalio’s Seven Bubble Indicators, have new a new group of buyers entered the market? Without a doubt.
Our measures of volatility show that from April 2017 into the January peak the buying was based on FOMC. The Technical Event Model was in a sustained period of panic buying. Something that is normally an event, not an ongoing condition. These late cycle buyers will flip out at the first sign of pressure on their account balance.
In fact, the February decline stopped right at their break-even level of these FOMC players; and from a long-term point of view our targets for the bear takes prices back the surprises Trump win in late 2016.
What else is clear in a casual and random viewing of the financial news is two overwhelming ideas everyone with airtime agrees.
One is there is no reason to sell now because there is no clear reason to do so and two the clear reasons to sell are well outlined by them – whatever their rational happens to be- but these events will not occur until 2019! Literally 90% of everyone you hear on the major financial news networks.
The problem with playing along with the “one for all and all for one” consensus view of 2019 is when the trend does reverse, it will be every man for himself. When their systems give a sell – you need to understand all of the systems are subject to hyper-correlation – the majority will be hitting the door all at the same time, leaving the historical decline of 1987 far behind as new records are created.
The annual issue of MarketMap 2018 – dated January 18, 2018 – bottom lined it this way after the record-breaking the low volatility year of 2017:
“The idea of record-breaking will continue in the headlines in 2018. It is only common sense to know this. In each bull/bear cycle since 1974, there have been record-breaking price events. Each bull market has been bigger, better and greater than previous. Each new period contained record-breaking events from the number of consecutive higher close days to the most significant one-day advance in history.
The same has held true for the bear market cycles.
Since 1974 I have never joined the doom and gloom mob calling for a repeat of 1929 and worse.
However, both fiscal and monetary policy has painted America’s economy into a corner, a corner that has no alternatives that are positive to bail out the market and the economy when the next down cycle occurs.”
Since my pronouncement, the debt situation has become worse. The Treasury Department says the government is on track to have a total budget deficit of about $850 billion in the current fiscal year that ends Sept. 30; and the Congressional Budget Office predicts a budget deficit of just under $1 trillion in 2020. The market is in a debt bubble, that is widely recognized and just as widely ignored and as I stated above the majority of pundits and media forecasters are postponing the day of reckoning into 2019, 2020.
I will simply repeat what I said 9 months ago, there will be no way to support the next downturn with tax cuts and spending programs due to a pre-existing Trillion dollar funding need.