While the Crash of 1929 came as a shock to most people, it was fairly well known something was wrong in advance among smart money as evidenced by this chart. I suspect the feeling that the 1929 crash came out of almost nowhere had a lot to do with the fact everyone and their shoeshine boy (non-professionals) were in the market, chasing prices higher, but the evidence was there that smart money like Bernard Baruch knew and took action well before the crash to safe-guard their fortunes...
There are some pretty wild, "This time it's different" stories out there, some pretty believable ones as well. I'll admit that even though I knew the Tech bubble was a bubble, I though tech which changed our lives (because of digital convergence would you dare leave home without your cellphone now?) would wring you the excesses and continue to lead the market because of the fact it is the biggest revolution since the Industrial revolution in the US, it seemed it would last more than just one bull market cycle, much like many of the rationalizations now including one convincingly sounding, well written and credible one that says HFT's in the shadow banking system (which in itself is a massive liability even the F_E_D is more than aware of) will continue to drive the market higher, the problem is there's no sound fundamental reason , macro data is collapsing at a time of seasonal adjustments that easily goal seek whatever print is needed to squeeze out a beat, at least for the first quarter (at least that's what we have seen for the last 5 years)...
However without going in to point/counter point, the easiest way to see through the argument of "HFT's are secretly working in Dark Pool exchanged to push market price up perpetually", which is just another form of, "This time it's different", is to recognize what drove the market since 2009... Quantitative Easing and Accommodative F_E_D Policy, however if the HFT argument holds, there's a simple way to test it, the market correlation to the F_E_D's balance sheet.
Under QE, the F_E_D essentially dumped money in to banks to buy treasuries and MBS who were forced to dump that money in to the market since we have been at ZIRP (Zero Interest Rate Policy) since the start of the crisis, there's no other place to earn a yield other than the market, so what happens when the F_E_D ends/ended QE to the S&P which was correlated to the size of the F_E_D's balance sheet expansion which is simple to understand (the more money the F_E_D dumped in to QE, the more was dumped in to the market)...
This is the 13 week Rate of Change (ROC) of the F_E_D's balance sheet (remember it's ROC declined because it bought fewer and fewer bonds as the taper began and eventually ended and the 13 week ROC of the SPX...
I won't go through every scenario out there that states, "This time is different", but going back to the 1600's, I studied and put out a 5-part video series on all of the bubbles since the Dutch Tulip Craze right up to the Housing Bubble and everyone is characterized by the psychology that this market can't possibly turn down because this time is different. In my view, if the Tech revolution couldn't hold a second bull market in which things really were different (there was no internet just before the Tech revolution), than what can really be so different as to void this centuries old concept?
I just wanted to touch on this aspect briefly being mass psychology changes so quickly, for example from the October lows which were a notable break and the first major lower low to now. What economically has changed? What has changed in F_E_D policy? More often than not, one's stance is dictated by emotion more than objective evidence.
Remember the sell off from September's head fake move at it's stage 3 top to the decline leading to the October lows?
As far back as October 2nd, which was here...
Despite my own views on the market's eventual direction, this post was published, Daily Wrap- Get Your Contrairian Hat...
"I'd say about a week or so ago I said, "I don't like it when too many people are calling for a top at once", bear markets surprise, often they decline sharply on what is otherwise good news, a testament to how important market breadth is as even good news can't sop the rot that has set in from turning to an all out collapse....
In other words, there are too many people bearish right now and that includes even retail. Since I've had an intense interest in the psychology of bear markets and how investors that made a killing on the way up so often lose it all on the way down...
Last Friday I was thinking about the number of bear market calls and uneasy...yet this doesn't change any of the bearish realities of the market, just perceptions of when and where"
At the actual October 15th low...
Important Update:
"As I've recently been saying, I have a feeling we are going to see a sharp reversal that happens quickly with a strong upside move, this isn't a change in the underlying bearish trend as I believe 99% that as soon as it's done, we make a severe new lower low, however there are a lot of indications piling up now that make this scenario look more and more probable."
If I had more time, I would find and post all of the sentiment posts from that time period when even the "Buy the Dip" crowd went to all time record lows in sentiment (as bearish as it gets), as usual, at the exact wrong time because that's truly the point of the post, well of this portion of the post.
What I really wanted to cover was everything else going on over the weekend.
The wild card (fundamental) event which was the Greek/Euro-Group meeting in which the EU's February 16th deadline for Greece to apply for an aide extension to their current loan program came and went and negotiations couldn't be further apart.
As posted yesterday, President's Day Mini Update, this isn't about finding common ground to start as a negotiating place, this is about "each side is working toward a completely different goal, there's no common ground, what one side wants is diametrically opposed to what the other side wants, how do you negotiate that?"
It turns out this morning, "The Day After", Germany's Finance Minister Schauble has issued a new ultimatum, even though the Greeks completely ignored the last one, but this time "Germany is REALLY serious".
Greece has to apply for an extension to the BAILOUT program by Feb. 27, 10-days, but once again Germany is issuing an ultimatum that Greece apply for something it has been absolutely clear that it does NOT want. Some other tid-bits were thrown in there as well, such as "Greece must decide whether it wants a program", which it clearly has said it didn't, not the program the Germans are talking about and if Greece wants to "Keep the Euro". Suddenly Greek exits probabilities have been doubled by nearly every investment bank's analysis departments.
One story that hasn't caught a lot of traction yet, but is more than likely one of the biggest EU/German fears in dealing with Greece and why they don't want to or even can't back down from their position (the one Greece has outright rejected since Syriza was campaigning before the election and every day since), is that Syriza may be the start of an EU revolution against the status quo. Syriza itself has said one of its goals is to dismantle the Troika, the EU finance/political power arm. There are left wing groups in just about every EU nation similar to Syriza, whether looking to buck the EU or looking for autonomy for their own regions such as in Spain, I believe one of the motivating forces behind the German/EU position is the fear these other groups will gain in popularity like Syriza and things will really get out of hand for the EU, thus their position of not negotiating, but showing they can keep an uppity left wing Greek political part in check lest all of the smaller left wing splinter groups become mainstream.
In other important events and perhaps one of the most important for the global economy is the continued decline of the Baltic Dry Index because it is one of the few Indices that has not become bastardized by financialization, in other words, it's a pure number and it's not tradable. The actual definition of the Baltic Dry Index is the following:
"The Baltic Dry Index (BDI) is a number (in USD) issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulkcarriers carrying a range of commodities including coal, iron ore and grain"
The BDI has just hit a new all time record low at 522, this is the 53rd of 55 days it has traded down.
The effects of low energy prices are showing up in Initial claims with the Shale oil producing states seeing some of the largest lay-offs as Energy giants like Baker Hughes, Haliburton and others not only shut down rig after rig, week after week, but are engaging in mass lay-offs of 6500+ a pop. Much the same way, the collapse in shipping prices is starting to effect the industry beyond earnings.
Yesterday China's COSCO shipping line released their financials and the news that they scrapped 8 of their ships (3 bulk-carriers and 5 container-ships), here are two of the scrapped ships , disassembled and sold for scrap metal...
To give you an idea of what it cost to dismantle the ships vs what their scrap sold for, the dismantling cost 182.24mm RMB, the scrap of all eight fetched 82.2 mm RMB or in other words, about 2x more to scrap them than what they received for the scrap which just goes to show how expensive it is to keep these ships in a time when the shipping costs have evaporated to record lows, better to take the 100mm RMB loss than to keep these ships in commission and this is likely just the start as the BDI continues to plummet.
The main point being, this is like market breadth, it isn't traded, there's no interpretation, it's hard numbers and the story both market breadth and the BDI are telling are one of not just recession or stagnation in a few countries or a couple of continents, but world-wide.
In addition yesterday, Japanese GDP disappointed and came in lower than expected, you may also recall from last week the Bank of Japan questioning the effectiveness of QE and further asset purchases which caused the CFTC net spec shorts to gain the upper hand in NKD futures for the first time since Abe took office and Abe-enomics was implemented with Japan's massive QE-Zilla which is now in doubt by the central bank that runs it.
Also on the subject of Central Banks, the RBA of Australia released their minutes from the Feb 3rd meeting, which were more hawkish than expected which has held the $AUD up since the release, another CB getting more hawkish.
The second Fundamental-wild card event of the weekend was the Ukraine cease-fire of Sunday, which may not have been a total flop, has heavy fighting in several areas in which Pro-Russian rebel forces have refused to acknowledge any cease-fire, so this is essentially the second verse is the same as the first with the last cease-fire failing to hold any ground.
Also out this morning, Chinese New Home prices just posted the largest annual decline ever with 64 of 70 cities positing lower home prices.
Also of note recently... Appaloosa's David "We've been selling everything not nailed down for 15 months" Tepper's fund, just in case you might be wondering why 3C which shows us underlying activity of smart money has been declining, Tepper's fund has exited all positions in Alibaba, Apple, Broadcom, CBS, Citigroup, Disney, Facebook, Ford, Halliburton, MGM Resorts, Mohawk Industries, Powershares QQQ ETF, Schlumberger, Shire, and Weatherford
It appears even when he was saying the market was still healthy even after admitting selling everything not nailed down for 15 months that the fund hasn't only been reducing exposure, but exiting positions entirely in a lot off momo/high beta names. SEC filings show that their equity holdings were reduced by -40% by the end of late last year including selling all of the following positions:
All of their 1.16 million shares of AAPL and 7.3 million shares of FB. Another 8.3 mn shares of C were sold (he obviously doesn't feel strongly about the future of financials either) , 725k shares of BABA were sold, 2.86 mn shares of CBS corp were sold and 5 mn shares of Haliburton were sold in addition to reducing positions in many others and only increasing 1 position in American Realty.
This on the heels of last week's Soros SEC filing in which his SPY put position was increased by 600% to over $2bn which is Soros largest put position since 2008 along with others such as Icahn.
More recently today and more to the point of the sentiment or emotions of the market which have only been based on where price is, not anything objective as I mentioned, sentiment hit record lows at the October lows when it was obvious to even me weeks before that there were too many calling a top ad we weren't at the top at that moment.
This week's Investor's Intelligence Survey shows sentiment soured, which is not surprising after last week's massive, multi-year short squeeze in addition to a VIX hammering, this is not accumulation of stocks, this is manipulation of the market. Sentiment now looks like this...
Now bears are at record lows, what does this tell you about sentiment when at the October lows when it had been obvious to us for two weeks and specifically at the lows that we'd see a strong rally that EVERYONE was bearish, now at ATH's, everyone is bullish?
The market and market analysis has to be more than changing you're position and analysis depending on which way the wind in blowing. In looking at numerous bubble's and market tops over 400 years, one thing most had in common is that they were at highs or all time highs before they moved to erase everything gains and usually some more just like the 2007 top.
The message of the market is not that hard to hear, it's the emotions that are hard to overcome.
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