The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, October 13, 2014.
Who doesn't know whom Chris Kristofferson is if you've been around for a few years. His work, from Grammy award wining country classics to marquis acting roles, has provided inspiration to many, and reflection to others. Such is his most recent effort, Feeling Mortal, which is a sentiment growing numbers are contemplating today as well. And it's not just the old, but anyone, who is going through increasingly tough times that can feel this way - more alive in the face of mortality. So, needless to say, the numbers here are increasing by the day as more and more people are seeing the mortality of their finances, a sentiment that could in fact be quite wide spread if the stock market were ever to take a big tumble.
And it's not as if most American's were not already in trouble, where the Russell Sage Foundation has determined in their most recent study on the subject, that the wealth of an average family has dropped by a third over the past 10 years, most of which after the credit crisis (and stock market crash) in 2008. So while the rich are getting richer, benefiting from public money fed into the system via official bailouts (think QE) and stock buybacks (the boards of these companies are criminals), the poor are getting poorer; and now, we have the coup de grace from these greedy bastards, instead of isolating the Ebola virus to Africa to prevent its spread, they continue to allow international travel - having the potential to devastate the world.
Of course it could be argued the public is at fault, that they have their own economies and liberties to consider, and that such a move would be politically unpopular. While this may be true, still, with the plebs so easily managed these days, it falls on the powers that be to navigate these treacherous waters under such circumstances - that's what we depend on these people for - right? The only problem is the public has been sold down the river by these guys who have engineered the financialisation of the economy to the point where any loss of transaction velocity caused by economic contraction would defrock the Emperor in short order, exposing the true frailties of the Western Model (think debt based / financialized / hollowed out core economies), whether it be due to an Ebola epidemic, or any other reason you care to contemplate.
It's the connectivity of economy you see, and the potential domino effect of cascading failures across the nexus that's the problem. Therein, in order to effectively deal with a potential global Ebola pandemic, African countries that are the source of the infection should essentially be quarantined in the hope it's contained (instead they imported it and it's spreading); but instead, travel to the West (and East) is still being permitted under the belief the spread in 'first world countries' can be managed. I hope the authorities are right here, because if they are not, it could be mortal failure for our present way of life, not to mention a great many people. Because while it may be true Ebola is 'less infectious' than many other viruses, it is still spread via close contact with people, and is mutating. (i.e. could it become as infectious as the flu?) Because the thing is, once you get it, while the tamest strains are 50% terminal, the more aggressive are 90%, far worse than the Bubonic plague that killed off half of Europe when it was the center of the 'modern world'.
What does the stock market think of all this, given it's supposed to be the ultimate future discounting mechanism? Up until last week there was a great story line going into Christmas this year. According to Wall Street, with their fraudulent accounting practices and corporate buybacks, per share profits had nowhere to go but up, and that should guaranteed a Santa Clause rally. Now however, just one week later, this story has come off its rails with the realization that even without Ebola grinding the economy to a halt, other reasons, such as those discussed last week, will eventually need to be accounted for in stock valuations. And here we are at the beginning of this week (in October) with stocks collapsing at an accelerating rate. (See Figure 1
And as you can see both above and below, this acceleration could be stepped up a notch or two with any further weakness in the Dow, the most widely followed stock index in the world, representing the very backbone of the US economy. That's right, as you can see both above and below in the respective weekly and monthly plots from the Chart Room, with denoted significant negative divergences, collapsing money-flow, coiling stochastics, and potential failures, events could quickly spiral out of control with a failure back into the broadening top structure. Up until now, Wall Street (and the bankers) have been able to keep investors that are still in the stock market placated with rising prices, however one does need wonder just how people will react to markets that appear to be crashing again after the body-blows they took in both 2001-2002, and 2008-2009. (See Figure 2)
My guess is they won't have as much patience regarding potential losses this time around and sell, which will overwhelm any measures price managers will institute in an attempt to prevent on an onslaught. And while sentiment could be a little better from a contrarian's point of view (think our sentiment studies), still, one cannot argue with the charts. The daily picture of the CBOE Volatility Index (VIX) attached here from the Chart Room shows a massive diamond in the MACD that will breakout with a sustained move above 20, which the monthly plot (attached here) is signaling is going to happen. Thusly, if these observations prove pertinent, the S&P 500 (SPX) / VIX Ratio could fall all the way to the bottom of the sinusoidal that's been defining its trade for the past 15 years by month's end. (See Figure 3)
Such price action is not unusual after an epic failure to complete a pattern, like the S&P 500 (SPX) / VIX Ratio not vexing the top rail of the sinusoidal. The SPX finished right on the 200-day moving average (MA) on Friday, setting the stage for an epic failure, but it may need to bounce first as the bureaucracy's price managers will be pulling out all the stops here to avoid what appears to be an inevitable large scale collapse brought about by systemic failure. Again, the stock market will simply be reflecting such an eventuality as people attempt to avoid significant financial losses, which they are largely unprepared for because of being lulled into a false sense of security by authorities.
Because the stakes are high for the powers that be. They stand to lose a great deal of wealth and power if the system unravels. Along this line of thinking, and in attempting to maintain the status quo, the bureaucrats want Democrats re-elected (because they expand bureaucracies more than Republicans), so they don't want to see the house go to Republican's, meaning nothing is out of bounds to make the economy look better over the next month. (i.e. no matter how much such measures don't help the plebs.) The problem for the stock market is speculators know this, so they are less willing to short / buy puts as the mid-term election approaches.
So, aside from the Ebola thingy, it's all about the American politic right now with midterm elections just around the corner. That's why last month's Employment Report was 'positive', why gasoline prices are falling and oil suppressed, why interest rates are down, and why the stock market will not be allowed to crash this month, which again, is the problem unless the Fed's prop desks intend to take on all comers. And while this may be the American way, unfortunately for these relatively inexperienced people, they cannot backstop the entire market(s), which will become evident at some point. This is when the fun will start. This is when these individuals will have a good look at their own mortality no matter how young they are.
For the rest of the story, please visit our site and subscribe.
We have been providing this service for over ten years now, and our subscribers have been able to stay ahead of the curve in trading the various markets we cover, with a focus on US equities and precious metals. Coverage includes cutting edge fundamental, technical, and sentiment-based studies that have proven pivotal for our subscribers throughout the years.
So, give us a try. One will not regret it if looking for insightful big picture thinking that keeps you on the right side of the trade.
Good investing all.