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Irrational Exuberance

The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, April 10, 2017.


Remember the time you might have first heard the term 'irrational exuberance'? I will never forget it. It was in December of 1996. Alan Greenspan tried to warn people the stock market was getting 'carried away' at the time, which is rich considering the bubbles he was responsible for afterwards. Fast forward to today, and we have the same situation essentially, given the larger degree credit cycle is much closer to an end than a beginning, if not done. Thing is, you can never trust these people, central bankers, because they are in the business of expectations management in order to keep their bubbles inflated, where they will say anything to get the desired results, including telling boldfaced lies.

And last week's episode is a classic example of this, because given the fragility of the economy and markets these days, there is no way the Fed will actually shrink it's balance sheet in coming days - no way. Some think the Fed wants to get rid of Trump, which is why they are they are raising administered rates, where Trump would own the chaos. Thing is, raising administered rates can be countered by other means, part of the game that's played at times like these. No, if they really wanted to crash the economy and markets to this end, then they would in fact shrink their balance sheet, but they are not - at least not to any appreciable degree - see here.

Of course it could be argued the economy and markets are so fragile the Fed might be able to get away with jawboning in this regard too, and such an assessment could be correct. Because what usually happens when the Fed starts talking like this is the speculators / hedgers short stocks (again), which provides new fuel for the perpetual short squeeze. And that's likely the ploy here on the part of the Fed again. They get to talk tough here while raising administered rates, which is expected in the first half of a new Presidential term, providing them with ammo for when the markets finally break.

So again, make no mistake about it, there's no way the Fed is about to shrink its balance sheet - no way. You've got the most overvalued stock market in history, and the Fed knows this, and that it must attempt to continue managing their asset bubble dependent economy or parish themselves. And that's the rub, because eventually a mistake will be made, and the air will come out of the balloons despite all the clever scheming in the world. Certainly Trump starting World War III (WWIII) last week is evidence of this sentiment and likelihood. As surmised several weeks back now, like his predecessors, he's just another boldfaced sellout liar.

What's more, because of his apparent unstated avarice, he may in fact turn out to be worse than Hillary in the end, because at least with her, you knew what you were getting. Trump, appears to be hiding his true aspirations, where based on his actions last week (not just Syria), he's just as liable to continue debasing his behavior to get what he wants (a legacy) as anybody else. He's nothing special. He's no JFK - that's for sure. He's no friend of the public or republic. Global debt is exploding higher and it appears he will be doing his 'status quo' part in adding to it in coming years. Of course such concerns might be moot with WWIII just around the corner because again, as it turns out, he's just another idiot sellout.

Apparently, like the rest of the neocons, they won't realize they are traveling down the wrong road until they've got a nuke shoved half way up their collective butt.

Of course you would never know the nukes are about to fly in looking at silver, the ultimate barometer of the state of 'what is' for the status quo, because needless to say, it remains on 'lockdown'. And short of the nukes actually flying, this will not change anytime soon with open interest (OI) on COMEX silver at 221,000 contracts, just short of multiyear highs. The speculating fool hedge funds that play this crap will find a reason to sell en mass again at some point, and what is known as the silver price will plunge again. It's amazing watching this lunacy happen, from Trump, to silver, to the stock market - where all an educated observer can do is shake your head - as you know this will all end badly. Because it's all relative, and traders have the memory of a goldfish these days, so if the world doesn't end next week, they won't have a reason to keep their positions.

Under such conditions, which we will label 'relief', all the COMEX silver futures buyers, SLV call buyers, CBOE Volatility Index (VIX) call buyers, and so on, will no longer have 'good reason' to continue holding their positions, where contango related reversals (volatility) would arrive. What does that mean? It means 'relief' would lead to speculator related weakness in silver (precious metals) and strength in stocks as events continue to unfold in coming days, with the mainstream media changing 'the focus' to keep societies mindless goldfish entertained. We should have to wait long to test this thesis, which of course will be followed by increasingly compelling news to cause these same mindless speculators to go out and repeat the negative behavior they've already forgotten about. (See Figure 1)

Figure 1
SPX/VIX Monthly Chart

Because as history has proven, like goldfish who have seven-second attention spans, these idiots will be back time after time until they have their toys (cash) taken away, because although they've already forgotten, the news is getting worse by the day. And a look at the daily VIX chart, which shows prices are itching to blow above the 200-day moving average, is proof of this situation, not that anybody will remember this by Monday morning, which is why stocks could be higher yet again. It wouldn't be so bad if most players remained constrained to the cash markets like the old days (VIX, silver, etc.), however today's traders are so desperate (because they are either insane or can't afford to trade the cash markets anymore), the focus is in the options markets, which is how prices are managed so easily via the machines.

That's all for today folks. If you want to see more charts, observations, and conclusions that go along with them from this commentary, please visit our site at treasurechests.info and subscribe.

You will not regret it.


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