ZioDenniger on the recent "Hindenburg Omen"

[CrackSmokeRepublican]

The Market Ticker ®

Something To Contemplate.....
 

On December 14th there was recorded another Hindenburg Observation.  On the 15th it was confirmed, meaning we now have a Hindenberg Omen.

If you recall, the previous one "failed" - in that while confirmed (two or more) there was no crash, and while there was a small sell-off, it wasn't material.  No money to be made there.

Now we have another one on the board, and this one must be taken much more seriously, for several reasons.

    * Bernanke has given no indication he cares about rising bond yields.  To refuse to speak about them at all in the FOMC statement, when the very justification and claim made when he initiated QE2 was to drive down long interest rates, is idiotic.  It's also dangerous.  Should the bond market get out of control with all this "extraordinary liquidity" Ben would have no ability to put more liquidity into the system to stop it, since that's what the market is upset about in the first place.  Yet pulling liquidity would only fuel the decline.  This is, I believe, a serious - perhaps critical - error on his part.

    * Political risk is extremely high with regard to government overspending and The Fed.  Both have been the fuel for the so-called "recovery."  As I have repeatedly documented there is no actual recovery at all, any more than there is if you lose your job and keep spending using credit cards.  At some point the overspending has to stop - we're only arguing over when.  The change in Congress coming next month could mark a turn.  It also might not.  But what's certain is that there will be a lot of questions, a lot of gridlock, and most of what has to happen to keep this going isn't policy that can be continued simply by "doing nothing."  Rather, the debt ceiling will have to be raised, a budget has to be passed and so must appropriation bills.  If they don't the default action is that the pumping by government gets cut off.  This is 180 degrees opposite from the usual effect of government inaction where you want the government out of the way.  In this case an inactive government is bad, not good.

    * The speculative indices are at 20+ year highs.  Retail money is thought of as "dumb money" - that is, people who follow trends only after they're close to exhaustion.  We're seeing a lot of that.  When everyone is bullish and everyone is the bearing the drum to "buy stocks" it's usually the time to sell stocks, not buy them.

    * Low TICK alarms have been much more prevalent than high TICK alarms.  The pattern over the last few weeks in this regard has been ominous.  Those small "selling capitulations" - extreme low TICK readings (under -1100) are outnumbering the +1100 readings by a considerable number.  This is one of my "distribution" indicators - that is, that the computerized trading algorithms are selling stocks to you.  Of course the last guy holding is "the bagholder."  You don't want to be him.

    * Several momentum stocks are breaking down severely.  Netflix is just one.  CRM is another, CMG a third.  In the last few days FFIV (F5 networks) has joined the party.  These are the sort of speculative bubble stocks that people like Jim Cramer love to tout - and which can drive you right into the poorhouse.  Speaking of Cramer, how'd that December speculative CALL buy on Best Buy work out for Jimmy Boy?  Lost all the money bet, I think.  Oh yeah, he's still chatting up these momo stocks up too.  Remember that the big boys need suckers - that's you - to buy their shares, or they lose money instead of you.

    * The Corporate Leverage Index, after, what appeared to be a retracement move, took off bigtime in the third quarter and now stands at a ridiculous 12.  That's three times the high at 2007 before we topped and double the peak in 2000 just before the market blew up.  This index, as I discussed the other day, values equities through a tangible value lens - that is, tangible assets less debt.  At today's levels it indicates extreme levels of risk.  Again, as I noted at the time this does not mean the market cannot go higher.  But it does mean that the risk you're taking is much, much higher - perhaps a risk of as much as a two thirds decline in price - than normal.  Yes, I said that - a potential 66% loss.  Unfortunately this index is only updated quarterly, as the Fed Z1 (from which it is derived) is only published four times a year.  For this reason this index is not useful as a trading indicator, but it is quite useful as a means of determining the relative level of risk in equity markets on a rough-grained (four times a year) basis.  It is at levels never before seen, save once - in the 1st quarter of 2010.  That this index has powered higher (more risk) at the same time the alleged "recovery" has taken place is an important divergence - it normally does the exact opposite.  This is not wise to ignore.

What can you take from all this?

That we're in a dangerous spot.  The Federal Government has turned the markets into a casino where whenever creative destruction - the process by which those who do dumb things go broke - is eviscerated.  Where one can cheat people for years and not only get away with it, but be rewarded for it.

That's what we've done, and the premise that The Fed is operating on along with the Federal Government is false. You cannot borrow your way to prosperity, especially when the reason you're in trouble is that you borrowed more than you can pay back!

Insolvency cannot be resolved with more debt.  It can only be resolved through forcing the insolvent out into the open and using the bankruptcy process to resolve the bad debt.

The idea that we're going to "get out of this" with alleged "growth" when there has been no actual growth - all we've done is charge up the credit card - is ridiculous.

And, if we keep it up, ruinous.

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