Insanity Prevails In The Stock Market

The Dow and the S&P 500 stock indices are emblematic for the degree to which the U.S. economic, financial, political and social system has dislocated from reality.  Insanity prevails in a system that is corrupted to the core.   “Going down the rabbit hole” is a popular allusion in reference to the surrealism that has enveloped the American system.   I’d hazard to assert that it would take a few tabs of LSD to make today’s world believable. The fact that Donald Trump is President says it all…

With regard to the stock market, if you studied finance anytime from the 1950’s until the mid-1990’s, fell asleep for 20 years and woke up to today, you would conclude that the opposite of everything you learned is now the truth. It started in the late 1990’s when Greenspan coined the “new economy” mantra and scam artists like Henry Blodget got everyone to believe that “new economy” stock valuations could be derived from the number of “clicks and eyeballs” received by a company’s website. And I thought that was insane.

The market has never been more dislocated from fundamentals than now. Since when do stocks spike up on the threat of a rate hike?  Pretend rate hikes are now great for stocks and bad for gold even though historical evidence suggests that actual rate hikes have just the opposite effect on both asset classes.

I’m wondering if the hedge fund algos are already pricing in the move higher in stocks that occurs when the Fed fails to follow-thru on rate hike threats…While the Dow hits a new record every day, the amount of Government spending and debt hits a new record every 60 seconds. The rate of debt creation, public and private, dwarfs the rate of appreciation in general stock prices.

At the risk of being labeled a “conspiracy theorist,” it’s quite probable that the inside elite are gunning this stock market in order to bail out. Evidence? Insider selling has reached epic proportions. At some companies I analyze, the insider sell to buy ratio is over 1000:1. But the “purchases” are stock options exercised and then later sold. The purchases from cash out of pocket tend to be directors buying the gratuitous odd lot for sake of appearance.

One of my subscribers commented that, “I heard a guy on Fox Business say that Macy’s was a real estate play. As if re-purposing their real estate would happen and all would be wonderful.”  That’s the classic apology for a company sitting on a plethora of empty mall anchor space when big retailers start collapsing. Macy’s has been called a “real estate play” since the 1990’s. What is the actual value of empty mall anchor retail space? What do you put in there? Eventually they’ll be converted to homeless shelters and those are worth nothing other than “good will.”  Even this stock market doesn’t believe that one.  Here’s Macy’s stock:

Based on the graph above, the value of Macy’s “real estate” is about the same as the previous peak in real estate prices in 2007.   But real estate prices have been inflated to all-time highs on top of a helium-filled bubble of debt.  Macy’s certainly has more than its fair share of debt.  If this buffoon on Fox is correct, how come Macy’s stock is not at an all-time high?

A lot of eyeballs are fixated on March 15th, when the Treasury’s $20 trillion debt-ceiling limit becomes law.  But no one seems concerned other than those waiting for a Black Swan to appear and reset the system.  The reason no one on Wall Street or DC cares is that the solution simple.  Trump will sign an Executive Order mandating more Government borrowing.  With the stroke of a pen, Trump will obliterate the law.  Executive Orders will become the new de facto fiat currency that “backs” Treasury bonds and the dollar. Certainly a Trump EO is not any different than the current “full faith and credit” of the U.S. Government supported by the Fed’s de facto negative net worth.

The stock market is going parabolic on the back of the ideas Trump presented for making America great again.  Or at least so it seems.  But Trump’s plans do not have a snowball’s chance in hell of ever actually being implemented.  The country is already hopelessly broke – even pension funds are now starting to collapse (link) – and I doubt the entities designated to fulfill Trump’s spending dreams will accept Trump Executive Orders as payment in kind.

The entire system needs to be reset. The political system needs to be burned to the ground and rebuilt starting with the original Bill of Rights.  A good friend of mine told me that he was not buying stocks because the “forward ROR” when you buy stocks at a 30 p/e is 2%. But what is he using for “e” in the “p/e” equation:  adjusted-GAAP, non-GAAP or today’s fantasy GAAP?  The forward ROR for a system as corrupted and broke as the current one is zero.

When the elitists are done picking meat off the carcass, when the last crumbs of citizen wealth has been swept off the table, the  financial system will be reset and everyone will be starting from “ground zero.”    Until then, it’s unfortunate that only a few can see down into the deep abyss that has formed beneath the United States.  The rest have crawled down into that abyss and accept it as reality.

11 thoughts on “Insanity Prevails In The Stock Market

  1. Dow 30k. I am now (half) convinced.

    I am not in it at all, so will miss out on the juicy upside as I have done for the last several years watching this zombie come back to life more times than in a bad movie.

  2. SPY weekly RSI is 78, with 6 consecutive weeks of higher weekly closing price.
    And the daily RSI is 82! A market indice is trading at RSIs seen only for hot biotechs or other momo names. I have ever seen such long overbought streaks in the SPY before. Even in a bull market there is some retrace before legging higher but in this market, the only way is up and any dip lasts for a few minutes before the buyers pile in.
    Shortsellers get squeezed and the market rockets even higher. While I strongly believe that the current market is just bs and heavily propped up, I wonder why couldn’t the powers that be hold up the market similarly in 2000 and 2008? Were they a bit more reserved in flexing their muscle back then? Right now they seem utterly unabashed with their in the face market manipulation.

    1. The brief swoons in the Dow/SPX are pumped back up by the PPT and the hedge funds follow like pilot fish follow sharks. Retail “Mom and pops” are big part of what is occurring and they are going to get slaughtered once again.

  3. “A lot of eyeballs are fixated on March 15th, when the Treasury’s $20 trillion debt-ceiling limit becomes law.”

    There are “day of reckoning” perspectives like this from David Stockman, and the narrator of this 4 minute diatribe agrees:

    I agree Congress won’t want to touch this hot political topic until the 11th hours, so what is most probable?? This I think. Can’t allow the black swan to land.

    “Trump will sign an Executive Order mandating more Government borrowing. With the stroke of a pen, Trump will obliterate the law.”

    Big can kick coming

  4. The S&P P/E ratio peaked in the 87 crash at 50/1, the dot com bust at 46.5/1 and the 2008/9 crisis at 122/1. Today we are around 25/1. With the S&P at this ratio level the Dow cannot collapse. At worst a normal correction before price moves higher to 23,000.
    It is nonsense that the so called PPT is moving markets higher. It is international capital flows moving steadily into the the dollar and Dow for over a year especially from Europe as the euro and the EU are collapsing. Capital has been moving out of banks especially in southern Europe causing liquidity problems. If you control large amounts of capital are you really going to park it in a currency going south and banks with liquidity problems?
    The sovereign debt crisis has started again in Europe with yields spiking. Capital will rotate out of these and continue to flow into US markets. Some capital was flowing into German bunds causing negative rates as they believe these will be converted from euro based debt to mark based but yesterday even these spiked as investors realize that Germany is in serious trouble with the amount of capital they are owed thru Target 2 and they will never be repaid as most countries in the EU are insolvent.
    In addition currency traders in London have been creating additional dollar strength on top of the dollar being in a long term bullish trend which equates to across the board commodity weakness including gold and silver. The gold price has never recovered when last year London started to create this dollar strength with price falling from the 1362 bearish reversal level all the way thru the 1272 and the 1240 reversal levels. Speculators in the futures market were consistently moving price up to the 1240 level and recently were successful in moving to around the 1260 level when London cranked up again and price is again at the 1240 level. I thought the algos would drive price to the 1272 reversal level before adding shorts. If London keeps this up look for gold to move to the 1200 level and if this continues back to the lows.
    This simply shows how everything is connected!

    1. Not sure where your numbers come from but this Historical Shiller PE Ratio Chart says something different.


      1. bad link. I have written extensively – EXTENSIVELY – on how the current p/e ratio is not comparable to previous historical top p/e’s because of all of the changes to GAAP accounting rules which have massively increased reported earnings RELATIVE to what those earnings would have using the GAAP in effect in 2007, 1999, 1987.

        I saw an analysis in 2002 in which some professor did the exercising of applying 1990 GAAP standards to 1999 S&P 500 numbers and it reduced 1999 GAAP earnings by nearly 40%

  5. Thinking of Russia as the single, great remaining nation of what was once “The West”, I thought that the Russian people would also welcome, with great joy, the possibility of putting their savings into silver money. I still think this is possible, and I put my thinking into a series of articles dealing with the monetization of the silver ruble coin. I had planned to present these articles at a meeting of the St. Petersburg International Economic Forum – SPIEF – in June, 2016. However, on account of illness it was not possible for me to be present. I do not wish to continue to harp upon the proposal; I presented my thoughts, and they are surely in the hands of responsible persons, and I must defer to their judgment on a matter which affects Russia internally, however much I believe in the value of my proposal. Perhaps – after I am gone – my proposal may be put into effect in Russia.

    As a postscript, now that Mexico is in grave problems, due to the tempestuous decisions of Mr. Trump, our Congress has revived – motu propio – of its own accord, the proposal of a monetized silver coin for Mexico.

    The national indignation at the treatment the Trump is giving Mexico, has produced a wave of national feeling that may, perhaps, give life to the proposal of a parallel currency based on the silver coin as money. I think it would be a master-stroke of “asymmetrical” politics, and would elevate to the skies the prestige of Mexico around the world. Many millions of Americans who have been saving large amounts of silver coins would be thrilled to hear that Mexico had monetized a silver coin.

    We shall see what transpires in the coming weeks and months.


  6. Forget GAAP; when has any investor actually redeemed their stocks directly from the company in question? It’s pretty obvious that GAAP mostly applies to small corporations without any political leverage (probably doubly so if the PTB want them eliminated) but even then, it doesn’t seem as if anyone redeems shares from these companies anyway. Heck…when was the last time any notable corporation was prosecuted for fraud against their shareholders? After all, if there are no redemptions…there are no plaintiffs.

    Dave, you’re right; this is Tulip mania to the extreme…and then some. With fewer and fewer people caring about whether they’ll get actual cash from their bank as it’s all going digital anyway…we’re looking at total zimbabwefication. Difference is…when,not if, the Internet goes down for good (for lack of sustainability)…that’ll be it. No big stack of money to carry in a wheel-barrow to buy bread. Nothing. At least the Zimbabwes appreciated a modicum of physical reality. At this rate, the U.S. will make them look like geniuses.

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