Monday, October 4, 2010


I'm not all that motivated to write. Actually my post market posts have been declining over the past month. I believe I am suffering "POMO Burnout" or "Manipulation Aggravation". Maybe this is the intended feeling Shalom wants among the bears. He's grinding the ball down the field 2.6 yards per play and converting every 4th down. Or for you golfers (sorry American team), you whip your opponent from tee to green all day, but your opponent consistently cans those 60 footers and has a chip in every other hole. In the real world those games would come with rules and the results would be achieved and not contrived. They would wear on your nerves, but they would be legal and part of the game. In this investment game the bears (or realists as they should be called) are getting pencil whipped, and there ain't nothing worse than losing to a cheater.

Zero Hedge has Rosie In Myth-Debunking Mode Again  which will help clear my personal issues up a little, but I'm not having problems identifying the falsehoods of the markets and the corruptness of the system. That is where my aggravation is coming from. Rosie points out 5 nice fallacies you'd hear on CNBS multiple times daily. My favorite is that we'll have $95 of earnings next year. "Here’s the rub: to get that $95 operating EPS for 2011, we either need to see at least 7% nominal GDP growth, which last happened in 1989 when inflation was 5%, not close to zero, or margins manage to reach new all-time highs. We won't entirely rule this out, but will give it 1-in-25 odds of occurring. All we can say is that the base case is for low single-digit nominal growth and some margin compression so frankly we could be looking at something closer to a $75 earnings stream next year. Moreover, when one slaps on a 10x multiple on that — consistent with the economic uncertainty commensurate with a post-bubble deleveraging cycle — then getting to 750 at some point in the S&P 500 is not at all out of the question."

Mich does a bit more extensive analysis of the SPX profit revision in Analysts Cut S&P 500 Profits Forecast; Earnings Estimates Still Overly Optimistic; Stocks Not Cheap. Mish fires all the guns at once with,"It's important to understand why earnings have gone up: Trillions of dollars of stimulus worldwide that is not sustainable. Bank earnings estimates have been inflated by massive extend-and-pretend games encouraged by the Fed with a blind eye from the FASB. Moreover, the FASB has delayed mark-to-market accounting rules and has still not forced banks to bring SIVs and off-balance-sheet assets back on the books. Those assets are held at inflated values. It is disgusting to hear those like Michael Levine of OppenheimerFunds Inc. says "equities are cheap". Equities only look cheap if you use absurd forward earnings estimates, and ignore future writeoffs and other "one-time" items that seem to have a way of recurring with remarkable regularity."

Rosie said 750 SPX? Hell, I guess that is conservative as Mish's buddy "BC" pens, "Growth of bank loans, final sales, and thus GDP and corporate earnings will have decelerated from the 6-7% secular bull and long-term trend to 4% by 2020. The implication for stock prices given the tendency for the P/E to contract and earnings to track GDP is for the SPX to fall to the 300s-400s at some point." in Long-Wave, Fixed Investment, Inventory, and Demographic Cycles all Downwardly Converging. Mish immediately dismisses that number as not a prediction, but adds his thoughts with, "The S&P 500 certainly could fall that low. Moreover, were it to do so, it would be consistent with the convergence of the various cycles as described above, and it would also be consistent with Japan's Two Lost Decades."

To add to my frustration, most everything market related you hear from the MSM is a half truth or spun so badly it makes you cuss at your TV every time a talking head spews propaganda for their sugar daddy. In case you did not know who controls all 900 stations on your boob tube here is a nice listing from The Economic Collapse in Who Owns The Media? The 6 Monolithic Corporations That Control Almost Everything We Watch, Hear And Read. "Fortunately, an increasing number of Americans are starting to wake up and are realizing that the mainstream media should not be trusted. According to a new poll just released by Gallup, the number of Americans that have little to no trust in the mainstream media (57%) is at an all-time high."

I have basically qualified and quantified a portion of my frustrations in this post even without addressing Brian Sack's double speak referring what the Fed will or it won't do with QEII (here and here).  ARGHHHHHH! This is just nuts! S&P earnings may as well be orbiting the former planet Pluto and the Fed is printing trillions pulling demand forward all while destroying the dollar and driving rates to near historical lows, yet QE Lite continues to drive the markets up. Lord knows the market can remain irrational longer than we all can remain solvent, and at this pace that is what will happen as all the funds wind up in the TBTF's coffers (I have a feeling they will be trying to convert those funds to gold sooner than later).

As a technical guy running this and my market timing blog, I get a lot of strange looks calling POMO ramps in the face of Armageddon. I walked the April top up, and I've been begrudgingly walking this one up as well. It is so frustrating when you have a busted rigged market that has become as predictable as your government's next round of double speak or the next round of FASB/SEC rules changes to further benefit the flailing special interest donors. Battling the double speak and "promise" of QE or TARP II  is grinding on my nerves (and I'm positive this is what they want). The bears will be right. 700 or 300 SPX of 5,000 or 1,000 DOW are in the cards. We'll get there faster than most thing since the SEC has apparently done nothing to avoid the next flash crash cause any such actions would curb the bots ability to HFT in an effective manner. Lord knows we can't have the gravy train of ripoffs succumbed.

Pick any Eric Cartman saying from this soundboard and apply it to wherever your imagination likes. It will make you feel better (for a minute), and then give a warm hearty welcome to earnings season where REPO 105 has most likely been initiated by the banks to allow their solvency to appear rosy as ever. Me, I'll be gnawing something and trying to maintain poise as they test my limits yet again. We've been there, done that and got the T-shirt, so patiently we'll continue to trade the only reliable time frames (1 and 5m charts to the VWAP)  waiting on my LEH type catalyst to show up where we can jump in with both feet.

Thanks for the views and have a great evening.