Say what you will about QE2, holiday sales, economic fundamentals: This market is resilient.

Look, anyone with even half a brain knows that the massive bailouts only papered over the structural problems. We all know that no country can borrow/stimulate/ease its way to prosperity. That said, you would have to be a fool to ignore the impact of a tidal wave of Treasury and Fed monies since early 2009.

The backwards looking negativity is astounding. Today is a perfect example of the adage “Markets climb a wall of worry.”

No one believed the (long-side) capitulation 20 months ago; look at the comment streams on some recent positive posts, and the bearishness is just relentless (See this and this and this). We have yet to have a bearish capitulation to the upside to mirror the March  surrender by the bulls.

I suspect markets will not top until one of two things occur: Higher prices force Mom & Pop to rush into the markets; or, The Bears throw int he towel.

Meanwhile, this is a very tough market to be short in . . .



Category: Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

67 Responses to “Resilient Markets”

  1. Mannwich says:

    I think most bears HAVE thrown in the towel, BR. Just because one doesn’t believe any of this is real doesn’t mean he/she is fighting this rally any longer. There have been other ways to make money this year besides blindly buying trash stocks, of which the underlying companies are basically among the walking dead with a defibrillator shocking it to life on every POMO/stupidity-induced rally. Buying equities now is much akin to buying homes in ’04/’05 thinking one is going to get rich quickly flipping them.

  2. Mannwich says:

    And “Mom & Pop” is either broke or tapping 401k funds to stay afloat right now, so good luck with that. So I guess we probably rally onward on The Bernank Put to end all Puts. Great for those in the biz who know what they’re doing I guess, but don’t try to all get out at once now.

  3. carleric says:

    It is very tough to be short in here. Most of the people with a bearish perspective have simply stood aside. You can’t argue with the floodtide of “free” money. That does not mean that you should become a supporter of this idiocy. Most of the market action is driven by computer-based trading by quants and HFT. If true, it only reinforces the fact that no intelligence need be applied to the situation. I think the overall disgust with what people see in the market drives much of the backward looking negtivism. It is certainly true in my case….:>)…that doesn’t mean we act on it….we seem to just to comment on it.

  4. dead hobo says:

    BR lamented:

    Meanwhile, this is a very tough market to be short in . . .

    Thank you for your support. End of day a little unhelpful today?

  5. Miscalculates says:

    So many backward looking experts these days … If you were The Bernank, what specifically would be your course of action see us through the mess with the least collateral damage (if not QE2)?

  6. As much as I think he’s mostly full of shit, I follow Buffett’s advice (quote of the day) about “investing”. Rule 1: Don’t lose money.

    Wall Street is a crap shoot w/ loaded dice. It has nothing to do w/ “investing”. I neither short nor long much of anything. I generally only lend money to people when they are contractually obligated to pay it back, with interest. So I don’t much care about the stock markets. Neither a bull nor a bear, but I’d guess that a flood of dollars would be hard to stand fast against as a bear. I don’t make much money, but I almost never lose any. Which is well over half the battle.

  7. mad97123 says:

    AII bullishness is now back to all time highs, fund manager cash is at record lows, and the consensus agrees we missed a double dip. Yet somehow you think ‘The Herd’ is bearish and only the Enlighten are bullish? Sure seems the other way around to me.

    What is ‘backward looking’ about the fact that papered over structural problems will resurface in the FUTURE? You are just speculating about how long the Paper Mache lasts. Remember how resilient the markets were after TARP was first announced in Sept 08 ? After the Fed dropped interest rates to zero in Dec 08? Only fools ignored that title wave of Fed liquidity, right?

    Half your brain knows that we have structural problems, and that no country can borrow/stimulate/ease its way to prosperity, but the other half of your brain says ‘trade the trader’, there will certainly be greater fools (hopefully Mom & Pop) in the future.

    I agree with carleric’s point – the overall disgust with what people see in the market drives much of the backward looking negtivism on the ecomony.

  8. maynardGkeynes says:

    Say what YOU will, but it ain’t gonna last. It’s 100% Fed. Everyone on my block is broke or afraid of going broke. And I live in upper NW DC. Imagine what it’s like outside the bastion of the welfare state.

  9. Mike1T says:

    I’ve just been trading the momentum stocks in particular a lot of the technology stocks to the upside.

    Unlike your original thesis Barry, I do not agree that the economic situation is getting better. It is being manipulated by the Federal Reserve which became very evident in early April coincidently when the economic data just began to go sour till Bernanke came in with QE 2. Until that point I was actually convinced that the economic was beginning to be self-sustaining.

    Also another point you mentioned in another post, there was another hedge fund manager Kyle Bass who also predicted the economic downturn in the mortage market that has a bleak outlook in the future.

    I’m not sure if you legitimately believe in a recovery, or just trading the b.s. the Fed is doing.

  10. ewmayer says:

    Barry, if “the last 9-and-a-half months of 2009″ weren’t enough of a bearish capitulation for you, then I suppose you’ll only be satisfied with a meltup to Dow = 36,000 between now and year’s end.

    By, the way, your second paragraph is interesting:

    “Look, anyone with even half a brain knows that the massive bailouts only papered over the structural problems. We all know that no country can borrow/stimulate/ease its way to prosperity.”

    In a nutshell, that is precisely what I suspect most of whom you deride as “the zombie bears” argue. So which is more brainless – arguing that economic-fundamentals perspective, or the “don’t fight the Fed/tape/animal-spirits” momentum-chasing stuff?

    Note I didn’t ask “which has been more profitable in the past year?”, but which better deserves the appellation “zombie”, as in “unthinking, programmed, robotic”.

    Similalrly, your use of the term “resilient” is debatable. Typical definition is “recovering easily and quickly from shock”. How does “unprecedented flood of Fed money into every risk-asset class known to man” qualify as “easily”. So while this “market” may be “pumped up”, “government supported”, “Fed-juiced”, the more-organic “resilient” is inapt.

    Sure, having the dice loaded against one in the rugged casino makes it tough to be short – that is the whole idea of the manipulation, to effectively ban anything which might call into question the government-mandated “confidence in the markets”. You might consider whether in the long run such unprecedented manipulation is actually good for the markets. I find it curious that you revile Greenspan’s attempts at micromanaging markets and interest rates with their now-well-known ruinous results, but the current bout of similar (and even more expensive) government-sponsored risk and asset-price distortion appears to have you hopping about and rubbing your hands with glee.

  11. Liminal Hack says:

    Its not about being a bear or a bull any more, IMO. Its about understanding processes taking place. I’ll repost here something I posted elsewhere recently:

    My view in fact is that zirp is the natural outcome of any fiat money economy, and I say that not as a goldbug but purely as a recognition of the fact that in the final analysis an asset costlessly created and of in principle, unlimited availability (fiat base money) and 100% guarantee cannot attract any yield in any equilibrium situation. Peak debt is therefore the only stable point for a fiat money regime.

    So the asset price bubble of the last 40 years is not a bubble, its a fiat economy finding equilibrium.

    Further, the notion of lending money to an institution which can print that money itself is a nonsense.

    What is the right nominal yield on a 25 year nominal bond that has no nominal risk and changes hands every couple of months?

    Somewhere in the region of, oh, zero maybe?

    Transport a nominal bond back to the 19th century and what have you got?

    A golden goose. The form our government debt takes today would rightly have been regarded as alchemy back then. So the movement toward a flat yield curve is in fact a movement towards reality.

    What we are seeing play out (since at least the Fed was created and later deposit insurance introduced) , and now culminating is an abolishment of nominal risk that sustains peak debt and zirp ad infinitum regardless of changes in real demand. Only europe is still holding out against this de-facto regime, but the markets I would say are waking up to the way this economy actually operates even if not conciously so. Far from being unsustainable and doomed, consider the possibility that this modus operandi is instead very stable and will form the basis of the economy for the rest of our lives, and that we might actually learn to like it, once bank profits decay back to the level implied by stability.

  12. ewmayer says:

    Sorry, “rigged”, not “rugged casino”. Love those high-end post-editing capabilities.

  13. angelfan says:

    Didn’t WWII “borrow/stimulate/ease our way to prosperity?”

  14. Eye Wall says:

    mad97123′s first sentence captures it for me. Who exactly is ‘bearish’? I don’t mean to say anything negative about your blog BR (because I’m a fan), but to equate the people on TBP leaving comments as the ‘average’ or ‘normal’ investor seems to short change most here I think. I would estimate that many here have lost much less than the ‘average’ investor through the crash and would probably be in the upper quartile of investors from a performance standpoint. That doesn’t mean we don’t trade this market, but it does mean when we see BS we call it and know, as much as anyone can ‘know’, what’s actually being done isn’t solving anything long term so therefore we aren’t very bullish on the long term prospects here. Today was a classic, everyone leaning short with tight stops above the morning highs. When they were taken out you got all the short covering and HFTs swinging long. Its a fun game, but its a game and has very little to do with how the US economy fares in the coming years.

  15. mad97123 says:

    Rallies build on papered over problems, extend & pretend accounting rules, and money printing are just part of a confidence game. Let’s review how we know when the confidence game is up:

    As Reinhart and Rogoff in ‘This Time is Different’: “Perhaps more than anything else, failure to recognize the precariousness and fickleness of confidence-especially in cases in which large short-term debts need to be rolled over continuously-is the key factor that gives rise to the this-time-is-different syndrome. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!-confidence collapses, lenders disappear, and a crisis hits.

    “Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public’s expectation of future events, that makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to “multiple equilibria” in which the debt level might be sustained – or might not be. Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.”

    Sounds like we don’t get to know in advance when the markets ‘confidence’ wheels will come off.

    All of us with half a brain know we are passengers with a drunk driver (heroin addict) at the wheel. Some choose to continue riding as long as possible (maybe there is a free ride?), while others may choose to just get off now while we’re ahead.

    Hussman’s column this week makes the point. “ In 1998, MIT economist Rudi Dornbusch gave a set of lectures in Munich on “International Financial Crises. Dornbusch likens an unsound financial system to drunk driving. “Think of someone who has made a great expertise of drunk driving, regularly drives drunk, tells you that he never has a problem, and one day there is a terrible, terrible accident. And he’ll say, “Well, it was the red light. It wasn’t my being drunk. Normally that light is green.” Drunk driving, which for years has worked, with a financial structure that is recklessly, recklessly unsound. But the light was green and then one day it wasn’t green, and then the house of cards came crumbling down.”

  16. CrispE says:


    The key thing to the bid underlying the market is not that it is “based” on fundamentals or business acumen but rather, it is a marketing play determined to keep the market up until such time as the hedgies decide the most money can be made on the short side, nothing more.

    If you look at the 30 year treasury then you see where the real market indicator is. Up to 4.42% a few weeks ago, the rally in the bonds down to 4.15% today shows that there is real fear in the market, but, most traders are staying out of stocks because of the hype and uncertainty over tax cuts, unemployment benefits, and raises for workers next year, public or private (except on Wall Street).

    Tell me how, based on this year’s income, this economy grows or businesses expand?! Until then, bonds, both long and short, are the play.

  17. philipat says:

    Or 3) Until Wall Street comes under less pressure from the Fed and decides it is time that more money can be made on the downside than the upside?

  18. privatebanker says:

    Resilient, yes, in that there’s a major struggle on direction right now. But please refer to the highs of this past April/May. We experienced the same huge directional daily changes until the market crashed. The ES found support and bounced off of it’s 50 DMA with the hopes of keeping the hot air balloon a float. From a trader’s perspective, these intraday swings have been exceptional and very lucrative.

  19. VennData says:

    Rosenberg Expects `Disappointing’ Holiday Retail Sales: Video

    Picniking up…

    …some zombie effects on a shot of David “Double Dip” Rosenberg.

  20. MayorQuimby says:

    The last thing a bull should want is a market without shorts.

    But I don’t think we’re there yet.

    We need ‘irrational exuberance’ once again.

    Or…people to realize en masse that they are overpaying for stocks in a HUUUUUGE way via 401K funds etc.

    I seriously doubt the latter will ever happen so it will have to be the former.

    Nevertheless – I ‘aint buying jack on the long side. Everything is uber-expensivo.

  21. Bill W says:

    Am I the only person who thinks the swings in sentiment have been enormous this year. Just a couple of weeks ago there was a headline on Yahoo Finance that went something like, “There is no downside risk in the stock-market right now.”

    I’m hoping the current sell off will end with extreme negative sentiment like we saw last Winter and Summer. I think that will be a decent place to buy call options.

  22. Julia Chestnut says:

    Well, BR, no one could argue with you there! I’ve been operating under the theory “don’t fight the fed” for more than a year now. But I’m starting to wonder: this “austerity” program that our idiot government is embarking on may well do the trick. Just today Obama announced that he’s freezing federal worker pay for 2 years. Now, the CPI has been pretty low lately – the COLAs were pretty flat anyway. But no merit raises, no in-band steps?

    Bear in mind, the middle class has been completely hollowed out at this point: government employees are the last of what used to be the middle class. So of course, I suppose that thoroughness required that they take a smackdown. And Maryland, the District and Virginia have been doing better than a lot of the country — that’s about to change.

    So the market may well keep climbing that wall of worry, but I’m not sure how much pure monetary stimulus can keep the party going if the fiscal policy starts being overtly negative for the economy (instead of just stupidly neutral). I agree with you that there is probably only so much ZIRP that the savers and fixed income people can survive.

  23. the pearl says:

    As much fun and educational it is to inform ourselves about the current and future state of economic activity and hence market direction, it is ultimately, over time, a useless act. In my experience a more reliable indicator is to ask oneself what is the really “naive investor” currently doing and how is their portfolio positioned? The really naive investor is convinced there is another 30 to 50% correction ready to occur at any time. The problem with the Rosenberg, Schilling, etc. stance is not that it is not intellectually convincing, not data driven, or not well thought out, it is that it reaches the same conclusion as the “naive investor.” The first check on any investment thesis is to find out who else has reached the same conclusion. If you reached it all alone, you are probably on to something. If you reached along with everybody else, take caution. If you reached it and the only one’s at your table have a poor track record of being correct, immediately change your mind.

  24. crunched says:

    Two POMO’s today!!!! Yet, you consider the market ‘resilient?’ I don’t even know how to reconcile that.
    If I cheated on my SATs and got into Harvard, am I resilient? If I borrowed money from a loan shark to pay off my credit card debts and kept shopping, am I resilient? More like foolish, wreckless, and headed for disaster.

    And no I am not short. I am long CPE, KS, PCX, ACTG, etc. I’m not short one thing… but looking to take profits on my longs any day now. Simply doing my best to warn people they’re about to get their head handed to them. Think about this people, the last time the markets had such a giant percentage rise in a short amount of time – 17%- (September – present), we were coming off of once and a generation oversold levels in the Spring of 2009. Do you really think POMO alone can carry this market higher from these overvalued, overbought levels? I don’t.

  25. Ted Kavadas says:

    Yes, these markets are no doubt resilient…

    One thing of particular interest is a potential “Cup & Handle” chart pattern in the S&P500, encompassing the peaks of April and early November (both around 1220) as the “lids.” Should this pattern “play out” it will be highly bullish, at least in the short-term.

    There are a variety of problems and “warning signs”, however. Although I expect markets to keep rising in the very near term, I would guard against complacency…

  26. Sechel says:

    Call me a fool then.
    I know markets can turn on a dime, I don’t “trade” and by and when I do buy do so with a long term view(several years). The high valuations and inability to see individual companies benefiting from above average growth compared to their p.e. just leaves me feeling flat.
    Even the high p.e. dividend stocks are high yield for a reason (verizon?)

  27. CTX says:

    right, its nearly impossible to short…i’ve got some shorts that arent working- but, hey, you’ve got to spend money to make money

  28. liqal says:

    When the stock market was getting pummelled


    were all up …. that was the tell

    i.e. Deflation fears weren’t there this morning….. stock market was destined to recover…

    Follow these along with CU and you’ll see that they will let you know when the pullback is real

  29. Andy T says:

    I suppose it depends on when you got into the Market or exited the Market. If you sold in May and went away, you didn’t miss anything. If you sold in March, you haven’t missed shit either. If you jumped in during some of the flash crashes or other crashes, then I guess you’ve made some scheckels.

    Longer term, If you bot at any time after 1998, then there’s a 50/50 shot that you’re sitting on a loser, but you know what they say about the “long run.”

    Heh heh heh.

  30. TapeReader says:

    Hi Barry,

    Sometimes it’s a wall of worry…sometimes it’s something else.

    Our data does not show that the market climbed a wall of worry, but rather that subtantive Buy Programs came in just after the day’s low and pulsed on and off until

    they climbed a wall of Price Discovery fueled by an imbalance between Buyers and Sellers.

    You can see a visualization of the e-Mini SP 500 forward futures contract Order Flow Momentum here:

    Hope this sheds some light.


  31. obsvr-1 says:

    Yes, it is amazing, given the structural problems and decay, how resilient the market is

    But, instead of a bull it is more like a wing (QE, bailouts) and a prayer (hope for more)

    When the asset bubble homes and equities burst in ’08 – q1’09 it left the huge debt bubble its wake

    * stock (equities) recovered to 75% of S&P high Q4-07 after 3 years; and now the market is fluttering looking for a direction without overwhelmingly support for upward momentum (perhaps the growth momentum is in the rear view mirror)
    * home values still looking for a bottom
    * retail/mom/pop moved out of equities into other asset classes; scared by the current (not rear view) environment of HFT, flash crash, insider trading, rigged markets, wall street pillaging, employment uncertainty, falling wages, rise or fear of rise in energy/food
    * public debt ballooning with a high rate of change upward
    * banks still weak and sick — (but still paying huge bonuses — WTF !!!) — illusory accounting, shadow inventory of crap, potential of huge buyback losses, 2nd mtg crap on the books, …
    * EU contagion, china pumping bubbles

    but other than that it looks like a bull market :-o

    It is a traders market and money can be certainly made, esp if you have insider information or are a HFT front runner … but watch out below, keep your eye on the stops.

  32. ab initio says:

    Yes, shorting this market with a tidal wave of central bank liquidity does not make sense as its not working. But… the problem is that loss of confidence occurs rapidly, without much warning, unless there is tough risk management discipline, the notional gains could be lost rather suddenly.

    Would we have had a better recovery than the current sluggish one if the big banks were restructured with bond holder and management haircuts and clawbacks? I believe so.

    The biggest vulnerability that I see to the “goldilock green shoots” is the inability of the system to tolerate higher interest rates. That’s the paradox – as better the economic recovery the larger the pressure on rates which pressures the levered financial structures. So we may get the reversal where Main St starts doing better while Wall St feels some heat.

  33. wally says:

    The economy is starting upward and at some point money will start coming out of bonds. You’d want to be in equities at that point.

  34. PDS says:

    ummm…BR…equity mkts are up about 6% YTD….BFD!…and tied with DXY over past 12 months…..and bonds as per BAI are outperforming stocks by wide margin…so in your asset mix if ur overweight stocks and underweight bonds and $ u r underperforming with zero value added from asset mix standpoint…. btw…most asset managers were overweight the BRIC’s at beginning of year and that hasn’t worked out either


    BR: We are up 22% off the lows in July. The year to date data does not tell the story of the opportunity the market has presented.

  35. rip says:

    Wow: Most commentors here today are “newbies”.

    Resilient????? As in the Fed’s resilient? And CNBC and Fox and the gov???

    It was a classic PPT day. Period. Tracked it all day. Nuff said. Let the market move its natural way, step in, pump it. For tomorrow.

    IMHO it’s a fool’s market. All you dudes out that that are not all in, better hurry.

    But then again, I’m quite a contrarian in terms of what the market was once “supposed” to be about. Guess I’m some kind of stupid. But I bought all my stocks at a fraction of today’s prices and won’t be back for quite some time.

  36. mark says:

    We have yet to have a bearish capitulation to the upside to mirror the March surrender by the bulls.

    In equity markets, tops are diffuse, bottoms are sharp (usually it’s the opposite in commodities markets). Does BR have an example of a “bearish capitulation” that mirrors the March (I assume ’09) bottom in the US stock market?

  37. Andy T says:

    “government employees are the last of what used to be the middle class.”

    I guess we should then start hiring more government workers? Maybe we should give them all a raise so that they can support the economy better.


  38. Robespierre says:


    Lets not confuse a rigged market with a resilient market. After all, with record outflows out of the mutual funds (several quarter by now). With record sales/buy of insiders, with a most likely stampede of investors out of hedge funds (due to FBI) the question to ponder is: Where is the money that is driving the indexes higher coming from? Now don’t get me wrong, if I walk into a casino where I know that the roulette has been fix to always land on black well the bet is a given: bet on black. However, I know that the reason is coming always black is not because black is some how very “resilient”.


    : When have the markets NOT been rigged? During the 2000s, when the Fed took rates to 1%, and the government passed a trillion in tax cuts? How about the 1990s, when we had the Greenspan out, and Cap gains were cut to 20%? Or maybe the 1980s, when Reagan Slashed taxes?

    You write of a rigged market like its something new . . .

  39. movingaverages says:

    Resilient markets, come on Barry. We have nothing but a Fed induced rally along with massive insider outflows. And the consummate American shopper, ya, they will literally shop till they drop.

  40. the pearl says:

    The “rigged market” is an excuse of the confused. It is intellectually lazy. If one felt the market was truly rigged they would be either “all in” in the direction of the obvious “rigging” or fail to participate and move on to more productive endeavors. Most of the investors who claim the “rigged” mantra have also missed the rally. Knowing with 100% certainty that something is rigged and failing to legally profit from it is a special kind of stupid. Knowing with 100% certainty that something is rigged and spending most of one’s free time fretting about, but failing to participate in the obvious rigging puts one in the intellectual class of a Vince McMahon customer.

  41. tt says:

    BR: you are trying to compare outright federal reserve purchases of tbills,notes and bonds to prevent a failure, with the tax schemes and interest rate adjustments of decades past. silly don’t you think. we crossed over into banana land from soft crony land. obama needs mirror sunglasses, side arm, and fatigues now. come now barry, who hijacked the bailout nation author. nothing in us history since civil war has been this rigged. fed will be bust within a decade at most. andrew jackson is awakening.


    BR: I have to quote the pearl:

    “If one felt the market was truly rigged they would be either “all in” in the direction of the obvious “rigging” or fail to participate and move on to more productive endeavors.”

    All I am saying is the market has been Manipulated for decades if not centuries.

  42. tt says:

    br, if you could hit all the lows and the highs perfectly you would already be the world’s first trillionaire. you are really grasping at straws. gold outperformed equities for almost 15 years now. not to mention commissions and survivor bias.


    BR: No one can hit the highs and lows perfecrtly — if you catch 80% of any high to low or low to high move, you are doing well.

    As to Gold, well its outperformed since 2000, but underperformed across nearly every other longer time period in history. And my first rec in Gold this cycle was under $400.

    But from where I sit, being long gold is no excuse for missing a 80+% rally in equities . . .

  43. call me ahab says:

    “You write of a rigged market like its something new . . .”

    make me laugh- ol’ BR has it all figured out now- as if what is happening now isn’t unprecedented (yeah sure – it’s the same as passing tax cuts- QE and tax cuts [all the same thing] laugh the fuck out loud)

    it’s questionable whether you really understand what you are saying- lambasting the housing market but seeing the stock market as the real deal (what a joke)- it’s ok- we’re all hypocrites

    (question- you were flipping houses in the housing boom- right?- oh- probably not- that was a big scam)


    BR: No, I wasn’t flipping houses. But I did use what I learned from what I saw int he Housing Market. We were (publicly) short FNM, LEH, BSC, AIG etc. And I blew out of BAC, C, WFC for family members 30-50 points higher than where they are now.

  44. constantnormal says:

    “I suspect markets will not top until one of two things occur …”

    I duuno, BR — was there any sort of “capitulation” that preceded the collapse of the housing boom? Seems to me that just got higher and higher and higher (without much cessation in bearishness from the bears) until Bear Stearns and Lehman blew out the financial industry and the house of cards came tumbling down.

    Seems to me that something similar could happen to this bubble economy. I don’t know what will be the trigger, but in my way of thinking, SOMETHING will blow out the tenuous support of extend and pretend — possibly the inevitable EU cataclysm — and the markets will suddenly pull a Wile E Coyote and realize that “gee, it’s a looong way down”.

    But an EU collapse does not have to be the primary trigger, it could just as easily be some sort of CDS cataclysm, I’m sure that, absent any kind of auditing/regulation of that industry, there is a few trillion dollars of bogus swaps just waiting for the right combination of events to implode.

    Or it could be a panic response to a new war, and there are many spots where we could be surprised and find ourselves in yet another guerilla war, or even a major fracas in Korea, where we would have to watch our step with the resident players in that part of the world or risk having the conflict escalate by several orders of magnitude.

    What happens if either the radical Pakistanis or the North Koreans sell/donate some nukes to Al Qaeda, and they get triggered in downtown Chicago?

    There’s a lotta ways that this bubble equities market could get popped, without any capitulation or running out of buyers. That’s the risk one takes with a bubble market, where one lacks the healthy processes of sector rotation and give-and-take, where the markets are rally-and-pause, with no give-backs, because givebacks expose the manipulators to a potential loss of control.

    But for sure, absent the popping of the bubble, the Fed will just keep blowing it bigger and bigger — they really have left themselves no other option. And the bubble does not have to pop … the Japanese bubble has been going on and on and on for a good long time now, and though their equities bubble has a lotta leaks and cannot seem to hold any pressure. If we continue this insane game for long enough, our equities bubble will develop some leaks, too, as the USD loses its role as the global medium of exchange.

  45. mote says:

    Still in the casino, with 92% invested. I’m looking to recommit about half the cash if we again move to today’s lows.

  46. Taku says:


    You KNOW the dice are loaded. You know the housing bubble was immoral. You know that the ponzi scheme is ongoing. The question is what do you feel about…culpability? Do you go along, just because everyone else is making money doing it?

    What about anything the Fed is doing with QE8 (I can’t type infinity) fixed what started it all? All I see is an even bigger bubble. But what do I know. Maybe someone could enlighten me and show me how Greece, Portugal, or even Japan will pay back their debts? Maybe I could get some of YOU to pay back my debts for me??


    BR: You are discussing two completely different issues here. In terms of culpability, I have discussed it extensively both Bailout Nation and the many posts on Legal Liability.

    However, this discussion about markets being resilient is a trading conversation. It is about taking advantage of opportunities presented by capital markets over a 3 to 6 month time horizon.

  47. Asian stock markets down on Europe debt fears
    1 hour, 7 minutes ago

    (AP:BANGKOK) Asian stock markets were down Tuesday with steps by the European Union to stem a massive debt crisis in Ireland failing to soothe investor nerves.

    Japan’s Nikkei 225 stock average dropped 0.4 percent to 10,084.46 and Hong Kong’s Hang Seng was lower by 0.9 percent to 22,960.43. South Korea’s Kospi index was up 0.8 percent to 1,909.60.

    Australia’s S&P/ASX200 index fell 0.6 percent to 4,593.9 and China’s Shanghai Composite Index slid 2.4 percent to 2,798.73.

    Benchmarks in Singapore, Indonesia, the Philippines and New Zealand were also down. Stock markets in Malaysia and Taiwan rose.

    Stocks tumbled as investors continued to worry that Sunday’s euro 67.5 billion ($88.4 billion) bailout of Ireland by the European Union and the International Monetary Fund may not be able to stop Europe’s debt crisis from moving swiftly onto another country.

    The rescue deal, approved by finance ministers at an emergency meeting in Brussels, means two of the eurozone’s 16 nations have now come to depend on foreign help _ Greece and now Ireland. All the crisis talk is hitting stocks hard _ and underneath it all are fears that the contagion could spread to Spain, a major economy whose implosion would have serious repercussions for the euro…


    did you read PdP’s piece? (that you posted last week)

    also, you getting Long any Puts (the exchange-traded kind) ?

  48. constantnormal says:

    I expect that the Powers That Be will anticipate the calamities that can be anticipated, it will be the one they didn’t see coming that does them (us) in … so I’m not to worried about the EU. I figure we can manage to bail out Portugal and even Spain, the point at which my credulity is strained is when the U.K. must be rescued. But that is surely years away, maybe around 2012 or 2013.

    Same thing with our foreclosure tsunami. QE3, 4, 5, …, N will be deployed in suitable manners to smear the pain/losses around, while keeping the banksters flush with bonuses for a job Well Done.

    But as I have already said, there are plenty of doors for the next black swan to enter through. The Fed can’t anticipate all of them.

  49. wunsacon says:

    These threads often sound like this to me:


    “BR: The economy is hardly growing at all. But, it is growing. And, if the Fed showers us with money, well, as a money manager you had better not miss those nominal gains. Otherwise, you’re falling behind in real terms.

    Commentators: *But*, Barry, the economy’s not improving. This is all just nominal gains.”


    I don’t disagree with anyone’s points. But, we can all probably leave out that *but*. I think Barry gets that part of the picture. (Sorry to be such a suck-up to our host.)

    As for the possibility the nominal gains will cease here soon? Yes, maybe BR’s long and soon to be stopped out (absent a flash crash). I guess we’ll see. Certainly, it’s an interesting discussion. (One I’ve been mostly wrong about for a full 12 months.)

  50. wunsacon says:

    OT: The WikiLeaks disclosures are certainly interesting. It feels as though (a) someone has started loudly shouting “the emperor has no clothes” and (b) people around the world are listening. I wonder whether the leaks might be a catalyst for some real black swans.

    “Interesting times,” indeed.

  51. Ramstone says:

    I seem to remember the market being a tough place to be short in about 8-9 months ago as well. Not sure what’ that means, other than a datapoint.

  52. Pantmaker says:

    A few points-

    March 2009 was a “tough market to be short in…” this market is not.

    The Fed is a toothless tiger…the market is gonna go where it needs to go.

    There are no “bears” out there…if you find yourself obsessing about them…you need to take some profits on your longs.

    People who think gold is “a little overbought”…but still ” believe in it long term”…need to take a little gold off the table. Gold is the Vanilla Ice of 2010.

    The term “trade what’s in front of you” is completely ridiculous.

  53. Fed paper seems to have the same effect on people as power. Everyone talks about how destructive and corrupting it is to the human soul but no one seems to refuse it when it is handed to them

    We are our own worst enemies

  54. baychev says:

    have you forgotten 70-80% of this market is HFT for which what stocks they are actually buying does not matter at all?

  55. Expat says:

    The Market is a lie wrapped in marketing clouded by obfuscation.

  56. constantnormal says:

    “I suspect markets will not top until one of two things occur: Higher prices force Mom & Pop to rush into the markets; or, The Bears throw in the towel.”

    I suspect that the “Bears” threw in the towel a long time ago. How does the short interest correlate to past rallies? If there were any activity on the part of the “Bears”, the periods of non-rally that we are seeing would actually move the markets back 10% or so. But that’s not the case.

    The banksters and hedgies are what is driving this market, and they are marveling in their own wisdom and skill … and salivating over January bonuses. If a top were awaiting the Last Fool to commit, I’d say that also happened long ago …

    (full disclosure — I have been “committed” for several months now, having abandoned the last shred of bearishness in my market posture, if not my attitude)

    BR, I suspect that if you are still approximately 50% in cash, then YOU are the Last Bear Standing.
    Please let the rest of us know when you decide to go all-in, before you actually pull the trigger.

  57. PDS says:

    BR… timing is a mugs game….up 22% in an up 6% mkt?….either u r taking alot of risk with your duration call in bonds or in equities ur sharpe ratio must be off the shotgun charts!….risk adjusted returns in these markets are sacrosanct!!….caveat emptor!


    : I am talking about taking on less exposure when risk levels — defined quantitatively — are higher, and adding exposure when risk levels are lower.

    What is the alternative — Buy & hold?

  58. constantnormal says:

    With so many people anticipating a huge rally from where the market is now, how can it possibly happen?

    I say this as one of those anticipating “a huge rally”. But then I remind myself that this is not really a “market”, more of a sideshow to fool the sheeple into believing that 10% unemployment and no wage improvement for the past decade is OK, and to fool the folks in the financial industry into believing that they are geniuses, true Masters of the Universe.

    If so, it’s working great.

  59. PDS says:

    BR…why yes…if u hold the right stocks and etfs…..holding onto quality companies like MO, CAT, EMR, HUWHY, CHEUY and ETF’s like EWH and EWC to name a few since the Bush recesssion t has paid off handsomely for clients….Hutch is up almost 50% in past twelve months alone…and volatility and turnover in portfolios is low…so yes…buy and hold still works

  60. TrndTrader says:

    Few thoughts here:

    1) The harder it is emotionally to *take* a short entry signal of your system, the more likely you’re staring at a large reward to risk ratio for the trade. If you’re ignoring a short entry and staying long based on some fundamental reason or emotional desire, the more likely it is going to be a whopper of a move down in whatever the market is.

    2) I’ve been totally focusing on the FESX, the DowJones Euro Stoxx50 index and futures ever since the Sept upmove started. This index of the 50 largest cap stocks in Europe has been EXTREMELY weak. The Dax/FESX spread has never looked like this before for this long…a sustained vertical upmove. It hasn’t been the least bit hard to be short the FESX the past few trading days…more than made up for the minor losses on two earlier entry signals.

    Who knows where the “bottom” is in this thing. I sure as hell don’t, but I really don’t care. Just following a mechanical trailing exit and playing dumb and stupid. I have no position in US markets, but one would suspect that they won’t hold out forever with the pressures of the major world markets elsewhere (Europe and China — China btw topped over a year ago on this “rebound” from the Mar 2009 lows), but who knows?

    More importantly, WHO CARES? Why fret over BS arguments about what goes where, who does what, when something will happen, will something not happen, etc?

    Stick with a proved method, manage your initial and on-going risk, at all costs stick to the exit rules while being prepared to violate those rules only on profoundly extreme conditions like occur in a given market perhaps once per decade.

    Trade well,

  61. MacroEconomist says:


    We zombie bears agree, 80% rallies are not to be missed in the equity markets. And we had one from the March 2009 lows by the way…so within secular bear markets is the probability that the next move is +80% or down -20%?

    The market is NOT resilient because the economy is NOT resilient. This is a fact that even you agree with fromwhat it sounds. The Fed has gone from being the Bartender to being the Dealer.

    It is almost by definition that a bull market will end when things look rosiest. Judging by the sentiment indicators, it would seem we got here.

    P.S. Reslient markets would have Financials participating…
    P.P.S. up 80% in the past 2 years long Emg Mkt…

  62. mad97123 says:

    BR, interesting that you respond to a comment about markets only being up 6% with a comment that you are up 22% off the July low. That’s about what the averages did since we were just retacing the April 18% drop. What does this apples to oranges comparison tell us?

  63. [...] Markets are climbing a wall of worry.  (Big Picture) [...]

  64. Captain Jack says:

    Actually, it’s been pretty damn EASY, and profitable, to be short these past few weeks — for those focused on the weakness in China, Europe, solar, and industrial commodities that is.

    We appear to be slowly but surely moving away from the “correlation one” risk on / risk off market environment. The jaunty U.S. consumer and the gray swans of China / Europe / global inflation pressures and E.M. hiking cycle are clearly creating divergent paths now.

    p.s. And as for the S&P, we’ve got an 1175-1200 range here with a modestly bearish tilt (as the whole thing is below the 20 day EMA).

    If the bulls can must a fresh breakout above 1200, bears retreat. But if 1175 is breached, whole different ballgame…

  65. market_disciple says:

    Correct me if I’m wrong, but I still see a correlation between USD and other asset classes (Commodities, treasuries, and equities). As long as USD continues to strengthen, which is possible now due to European credit crisis (Portugal and Spain being in the crosshairs), that should technically give a headwind to commodities and equities from advancing.

    Just an idea, while the market is consolidating, why not sell some option premium while waiting? Sell some covered calls on what we already own and naked put on what we’d like to own. I’ve been doing this on silver (Which has outperformed gold significantly since Jacksonhole announcement), agriculture products, and equities.

    As a hedge, just in case the debt crisis in Europe escalates, I also sold some put spreads on US treasuries, which is not too far different from being long in USD.

    In agreement with Captain Jack’s thought, if SPX drops below 1175 or 1150 for me, I’d reconsider my stance.

    Good luck!

  66. [...] we noted Monday, the market has been quite resilient. There were significant opportunities on both Monday to melt the market down, and instead, it [...]

  67. [...] how people are missing out on this rally while they sit around waiting for another disaster to hit. He’s been razzing the perma-bears with this gaudy stock market that keeps rising. He can’t seem to understand why people aren’t getting on board, regardless of any [...]