The Great Recession Blog
by David Haggith
As we near Halloween, the US stock market looks like it’s whistling past the graveyard near the end of a year that I predicted would be the dawn of “the Epocalypse.” (By that, I meant an economic apocalypse, the likes of which we’ve never seen.)
So far, however, that prediction has not manifested. In fact, the market’s fibrillating heartbeat in this graph exhibits a preternatural and eery calm. But it is too calm — too calm to be natural. The stock market plunged on my predicted schedule at the start of the year in what turned into the worst January in the US stock market’s history. Then, suddenly, it was resurrected, great death defied; but, after a rapid recovery it lost consciousness and now behaves more like the walking dead.
I have never seen a more rigged looking stock market. The Dow Jones Industrial Average (DJIA) has been flatlining in the narrowest range possible for almost four months. Coincidence, or has the Fed clandestinely set a threshold below which it will not let the market fall, just like it does openly for inflation — in order to make sure that nothing happens economically that would push voters toward Donald Trump?
Is the Federal Reserve rigging the stock market in order to drag itself through this monstrous election cycle alive?
While the Fed is barred by law from buying stocks, it has been creating money for its banking proxies to buy stocks ever since the Great Recession hit. It’s common knowledge and also confessed this year by Fed officials, that the Fed has been pumping up the stock market; but I’m asking are they taking new extraordinary measures behind the scenes? The market now looks like it has been pushed as high as it will go and is being held against that ceiling by some mysterious levitating force.
Donald Trump recently made it clear that he’d love to put a stake in the heart of the Federal Reserve by firing Janet Yellen … if he could. The prospect of such an acrimonious relationship with a president, telegraphed so clearly by a candidate with a strong chance of winning, surely puts the Fed in a fearful state of self-preservation. All creatures in a state of self-preservation — especially the hideous ones — will do nearly anything to survive.
I can’t say that I know the Fed is doing anything new or different than what it has done for the past seven years; but I can say with certainty that this stock market doesn’t look like anything we’ve seen in the past seven years … or even that I’ve seen anytime in my career.
John Rubino of DollarCollapse.com calls it “The Boredom Before the Storm” and observes …
With all the surprising and disturbing things going on – Brexit, China’s soaring debt, US/Russia/China saber rattling, the unique US presidential race, the cyber attack that shut down big parts of the US Internet – you’d think that an unsettled world would be reflected in skittish financial markets. Instead we’re getting the opposite, with stock price movements becoming more and more placid as the year goes on.
Indeed. Like Rubino, I find it strange that, with so much disturbing news around the world, the stock market looks like a sea that is a smooth as glass (compared to how the market’s ups and downs have looked at any other time). You’d think there was never a season more calming to the nerves of investors than the last four months, even as Wall Street daily screams out its fears about a possible Trump victory.
In case you don’t think the above graph looks highly suspect, consider that the Dow has now closed below its fifty-day moving average every day without falling below its two-hundred-day moving average for thirty-two sessions. That may not sound like any technical big deal, but what that means is that the Dow has traded within the range of those two averages for the longest time in twenty-seven years! In fact, the current stretch is three days longer (and running) than what the Dow managed back in 1989. (That’s just as far back as I had time to research to try to find a period that came close.)
Is the White House also in on the fix … if a fix it is?
At a time when Barrack Obama has been boasting that his administration brought the national deficit down (and when I suspect the Obama Admin. would like to tamp it down as much as possible to make Democrats look good for the election), Federal government spending just leaped 67% in August over the month before and 23% over the year before. Another way of saying that is that this spending surge created a deficit for August that was 40% higher than last August’s deficit.
Why would the Obama administration risk losing its bragging rights over lowering the deficit so close to the election unless something more important than those bragging rights was at stake? (The president can, after all, do things by executive order to slow spending.) It could, of course, simply be that the King Pin and his henchmen recognized no one was buying their story, so they gave up maintaining the charade. Or … it could be that the economy began sinking so badly that massive efforts were needed to shore things up behind the scenes. Or … ?
While I don’t know the reasoning for the spending explosion at a time when the Obama wants to firmly establish his legacy as our savior from the Great Recession, I will note that there is nothing like a massive burst of last-minute government spending on top of whatever the Feral Reserve might be doing to superficially float the economy a little longer. If your boat starts leaking badly and you’re only a hundred yards from shore, the best solution is to power quickly toward shore, not spend time trying to make lasting repairs.
No October surprise this October … so far … boo!
October has a reputation for being a nasty month for the stock market. It’s the month in which you had usually better buckle your seatbelt because October has seen more stock market crashes than any other month. Sixty-percent of the largest one-day drops in the US stock market have happened in October.
This Halloweenish month has broken more volatility records than any other month. That makes it especially odd that the VIX, which tracks market volatility, hasn’t been this steady in any month since the months that preceded the Great Recession. (Everyone thought everything was fine then, too.)
As short volatility market positions continue to build – largely as a consequence of central banks suppressing volatility to prevent recessions – maverick money manager Jesse Felder is warning the end result of the volatility trade could be a very painful lesson for investors with significant stock market repercussions. Having started out at Bear Stearns before co-founding his own multi-billion-dollar hedge fund, Jesse Felder is now more at home educating the masses on the truth in financial markets through his blog The Felder Report…. Felder expresses his concern that the lack of volatility will inevitably create more volatility, the likes of which have never been seen before. “I’m not calling for a stock market crash … but if you want to look at what’s the probability of that type of an event, it’s probably got to be as high as it’s ever been.” (Business Insider)
Felder also says in a television interview that another sign of “way too much complacency” in the stock market is that…
…we’re seeing financial stress; everybody’s dismissing it…. It’s big-time denial.
Investor complacency or even irrational exuberance are the hallmarks of the final days before a stock-market bust because markets crash when people are most blind. (If they weren’t blind, they’d see the problem coming and avert catastrophe.) Everyone was complacent in 2007 about all warnings, just as no one now seems to care that the market has plowed its mushy head into a ceiling that is slowly squishing down upon it.
This October looks more sloppy than choppy, and that’s …
- in spite of just entering another reporting period of fairly weak earnings,
- in spite of the European Central Bank talking about backing away from quantitative easing,
- in spite of the US national debt hitting twenty-trillion dollars,
- in spite of the Federal Reserve edging toward a possible interest-rate hike now that inflation and employment have met the Fed’s stated targets,
- in spite of the Bank of Japan holding back on its QE,
- in spite of China looking like another round of collapse is imminent,
- in spite of the largest and oldest banks in Europe teetering on collapse,
- in spite of the great European unwind called “Brexit,”
- in spite of a proxy war between the US and Russia flaring up in the Middle East,
- and in spite of that scary, red-haired Chucky doll named Trump.
Hmm. Is history’s calmest stock market in the midst of all that a sign of peak complacency or irrationality? Or is it a sign that the market is being firmly fixed in place by the Fed and the government? Either way, looks like a crash is imminent. You decide. I’ll just note that the market looks as calm as the eye in the middle of the hurricane that is, itself, surrounded by hurricanes.
While the ride has been mysteriously quiet for the last four months, note that the trend over those months is ever so gradually downward. So, if the fix is in, it is a fix that is barely holding, despite all the Fed and the government can throw at it.
Are investors just treading water, as some commentators explain, waiting until the election decides who is president. If so, that’s something they have not done with this level of calm in any previous election cycles. Or are the Fed and the Gov lifting with all their combined might in hidden ways to try to hold up a lowering ceiling so that no one will suspect the Obama-praised Obama recovery is already dead?
I don’t actually know. I just want to make the stinking peculiarity of this zombie economy abundantly clear.