Theories abound in the stock market world. Marketwatch has one story based on bearish sentiment of individual investors saying the market will surely soar to new heights. Just below that story they have one based on the Dow Theory that warns of a possible impending crash. I don’t give too much credence to individual investor bullishness or bearishness these days because there are virtually no individual investors in the market. Institutions and their high frequency trading machines control the market. Computers are pre-programmed to buy or sell based on some logic or signal. This indicator may have been useful up until 2001, but the Federal Reserve Put and Wall Street rigging have made it obsolete.
On the other hand, the relationship between the Dow and Dow Transports has been around for a century. Transports are a canary in the coal mine regarding the global economy. If trade and commerce begin to decrease, the Transports know it first. The Dow Transports hit a record high in November. They have steadily plunged by 6% since then, while the overall Dow has eked out a 2% gain. The MSM sure seems to be making a big hullabaloo about record highs, when we’ve only had a 2% gain in six months. This is called a topping formation.
Now to the hard facts. In the last 25 years there have been 14 times when there has been an equal divergence between the Dow and Dow Transports. They included 1990, 2000, and 2007. In 9 of these instances the Dow dropped by 5% to 10%. In 5 of these instances the Dow dropped by an average of 26%. I’m sure the paid hacks on CNBC or the highly compensated Ivy League educated Wall Street economists will have dozens of reasons why these facts don’t matter. They can ignore the facts, but they can’t change them. Maybe it will be different this time, and maybe Janet Yellen will raise interest rates by 1% this afternoon. I wouldn’t bet on either happening.
May UMich sentiment falls to 88.6, a seven-month low, reports say
By Ruth Mantell
Published: May 15, 2015 10:03 a.m. ET
WASHINGTON (MarketWatch) — Consumer sentiment fell to a preliminary May reading of 88.6, a seven-month low, compared with a final April level of 95.9, according to reports on the University of Michigan gauge released Friday. Economists polled by MarketWatch had expected a May level of 94.5. Economists follow readings on confidence to look for clues about consumer spending, the backbone of the economy. For context, the consumer-sentiment gauge averaged 86.9 over the year leading up to the recession.
The 10 year T-bond topped in price almost three years ago.
The 30 year T-bond topped in price four months ago, and the loss in value (which is = to wealth evaporating) is in the trillions of dollars as the yield surged.
Yet no one is watching this.
Wait and watch. The can-kicking of the past 6 years appeared to work only because it coincided with the finishing touches on Peak Trust, a manic period where people conditioned to belief in magic by the semiconductor revolution spread that belief to patently idiotic concepts and rode them to absurd heights.
It is MARKETS that reveal mood (collective trust.)
The BOND MARKET is quietly signalling that they, the largest store of perceived wealth on the planet, have begun to evaporate it. Bonds have crested and are quietly rolling over, very slowly, almost unnoticeably.
Stocks may have another rally in them. They are the most public, visible signal and Authority (the PPT, et.al.) is moving heaven and earth to prop them up to keep the positive feedback loop turning.
But as bond wealth slowly evaporates, if that continues (and it seems likely), then this will be the last rally in this 40 year rally. The DJIA bottomed in 1974! Bonds bottomed in 1980.
No one alive today has much memory of bonds before the Great Asset Mania. Now that a veritable ocean of wealth sits in the form of bonds (IOU’s), and we are past the peak of trust in the issuers of those IOU’s, all roads lead to wealth destruction on a scale not seen in recorded history.
The good news: we’re starting from a much higher plateau, so even the bottom of the coming decline will be above conditions seen 100 or 200 years ago.
The bad news: Perverse incentives have rendered most people skill-less and useless, and as the Pie of Wealth crumbles to dust, the fighting over the crumbs that are left will undoubtedly turn violent.
MOOD IS RAPIDLY DETERIORATING
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A truckload of Wall Street’s paper promises won’t buy a cup of “P” soup pretty soon. My garden will be my asset folder of future eatings,