Long Time Passing

Where are all the people now who were screaming that the US housing bust would not affect the markets because central banks would print their way out of any problems? Where are all the people now who said that US housing wouldn’t come down. Just look at the UK, they said.
The problem for those of us able to put two and two together and look a couple years into the future, which includes just about all regular readers of these pages, is that the vast majority of financial pundits and investors, both professionals and not, have the attention span of a gnat. And the stock market guys are always the last to get the message. They don’t want to see the truth until you put it into their cold dead hands. Even over the last few weeks, as it became more and more obvious that the wheels were coming off the financial system, people were saying, “Look how strong the market is! Only 5% from the highs with all this bad news!”

Yes folks, tops take time. The bigger the top, the longer it takes. Because contrary to Wall Street and academic religion, the markets don’t discount the future. They are not forward looking. They are backward looking. That’s why, when the liquidity rug is suddenly pulled out from under them, they have no clue, and the market just suddenly breaks.

Well, maybe today isn’t the day it breaks, and maybe it is. Maybe there’s still enough cash around to keep enough stuff levitated to give the market the appearance of “normalcy.” But one of these days, soon, they’re gonna pull the rug, and the next day we’ll be looking up at yesterday’s prices that are 10% higher than today’s. And my question will be, gee, what changed overnight that the markets weren’t discounting yesterday.

The answer of course, is “nothing”. Because the market is blind. It can’t see the future. Traders and investors, and yes, trading programs, only know what happened yesterday, not tomorrow. Prices change based not on expectations for the future; they change on one equation and one equation only–the supply of securities based on the need of holders to create or liquidate versus the demand for securities based on the ability of buyers to pay. When the need to liquidate overwhelms the ability to pay, prices suffer an adjustment. The greater the imbalance, the faster the adjustment.

So forget the news, forget the economic data, forget all the talking head nonsense. It’s all just noise and fluff designed to confuse you. Turn it off. All you need to know is that the trillions of fictitious capital created over the last 5-10 years is now being outed for what it is. They can’t count it because it was never there. And now that that’s being recognized, they can’t spend it, and they can’t use it to prop the Ponzi scheme any more. That’s what we have been seeing in the charts. We don’t need the news to tell  us that.

So say Good Night Alice. Your wonderland has been laid bare and it’s gaining on you in your rear view mirror. What you see there now are the ghoulish skeletons of your willfully ignorant past overtaking you. When you awake from your dream, it will be too late.

You will be one of them.