McAbby’s a Cop! No, He’s a Meteorologist! (DJIA)

Most of the time when a liar is caught, he has some sense of grief. He blanches, gets embarrassed, asks for forgiveness in some way or for a chance to explain. Something… He feels remorse over what he’s done and tries to make amends.

Unless he’s a pro.

If he’s a pro, he doubles down.

It’s the essence of an inveterate liar that he can never admit. He has to lie even about his lies – to believe for some reason that they’re truths… Or something like that. In any event, there’s something about the idea of admitting the truth (and his lie) that’s impossible for him.

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The Police Know

 

As the police – some of the best liars in the game – will tell you, when the truth is revealed, everyone is relieved – even the liars and concealers.

It’s that sense of relief that makes a polygraph test work. Lying is stressful, after all; it gets the heart pumping, the sweat rolling, the breathing rate jumping and the body all heated up. The truth, however, as a lie detector test also reveals, is calming.

A NOVEL IDEA:

If the stock market were a lie detector test and the chart of the Dow its readout, then there’d be no escaping the fact that we’re in trouble.

liar

And we are.

That is, there’s something completely unwholesome going on behind the enormous gains we’ve seen in the markets over the last, say, 35 years (not to mention the last five), that the ‘police’ among us will immediately recognize as problematic.

How so?

 

We’re operating on the basis of a falsehood. We’re covering up something. But in this case, when we’re found out, there’ll be no escaping the consequences. We’ll all be forced to admit – even those who are perpetuating the falsehood, the compulsive liars who keep the game going to their own great benefit – that the whole ill-conceived project was grounded in illusion.

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The illusion is that we can borrow in order to live beyond our means.

 

There’s an expression that we’re fond of – perhaps because we believe we coined it. It’s ‘FLAT BROKE HONEST’, a term that describes precisely where we’re headed – all of us, without exception. To a place where we’ll be forced to admit the truth in absolutely every respect because there will no longer be anything to be gained from deception or self-deception.

On the contrary, those who still choose to lie at that time will be mocked and scorned, because the truth will be so self-evident that only a fool would fail to embrace it.

But we’re not there yet. And until we are, there’s a storm to weather.

The storm of the liars.

And this is how it’s shaping up.

McAbby’s a weatherman!

 

To begin with, the current dive in stock prices globally is nothing more than a buying opportunity. To view it as a second coming of the Lehman Bros. market crash is unfounded and will only result in the loss of potential gains when the turnaround hits and prices are sent higher.

Remember – those who perpetuate the lie are patently unwilling to admit their errors as yet. There’s simply no way that the massive effort of the Federal Reserve over the last five years will be left to implode under the stewardship of nascent Queen Yellen.

Moreover, market internals are nearing unprecedented oversold readings.

Have a look here –

sp1016

The top chart shows the S&P 500 cratering at least three standard deviations below its 50-day moving average (white line), an event that regularly leads to a massive snap-back rally.

Also, the bottom chart shows the energy sector dropping on a much more severe scale. This occurred on the back of a diving oil price, which gives us reason to believe the selloff there will also be concluding shortly.

We remind our readers (and ourselves) that this was precisely the setup back in 2008, when a collapsing oil price presaged the coming equity market wipeout by several months.

And again, we reiterate, the Fed will not let this happen.

Not because we have faith in the Fed or believe its lies – heaven forbid!

Rather, because we know just how effective these people are at propagating the lie. And directly before an important election, you can almost guarantee some sort of intervention that prevents a cataclysmic selling event.

But could the indexes still fall?

 

Yes, by our calculation they could still give up between 2% and 4% from current levels – to their long term moving averages. But no more.

Look here –

djia1016
Also, we note that –

1. European default risk (CDS prices) are still near multi-year lows, despite the deep pullbacks we’ve seen in the equity markets there. That, in stark contrast to the pre-2008 crash atmosphere where worry over defaults was substantially higher.

2. Also, a full two thirds of the S&P 500 is in oversold territory, a record high for the series for at least a year.

Do yourself a favor.

Don’t do anything rash.

And look to add to positions as we return toward former highs.

Many happy returns,

Matt McAbby, Senior Analyst, Normandy Research

See what people are saying...

  1. John H Nadeau

    I enjoy your input on where the market is going. I’ve been wondering how high the borrowings had to get before margin calls became active. This current downturn reminds me of 1987 when i experienced margin calls every 2 days, which reduced my portfolio by 100% in 2 weeks. This is truely a bottom feeding exercise, especially in the oil sector. Keep up the good work, knowing there are investors that appreciate your foresight. Ta.

  2. Rich

    Generally I agree with your analysis. Ebola changes everything though.
    If several people contract Ebola simultaneously, there will likely widespread panic. And that will not be a positive for the markets. Because interest rates are low there is still so much leverage being used. Eventually the margin liquidations will arive.

    Best to cover your long exposure by puts on the market. The TLT is extraordinarily overpriced, only because money has been coming out of the market into long-term treasures. That too will probably change shortly. And no matter what, The bulls are tired and the bears are just getting energized.

  3. nick

    These things happen. Ain’t nothing but a thing. keep your powder dry.

  4. fabian

    I agree with your general thesis that we’re doomed but not yet.

  5. CNI Jack

    We have 124 trillion unfunded liabilities… more like 200 trillion… interest rates in the cellar… past fed Bernake loaned out 50 trillion at ZERO% INTEREST! Current fed Secretary clueless! This ship called the U.S.A. has more holes in it than a proverbial shieve! I suggest we put on life preservers… take your money and put it in mattress… or prepare to jump out of highrise offices… we are done… finished… panic… hysteria… riots… revolution… better have guns and bullets… your going to need them to survive. WAKE UP AMERICA!

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