Market Analysis

Weekend Charts: Money for Nothing

Now look at them yo-yo’s that’s the way you do it
You drop the rates to zero on the FOMC
That ain’t workin’ that’s the way you do it
Money for nothin’ and your chicks for free.

Money for nothingWith apologies to the Dire Straights, but that’s basically the new version for 2015. The “revolving door” that Ben Bernanke claims to be so sensitive about is really the way you do it. Fed chairmanships are now gateways to vast personal riches via $250K speeches, books and now hedge fund gigs. It’s all legal of course and fair play to Mr. Bernanke for taking advantage. But there’s a core issue at play though.

Ben Bernanke likes to celebrate himself as a hero, one with courage to act, but who benefits? Is it society at large? Or just a select few? The data seems pretty straight forward:

Good news for the richest 10%. Bad news for everybody else. The Wall Street Journal reports “the top 3% of families saw their share of total income rise to 30.5% in 2013 from 27.7% in 2010, while the bottom 90% saw their share fall.”

The Credit Suisse data reveals that just 1% own 46% of the world, while two-thirds of the world’s people have less than $10,000. Forbes also reports that just 67 billionaires already own half of Planet Earth’s assets. Credit Suisse predicts a world with 11 trillionaires in a couple generations, as the rich get richer and the gap widens.

Now it doesn’t matter where your political persuasions lie, these numbers are the cumulative effect of policies overseen by all political parties and the central bank structure that has been put in place without the people’s vote. It has been a trend that continues unabated and has only accelerated since Ben Bernanke set rates to zero. Policies that demonstrably benefit the few. The poor or the shrinking middle class certainly won’t pay Mr. Bernanke handsomely, so why implement policies that benefit them? No, it’s an ugly reality: You cater toward the hand that feeds you. And hence any Fed chair, including the current one, knows the jig: Keep’em happy and you shall be happy too. And that’s how a moderately compensated academic by trade and profession becomes an instant multi-millionaire. Tim Geithner did the same thing of course and so do others. Hence it is called a revolving door after all.

It’s this sense of entitlement that has infected investors as well. Buy the dip has worked, central banks are all in and are staying easy. Hence prices keep being levitated despite economic misses and declining earnings. The gig remains mostly a buyback and GAAP engineering trick.

But it’s not working and the most spoiled investor class ever has eventually a day of reckoning coming.

Take China as an example. Here’s the debt equation:

china debt

Here’s the retail sales reality:


But hey, why not 40% stock gains in a month as everybody is rushing into the free money rush. Nobody gets hurt right?


The US is really not any different and as long as we can all pretend debt doesn’t matter it won’t.

The obliviousness to these matters could be felt in US markets as well this week. By April 15 US markets were breaking out higher on multiple measures, record highs on small caps, $NYA was also breaking out to new highs and the $SPX was a mere 8 handles from record highs and people were being mocked on twitter for being skeptical and raising doubts about the veracity of this rally.

Given this backdrop it was, psychologically speaking, not easy to short into this relentless levitation, but practically it was clearly the right thing to do. Whether Friday’s drop is to be short lived remains to be seen, but there are some interesting signals to observe.

First off, looking at the $DJIA one could easily make the argument that Friday’s drop was simply a logical consequence of the so similar 2014 structure. Back then the $DJIA also fell below the December highs in April:


Shortly thereafter a lasting low was made resulting in a rally all the way into July.

Supporting such an argument is the new high that was made in M1 money supply which has been a guaranteed predictor of record prices for years now:


But there are a couple of major differences to 2014 that may gain relevance very quickly here.

For one the monthly MACD structure is a very different one now than in 2014:


While the MACD was expanding in 2014 it is now very much in decline with a crossover in place. Also note the monthly double top is still in play unless markets can make new highs.

Another difference? The percentage of stocks above their 50MA didn’t expand on the recent advance and broke out of their recent range to the downside on Friday:

AR 50

It is in this context that the rejections we are seeing across the board are of particular interest:





While the $XLF broke its bear flag:


While the $ES broke its wedge:


Overall, however, the decline should not have come as a surprise as we again saw volume crawl to a halt on the way up as so many times before. And when this happens the market invariably cracks, at least for a short while:


No, this market is signaling further downside risk in the days to come. How much downside? The stock whisperer has outlined some potential targets:

But no worries, buybacks are coming back in a few days, money is still for nothing and chicks are free. After all, Janet Yellen has a book to write, speech engagements to schedule, and a hedge fund gig to pursue.

And the drumbeat continues:

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