Nothing gores a story-line for caution or, warnings with Halloween inspired visions of blood and mutilation quite like those put to the horns of the once again, saved via central bank intervention chatter, of non-other than its triumphantly rewarded JBTFD (just by the dip) Bull crowd.
It's hard to argue caution or, cite reasons for warnings, when you're in the midst of face-ripping rallies that once again happen day after day. As I implied, it's hard to talk over the hoof beats currently dancing on what appears to be solid ground. However, that solid ground is precariously close, as within one misstep, of tripping over one's hoof - and falling off the financial cliff.
Yes, the markets once again rewarded the JBTFD crowd. But (and it's a very big but) not because it's a market. This is what takes place in a casino. Confusing financial market expertise and casino gambling is the mistake today's "bull" crowd keeps making. And just like most gamblers - the odds turn out of your favor just when you believed you had "the" sure-fire system to beat them.
There is an easy generalization that helps one figure out exactly which side of the coin they're on (i.e., gambler vs expertise)
Gamblers employ systems which they must live and breathe by in order for them to work at their implied rate of efficiency. i.e., If a system states you must bet (or not) if X happens, then, there is no thinking - you bet. Expertise uses intuitive decision-making skills in real-time. A bet or, no-bet can be made indifferent to, or of, a system. I'm well aware of it being a basic or very general example . Yet, it's a good rule of thumb and reference point for this discussion.
Over the past few weeks the financial markets have been on an absolute rocket ride once again. Triple digit gains have been the headlines and cheers from the financial media. As one peruses many financial sites, blogs, radio and television shows; the name calling of not only Bears, rather, anyone in total who questions this market is being verbally stampeded over. The sheer beating of hoofs, chests, and snorts has been outright deafening.
We are now back to "The Fed's got your back - so JBTFD" lunacy. And the "Holy Grail" that's used as proof positive? "Just look at the rally we're now experiencing off those lows! This market is on fire, solid, new highs coming, get on board!" And a whole lot more. However, there's a problem the "bull" crowd keep failing to mention...
We're going up only because we're coming off a bottom caused by a panic selling so intense, as well as out-of-the-blue in nature, it caused for the very first time in history a halting of all three of the major indexes. This was on August 24th. A mere few weeks ago.
The markets at this time only held for reasons of more jawboning made by central bankers both in the U.S. as well as others. Then, only a week thereabouts later; the markets once again rolled over and were threatening breaking those lows with the possibility of an outright free-fall to even lower lows.
Were it not for the inaction/action of the Federal Reserve as to not follow through on its most anticipated, telegraphed, and expected rate hike in recent memory. The markets were (once again) on the precipice of; an all out rout. Since then it's been a star-spangled, rip-roaring, rocket-ship ride. And the JBTFD crowd is once again basking in a pool filled with self-congratulatory "expertise" for buying the dip once again.
The issue here is that sooner, rather than later, (for August showed just how fast, hard, and out-of-the-blue reality can strike) it will be revealed in spades just how much one has relied on gambling systems as opposed to financial expertise. Here's an example.
If the Fed. didn't (or doesn't) step in staying on the sidelines - JBTFD doesn't work because there is no market - only the Fed. And it's precisely here that lies the conundrum in the JBTFD system. If the Fed. no longer steps in, or worse - steps aside: which "dip" point or "bottom" can be disregarded (as in not bought) in a system? For if the system is to JBTFD - then buying the dip it must do. Period.
Remember, in a system - if X says to do Y for a payout worth Z - there's no thinking allowed. You execute. And here is where JBTFD "genius" morphs into JBTFD disasters rapidly. It's inherent in the system. It's a part of it. You can't over-ride it or, it's not a system - it's just guessing in an elaborate muse. Nothing more. Anyone playing this game that's been rewarded time after time should pay real close attention to that last line. For it will show its fundamental flaw sooner or later, usually at the worst of all possible times.
Now to the other side of the argument where the bull crowd heralds, "Oh those poor stupid bears (or shorts etc.) Someday their 'sky is falling' cries may come true. Till then I'm just going to keep on buying dips horns over hooves till it stops working." The sheer gloating and more has been overwhelming to say the least. However, let's put a few things out on the table as to bring back some perspective to all this bull-moo shall we?
One would think that little incident in August never happened. And exactly how did that happen by the way? Oh that's right China. Suddenly the economy that was to lead the world out of the doldrums spun violently and looked for a brief period it would take down the entire global markets if someone, somewhere, didn't intervene. And once again it was the Fed. that was first to the front lines to soothe or stem fears. And it only quelled those fears when it punted its rate hike decision.
Since then the markets have once again "flipped the switch" where bad news is good news, and pathetic is down right stellar! And the data reports of the economy as a whole have not disappointed - they've been abysmal. So now every weak-point of the economy is seen as "It's a great time to back up the truck and buy horns over hooves" JBTFD bull argument. That's not expertise - that's downright financial suicide.
Lashing one's yoke to a bandwagon made possible only via the hints, double-speak, whispers, or implied maybe's announced by Ivory Tower academics as to how the economy is, or how it will do, will turn that Bull riding JBTFD bandwagon into a self-propelled cart pulled over a cliff by a train of JBTFD bulls turned into beasts of burden as far as the eye can see. All of their own doing.
Let's not lose sight of the fact the current earnings season has been abysmal. Companies that are the backbone stalwarts to show just how well or not the general economy is performing are reporting atrocious earnings as well as outlooks. Caterpillar™ is just one however there have been others as well as more to come.
Sure we've had some big tech surprises such as Google™ and Amazon™ however, when it comes to Amazon - retail, it's core business is not what propelled its earnings or profits. It was its web service sector. Amazon deserves credit for its newest business line. However, what should not be lost on anyone is when it comes to retail - it's still a laggard for profitability. And retail is where you can judge more of an economy's overall health. And so far all I'll say is it's a good thing that switch has been flipped because retail sales are falling off a cliff. Just look to Walmart™ for even more evidence of this point.
So let's get back to the inherent flaw contained within the JBTFD "expertise" trading prowess of today's bull crowd.
Today I contend (still) there is no market without direct Fed. or other central bankers intervention. Regardless of how mighty others might imply their jawboning or bazookas might be. The Fed. currently wields the big gun. Without the Fed. most monetary interventions would be like using a pee shooter against a battleship. They're ill-suited and not yet up for such a task.
So with that said: With a Fed. currently standing with "egg on its face" for not raising against a backdrop of a politburo such as China's now heralding GDP figures near triple that of the U.S., ECB and other European leaders jawboning more, and more about how "they" will do what ever it takes. Along with a stock market once again within spitting distance of never before seen in the history of mankind new highs. Who or what's to say the next time which for all intents and purposes displays a "no-brainer" intervention step by the Fed. just as Bulls once again load up the truck and JBTFD - the Fed. stands pat. Or, worse - does exactly the opposite of what the market expects and has been rewarded doing these last 5 plus years?
Which dip after the first violation does the "expertise" or system of the JBTFD crowd buy then? And if that one fails - which after that? Remember - if it's a system: you execute. However, as I've alluded to many times, that system knows and has been tested using only one side of an equation: QE intervention. Good luck with that when the other side forces its way back into the math.
For those that may doubt the premise of just how flawed and how quickly a system that appeared so fruitful, so dependable, such a money-making machine, can be laid to waste in minutes rather than days, weeks, or months I'll leave you with the following date as a reminder of just how quickly things can turn: May 6, 2010 otherwise known as "The Flash Crash."
I tried finding a link to that audio however it seems most have been taken down. I'm assuming it's since been copyrighted into exclusivity for its prominence in the movie "Floored." I personally haven't watched that movie, I was actually trading and listening in real-time during that crash event. And I will tell you this - it's worth renting or watching just for those few minutes of breathless commentary by Ben Lichtenstein during that period to remind oneself just how fast systems can go the way of insolvency in the blink of an eye.
If one had been applying a JBTFD strategy anywhere during that trading day prior. By the time it would have worked, most, if not all - would be wiped out. As many were. Which is precisely why there's only a QE market today.
A fundamental based market, constructed by market expertise, business acumen, and careful analysis has not been present ever since. What we have today is nothing more than a liquidity driven casino for JBTFD gambling systems. Sooner or later luck will run out. It's inherent in the such a system.
And my expertise will only allow me to say two things: Good luck with that - and - you're gonna to need it.
© 2015 Mark St.Cyr