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S&P500 Expert Lounge Update – February 15, 2017

Good morning everyone,

These are key timing for today: 10:00AMEST,  2:30PMEST

These are key MA levels:  5EMA 2325, 10DMA 2307,  20DMA 2293  50DMA 2274, 100DMA 2215, 200DMA 2172

These are key Fib Levels: 2338, 2322, 2213

These are key primary and intermediate: 2275(intermediate minor), 2254(intermediate minor)

Here is today's market look at the S&P 500 for Wednesday, February 15, 2017

With red, magenta and white all viable MSP options up to this point 10:00AMEST timing will be important discerning which is the most probable.  We have a health dose of economic reality today with the Consumer Price Index, Retail Sales and Empire State Manufacturing Survey at 8:30AMEST, Industrial Production at 9:15AMEST, Atlata Fed Business Inflation Expectations, Business Inventories, and Housing Market Index at 10:00AMEST, and lastly the EIA Petroleum Status Report at 10:30AMEST.

MSP

 

The technical picture still continues its relentless climb higher maintaining the most extreme of rising support and successfully backtesting broadening resistance.  On a break of the extreme rising support, another test of broadening support would be expected at the very least.  Good luck today.

Primary and Intermediate Levels

Particularly Grave Setup in NYSE – Fly In the Ointment or Ointment on the Fly?

Earlier today, we mentioned the grave set up occurring on the NYSE. Almost all analysts seem to be missing this, especially most wave analysts. The reality is that we have a succession of three clusters of MCM Hindenburg omen's, all of which marked major turns within the recent market structure. This is nearly the identical set up as what occurred in 2007 and 2008. We are not Hindenburg Omen enthusiasts, the MCM Hindenburg is another matter entirely and is extremely bearish accurate and very rare. The MCM Hindenburg Omen shares one thing in common with normal Hindenburg's: "Clusters of them should be interpreted as being dangerous". We have a particularly large cluster and particularly ominous pattern.

Additionally today, the NYSE attempted to break over a previous levels chart resistance. It failed on this attempt. Action like this is symbolic of failure to recapture a previously broken support, which became resistance and which is now resistance again in a more significant way since we have fallen beneath it again. While it is possible to be recaptured but it is not necessarily the greatest odds, however, if it is recaptured and especially if we break above the yellow primary degree resistance at 10430 or so - that is a good warning that the up move may be extendingThis exposes the meat of the thin zone, which targets a significant drop if it were to be filled. As can be seen from history on this chart, thin zones are usually filled in quickly and accurate.

NYSE Hindenburg and Tops Comparison

NYSE Hindenburg and Tops Comparison

NYSE Detail

NYSE Detail

NYSE Big Picture

NYSE Big Picture

Astoundingly Large & Precipitous Losses Hide in the Market Brew – Implying Large Deflationary Forces at Work

In a world of controversial and delusional claims by governments, central banks and economists of recovery and return to sound economic conditions out of the 2009 market and economic crash, this simply is not the case. It can be seen clearly in these indexes, that while nominal prices have been levitated, the actual distribution of return and therefore liquid value, has not. While the S&P 500 is only dropped a small amount since 2014, in reality large losses are being sustained by participants that are similar in size and stress as last seen in 2009.

Currently, we are experiencing a double bottom balance in the MCM Smart Money index, and also the MCM market close index. When this bounce concludes for these indexes, it is likely that the markets will resume a downward trend of these indexes will resume and break the 2009 lows. From all appearances, it would seem that very large deflationary forces, meaning contraction of credit and money is occurring at the very same time as massive printing and leveraging has been attempted worldwide. Clearly, those levitation efforts have failed.

It is important to respect what these indexes are suggesting both on a long-term basis and on a short-term basis. Short-term, it would not be surprising to see volatility in the markets but also a larger effort to metabolize the drop into the August lows. This would imply that after a near-term drop in headline prices for the major indexes, a bounce could continue into November. Via market structure projection, early November is looking like prime-time for the markets and a likely inflection point that will lead to a pronounced decline that is likely larger than the initial foray of August.

mcm Smart Money Index and mcm Indexes

mcm Smart Money Index and mcm Indexes

Projections Suggest a Significant Turn in September

It has been a wild week or so. We have been asked often recently regarding short-term MSP and why we have not been publishing. The question has been more-or-less: "has the effort of publishing this data ended and is that why short-term MSP has not been published". While it is correct that this data takes a lot of effort to build and is not principally created for the general public - this is NOT the reason that we have not published these data. The reason is that when the markets become as volatile and emotional as they have been, the best thing to focus on is the larger picture and the fundamental near-term emotion and price movements of the markets. Sometimes it takes a few days for the markets to overshoot - which seems to be the case curgently. Markets may be in an altered state of reality...we have been referring to the market being on "METH" the last week or so in the "Lounge". Therefore, we have felt that short-term market structure is more of a distraction then needed and only been referring to it judiciously as it points to highly probable data point inflections and probabilities.

So, what is the bigger picture? It appears that there is a tremendous amount of coincidence pointing to the 3rd and 4th weeks of September. In Gold, the US Dollar, Oil, the Dax, EuroStoxx 50, S&P500 etc...all have confidence for a probability for  a risk reversal in the mid - to latter part of the month into the end of October. Ironically, for risk assets - despite the anarchy going on in the world - there seems to be a predominant bias for a bid in the markets into this coming week - most probably mid weekish. A reaction from these areas are to be most interesting. Some charts have broken down into potential downward impulses and these patterns would usually imply a retest of the breakdown area - which coordinates with the levels charts on the SPX cash posted earlier - suggesting a retest of 2010 at the very low end and up to 2090 on the high-end. 2045 to 2060 SPX cash seem like a serious area to watch. But these price levels have nothing to do with MSP and are just educated guesses.

Another element arguing for further time for upside is that the normal up wave for a 60-minute bar calculated wave is around 155 hours. This would fit well with mid-week. However, given the veracity of the move down a bit more time could be required additionally.

Below are some updates to the MSP charts that cover this probability scenario:

August 30th, 2015 S&P500 Daily & Weekly Market Structure Projections

August 30th, 2015 S&P500 Daily & Weekly Market Structure Projections

August 30th, 2015 DAX Daily & Weekly Market Structure Projections

August 30th, 2015 DAX Daily & Weekly Market Structure Projections

August 30th, 2015 EUROStoxx 50 Daily & Weekly Market Structure Projections

August 30th, 2015 EUROStoxx 50 Daily & Weekly Market Structure Projections

August 30th, 2015 Oil Daily & Weekly Market Structure Projections

August 30th, 2015 Oil Daily & Weekly Market Structure Projections

August 30th, 2015 GOLD Daily & Weekly Market Structure Projections

August 30th, 2015 GOLD Daily & Weekly Market Structure Projections

Exceptional Day and Exceptional Times

Today was filled with outstanding eTickTools triggers, market impulses and emotions. Market eMotions are running at 78% above normal and  we got one x-tick after the other today for exceptional trading. quite amazing really. The changes rolled out and techniques discussed this weekend were extremely useful in trading crash oriented markets. So, on that front, things are quite outstanding.

However, on the market front, we felt that an update of the mcm Smart Money Indexes was in order. There is no shortage of jaw-dropping action represented in these indexes. For all the central banker jawboning, they really have "no real commitment" and are willing to let the people they claim to serve, endure unbelievable hardship. China has all but given up with their ruse and is actively  bankrupting everyone that it can find in order to support the "central planner panacea that all goes back ultimately to the Fed" and which ultimately goes back to theBank of England.

The only account balances that look any ok over the last few years are manipulation accounts (paper accounts of the central banks). Reality is that transactible mechanisms for these cartel members are fast declining, as is cooperation. The net worth and equity of the central banks globally is working hard to press ultimately into negative territory. Cooperation is declining because positive equity and are now moving towards negative equity - money printing in this respect is irrelevant. Though it is imaginable that if you, in a similar situation as the central banks,  could make cooperation aramgements with Prada to trade over-prices and senseless objects dejour with them while you have the perception od viability and they are desperate to sell them. However, if a sustainted period where you and Prada go into negative equity, their inclination to sell is hampered by their inability to do business just as yours would be. So, to go to Prada to spend $100,000 on a bag or sunglasses with -$1,000,000 in the account from which you plan on paying the bill with just an agreement of cooperation with an insolvent Prada who can no longer make, locate or deliver the object you seek is likely to not be a long-lasting venture. Initially, Prada may give try to come up with some terms for them and you to record the sale on their balancesheet, but very soon the mat in front of the Prada store for you and Prada would be gone. So much is similar for a central banker with such decrepit math skills.

The mcm Smart Money Indexes demonstrate clearly that markets have only just begun this move. Many traders may be feeling left out or way too left in. However, the implications are traders resentful of not having closed longs at higher prices are goign to end up quite  a bit more resentful in short order and those who feel like they missed the short of a life time - will soon if they do not focus on the setups that are only JUST BEGINNING. The market move has barely started is not anywhere near complete by all the measures we can see, In the near-term we still anticipate, via MSP data, some strength emerging this week into week 1 of September followed by decline and then strength into the week of the 21st followed by what can likely be a larger cash than the current down move - unless the arrogance of central banker meets cooperation and commitment on a massive scale of course -(which seems unlikely). So, to the charts - further explanation not necessary:

August 25th, 2015 mcm Smart Money Indexes Update

August 25th, 2015 mcm Smart Money Indexes Update

'Building Pretend Markets Not for the Good of the People"
- your friendly neighborhood central banker

From the perspective of a criminal mind, the screen-capture of the Bank of England website below is disturbing on many levels. Firstly, central banks, of all things, should NOT be focused on "BUILDING ANY MARKETS" they should be focused on maintaining the sanctity of the currency and the banking/financial system. It is absolutely stunning that they would admit, in such heavy-handed language, to "BUILDING MARKETS". Secondly, IF one were a large institution or firm of any kind, the choice of words used by BOE implies an objective that just does not fit with an authentic of organic venture. In fact, it implies an effort to convince of something in slight of hand fashion. To sell a scheme - a perspective. Any self-respecting firm would most certainly use any other combination of words than those chosen by BOE: "Building modern markets for a modern world" or "Building Innovative, Advanced  and Safe Markets for the World" come to mind as more of the line of thinking that a normal, authentic non-criminal enterprise might use.

However, a cult leader and or a criminal mind would certainly go through the greatest amount of effort to describe something in grossly deceptive fashion, by using the obvious and simplistic approach of using the very opposite words really apply. And this in a vein attempt to distance from the real agenda or implications. Normally such a technique does not work well or long...hence the word "REAL" and the word "GOOD" must clearly be inverted in the BOE usage, The real operation being undertaken by the BOE is more likely of descibed with the use of  "FAKE" and "BAD" instead. The gaul of this public facing message in these times is truely representative of the thinking en-masse of the central planner mindset - arrogant beyond belief and decpetive beyond reason.

When viewing the mcm Smart Money Index and Gap Index above, consider the implications of the below in understanding what is really occurring.

Central Banks Bravado and Arrogance is so complete that they are not embarrassed to virtually admit the truth

Central Banks Bravado and Arrogance is so complete that they are not embarrassed to virtually admit the truth

Significant Downside Probability Dead Ahead

If you monitored the work published on this site and that our community has received the last weeks, the daily directional projections have been correct 10 out of the last 11 days. Additionally to that, they have been directionally correct for almost 90% of the previous 30 days which can be documented on the site. In addition, the intraday projections have been playing out every day this week usually to within an hour accuracy with 90% directional precision - certainly well beyond our objectives and also a continuation of the uncanny accuracy of the methods and data.

July 7th, 2015 Daily & Weekly Market Structure Projections Update

July 7th, 2015 Daily & Weekly Market Structure Projections Update

After reviewing the data into the close this week, probabilities for the next 4  weeks or so, are likely to be characterized by weakness generally, with probability for Wednesday or Thursday strength (not both days but only one per week). The likelihood is for only about 1.3 up days per week. Specifically, it looks now most likely that this coming Monday (max Tuesday) is likely to represent a turning point and that the odds for a measured rally are not likely until mid-August.

Highest likelihood near-term is for persistent weakness. From a logical standpoint, it is fairly unreasonable expect volatility to subside which indicates that the option for a subdued consolidation decline is not high odds and more that the odds for a significant rally that is virtually totally unsupported by any probabilistic data is very low. Therefore, this reiterates the prospect for weakness over the next weeks with lower highs on rallies that start around the 2nd week of August into September .

The operational assumption is that September into October is most likely to form a large right shoulder of some form - that will be seen. After this week's activity closed today - confidence in these probability scenarios, as presented, is significantly increased. Of course reality will tell.

One of the additional reasons for more negative potential is a result of intraday MSP overwhelmingly turning toward negatively probability. In addition, to daily and weekly market structure projection (MSP), general tendency MSP, which projects broadly conformed and context relevant wave structure into the future - favors towards the negative.

With macro issues like margin debt almost doubling in the last 2 weeks in China, the Greek saga and significant credit stresses in Portugal, Spain, Italy and many eastern block countries over the last week, it seems that the near term context is not supportive of a calm retracement or sustained rally appearing on the horizon. The best outcome for the markets seems to be to lay with the possibility for a significant rally into early next week - probably on gaps which is another issue with the idea of something constructive emerging.

Moreover, its is somewhat alarming looking at the mcm Indexes which will be updated and published once more this weekend. It seems simply unlikely that any rally of significance can be built on the back of the horrid losses being absorbed by investors in the current markets that are represented in the indexes:

 July 2nd, 2015  mcm Indexes

July 2nd, 2015 mcm Indexes

While the data interpretation could be wrong, or this data may just plain be wrong, shorter term probability analysis will certainly adjust in that case. But seldom have we seen so much downside probability than presently. The exception is that October this year appears setup for much more extreme downside. The end of the week the picture has firmed and upside into Sept appears most likely to be a lower high and very volatile with volatility excursions generally favoring negative surprise.

Longer-Term Market Structure Projection into September

EURO Broken, Breaking and Broke – Greece Plays Its Hand

EURO Broken, Breaking and  Broke

EURO Broken, Breaking, and Broke

The ECB thought they could back the Greek Government and leadership into a corner with no other choice than an insipid self-destruction that would have left them, culpable, maligned and threatened by their own nation. Soon to be replaced by a trinket government installed at the whim of a few EURO bureaucrats (or Neo-Nazis - take your pick).

Greece played it about as well as possible. Knowing that the objective of ECB and Germany was to make sure that no other political administration in the crumbling European Union would ever be willing to commit such an act of defiance and humiliation against central planners. They waited till after markets had closed to announce a referendum and to "stick the finger" to the central planners (see ECB & EU Strategy – Political, Not Practical). During the afternoon on Friday, Greece made overtures but just after the close of the markets they gave no wriggle room to a central bank that thought it owned the outcome of the situation.

This era, characterized by the senseless debt pumping by central planning bureaucrats all over the world, has destroyed many lives and is presently in the process of destroying millions more - which will inevitably be the driving force of more complex conflicts between nations. The fact is that, via side deals and convoluted transactions with the US FED, virtually all sovereign central banks operate US FED policy by proxy. Almost all of them are precariously close to losing control of the leverage they have been so desperate to pretend is a catalyst to growth when in fact it is clearly the opposite (see these charts). IMF and BIS have been projecting wild fantasies regarding Greek growth for years. As it appears, these delusions are influenced by blind deference to the concept that something can be created out of nothing by a few bankers with a "control-P" key. Sadly this is not the situation as so clearly shown in IMAGINARY NUMBERS. With so little real capital available and so much leverage, even a little disruption can have grave implications. The next months and weeks will likely reveal more regarding leverage (more accurately deleveraging) implications.

Leverage - Where are we now?

Leverage - Where are we now?

These crises arising all over the world may be a catharsis for people in the end, but it will be one of the most painful paths possible for rejuvenation. From this perspective, Greece knows they are in pain, it can not get much more intense for them. What you can not pay for does not get paid - so, there is somewhat of a limit. BUT IT CAN GET VERY PAINFUL for debt-pushing central-planners. The implications of huge and contagious CDS & derivatives losses, financial instability and challenges that are all pointed at the feet and minds of central planners (as opposed to indebted governments) is likely to be a trend.

If there is one lesson from Greece, it is while the drug is offered - take it. When the drug causes ill health and death, for the history books, make sure its manufacturers and pushers get the blame. 

A Look at the Longer-Term Market Structure Projection

Below is the updated longer-term market structure projection chart. I have explained many times that all this work is NOT AIMED at implying the scale of movements in the markets but rather direction for each period to the next period being handicapped/analysed. Therefore, it's of NO significant relevance if a high shown via the magenta line, is a higher high or a low is a lower low. The implication is simply the probability based bias for the direction one week to the next. So, for example, a sequence of two down weeks implies two weeks of down +/- a few days to a week.

So, what is to be gleaned from this? Well, as can be seen from the Magenta MSP, momentum and directional shifts week to week are projected into the future highly presciently. The objective not to be perfect but to be able to make educated assumptions regarding directional risk and progression +/- a week or so.

Longer-Term Market Structure Projection

Longer-Term Market Structure Projection

Below is a further outlook. The above chart shows more history so as to be able to observe previous behavior of the MSP toolset. The chart below takes further look into the future and it does look largely biased toward downward directions. Remember what is shown on this chart can look like a small down or up move but in reality be a huge one. The precedence of directional probability is much more important and the timing of such. For scaling of moves and their potentials other tools are preferable.

Longer-Term Market Structure Projection into September

Longer-Term Market Structure Projection into September

ECB & EU Strategy – Political Not Practical

EURO Implosion

ECB and EU Strategy Political Not Practical

ECB and EU along with many politically interventionist central bank efforts have created a drawn out, conflicted and confusing environment. On one hand financing is readily available for an utterly defaulted nation that never quite made it into the EURO (Ukraine) - yet Greece is being an especially tortured soul. How can this ECB's/EU's conflicted strategy be explained?

It is clear that every day lately, a barrage of the most ominous and negative press grabbing sound bytes are projected by IMF, ECB, EU, etc. Occasionally with rhetoric from Greece and the obligatory 1 out of 10 positive test bubbles. What are the goals of this kind of unending, torturous behavior? Certainly, concern for Greek citizens can not be being improved with this gamesmanship. What kind of negotiation is this?

A POLITICAL BATTLE IN A LEVERAGE WAR

The reality of conditions is that ECB and most central banks have pushed the envelope to the extreme. They are in danger of losing control. It is likely that they have already lost control based on the impacts of their grossly irresponsible gambling and policy activity. A Greek exit for ECB is NOT an option. Yet hyperbole from Eurocrats seeks to project that it's just another day of doing business - nothing to worry about here. However, nothing could be further from the truth. The real fear that ECB and EU has is the potential that it appear qualitatively viable for any nation to pursue a similar negotiation as Greece. Behind the veneer, who knows what kind of deals ECB/EU is making or may need to be made. However, publicly ECB/EU and central banks need to project an image of balance and control.

They have a lot of power and do have the potential for a lot of control. This was on full display in the UK recently when just about any EU dissenter was served a knockout blow in the election process. Scarcely ONE of them got reelected. How convenient for the ECB and EU just as the UK was gaining momentum in its independence movement. If there ever were a clearer message to a politician - it could not be much louder than the one sent to the UK by ECB and EU with their successful and dramatic meddling in the UK political process.

Greece is a vastly different story,. What they have in common though is "leverage": both in the UK and Greece leverage is much too high, and both can not possibly pay their debts. So, what is all this grandstanding for between ECB/EU and Greece? Political intervention. With the central banks losing control of the debt situation and more importantly the ever growing public awareness of what interminable debt servitude looks like, the EU and ECB should an "A" for demonstrating a new and innovative forms of control, manipulation and subterfuge.

The root of the problem at this time is the large amount of insolvency in the system. It is no question, that every politician in Europe and even some in the US are watching with great interest for when they can clamor onto the stage and beg for their own refinancing, bailout or funding.

The labored, conflicted, and irrational hyperbole from ECB and EU makes sense in that it is conveying a very clear message. "When negotiations are complete in Greece, there will be career ending, political and physical risks for politicians." If there is one area that any politician wishes NOT to occur, its reelection, financial, legal, impeachment or physical risk to themselves. Additionally, politicians generally would like fruits for their labor to be rewarded and spendable - both real and political capital.

Danger, potentially criminal or life-threatening, from constituents, is not fodder for a long political career, reelection or spending of real and political credits. So, what we are seeing here are the desperate attempts of the ECB and EU to both agree to anything required to get the Greek situation to disappear behind the curtain. While ending the political careers (not to mention other significant risks) of anyone stupid enough to cause trouble for their debt expansion agenda and marketing campaign.

From this vantage point, this strategy is showing some progress and is quite imaginative. The key to a signal of an end to Greek negotiations is the implosion of political careers of the "deviant operatives" in power and at the negotiating table in Greece currently. One could not send a better message than the ECB and EU events in UK and Greece can be conveying to Italy, France, Hungary,  Spain, Slovakia, Romania, Slovenia, Latvia, Ireland, Czech Republic, Estonia, Belgium, Croatia, Austria or Bulgaria politicians. While there is not even a shred of practical or sensible in this process - political it clearly is.

Will this kind of tactic be able to supersede or merely suppress temporarily the dramatic consequences of a destructive credit expansion while these eurocrats and central bankers search for the ever elusive "PLAN B"?

IMAGINARY NUMBERS – Part 2: The Shattering Mirror of a Centrally Planned Monster

If you can think like a teacher who cheats, and look again at the sea of data - patterns come to light. Patterns, which are subtle, buried under mountains and mountains of data. When looked at through varied lengths, suddenly it's just as clear as day. And when you know what to look for - You can't help but say [when] it has to be cheating.What he's really good at is: "PRETEND[ING]". He's a cheater a criminal, a thief, a cheat - all these things because really he's not far from it. I mean if you really think about what an economist is - the line between an economist and criminal is terribly thin.

Steven D. Levitt & Stephen J. Dubner (23 minutes into documentary Freakonomics)

As the Steven & Stephan said above, when data is looked at via varied lengths and modalities - suddenly things can become as clear as day. This article is not seeking to endorse Austrian economics or debase Keynesian economics - rather it is focused on the data. We are probability and data analysts/statisticians. This article seeks to go into some considerable depth regarding the examination of the statistics and data whose subject was begun in the previous article: IMAGINARY NUMBERS. Hopefully, this presentation also derives implications that can be clear as day.

These days, the line between monetary planning and criminality appears to be very thin indeed. Malinvestment, asset manipulation, unimaginable leverage, theft, distortion & falsification, goal-seek & curve-fit data, false pretenses, special interests and every form of systematic, media & political manipulation - central planners/bankers have metamorphized the benevolence of their supposed task into an art form of criminality on a scale that even the largest criminal syndicates in history would and could not conceive or dream of executing in their wildest fantasies. If this paragraph sounds like a stretch, let alone a mouthful, please consider the accompanying charts and content before making your interpretation.

Shattering Mirror -  unmasking the FED Monster

Shattering Mirror - unmasking the FED Monster

REPRISE

Previously, on examination of the machinations of GDP (and by reference CPI and PPI) it is clear that the greatest area of innovation and growth in the US economy (and others too) is in the areas of "productive" economic contributions that do not require official transactions, can not be proven (and, therefore, can not be easily disproven) and employ new and fantastical techniques of conjuring. MAGIC.

We have touched on the subject of the astounding growth rates of imputations and hedonic adjustments but have not put them into broad perspective. This article seeks to add detail and perspective for the earlier observations. In light of broad data that can lead to some objective conclusions, we, therefore, examine many dimensions of data in detail: government/FED data, reporting, statistics and analysis.

The Federal Reserve System provides a database called FRED that is available from the St. Louis Federal Reserve. This database presents a whole host of variables with which one can see a vast amount of data - much of it useless and inaccurate. If the huge amount of effort that has been put into these data stores were accurate and useful, it follows that the FED would have at least been aware of any one of the issues leading into 2007 and 2008.

In 2005, 2006 and certainly by 2007, at least ONE of these should have been identified:

  • An Approaching Recession
  • A General Bubble
  • Asset Valuation Extremes
  • Statistical Aberrations
  • Housing Bubble
  • Credit Risks
  • Derivatives Risks
  • Earnings Risks

However, as is most often the case when one seeks to engineer data to bias a specific scenario, it becomes quite impossible to look at and for that which one is struggling so very hard to avoid. As it stands, most all Central Planners, especially the FED, missed every single one of the above issues.

IT'S NOT WORKING

Since the 1960's debt and leverage have expanded by orders of magnitude over earnings as reflected in the charts below. Tremendous leverage seems to be primarily shifting money from one account into another, with inevitable risk, depreciation and spread eating away at it. This is providing negative real economic impact, which can also be seen in the charts below. This negative impact can be interpreted directly from a look at the unimaginably large leverage increases resulting in a roughly net zero impact (or worse) in real economic terms. Globally, central planners have attempted to leverage as much as possible. More than imaginable. The thinking apparently is that ultimately this persistence would at some point break the resistance of people to accept finally the virtuous cycle they imagine. In most cases, central planners have more and more often resorted fiddling with data, as it is clear the FED has been doing. However, this is just another ploy to try to break the psychological resistance people have to the central planners ever near virtuous cycle. These are the basis for ever more and more credibility destroying, unsustainable and highly questionable policy.

DETAILS

Please click on the navigation buttons on the chart below to scroll through each chart. There are 17 charts and you can navigate via the location dots at the bottom of the chart or the left and right navigation arrow controls. We recommend that you click on the title link to view this article in detail which will then accommodate the largest chart sizes.  The method of viewing the charts below is quite effective because each fades into the next which makes it easy to track the changes from one chart to the next. If you would like to refer to a gallery, here is a dedicated page with thumbnails of all the charts.

  • Imaginary Numbers - US Population Growth

  • Imaginary Numbers - US Population Growth vs S&P500 Price Appreciation

  • Imaginary Numbers - US Population Growth vs S&P500 Earnings

  • Imaginary Numbers - US Population Growth vs S&P500 Earnings (Float Shrink Version)

  • Imaginary Numbers - S&P500 Earnings vs GDP & Earnings Per Share

  • Imaginary Numbers - S&P500 Earnings vs GDP

  • Imaginary Numbers - S&P500 Earnings vs Price Appreciation

  • Imaginary Numbers - S&P500 Earnings vs Price Appreciation

  • Imaginary Numbers - US Government Debt in Perspective

  • Imaginary Numbers - Welcome to Money Amplification

  • Imaginary Numbers - Overall Leverage In Perspective

  • Imaginary Numbers - Amplification

  • Imaginary Numbers - Overall Leverage In Perspective

  • Imaginary Numbers - Can GDP be Believed

  • Imaginary Numbers - High Wire Act

  • Imaginary Numbers - No Other Conclusion

DERIVATIVES

Since Alan Greenspan attempted to stabilize the markets out of the 1987 crash and the deep recession into the early 90's via any means necessary, derivatives and productivity became absolutely wonderful sound bytes in the 1990's to project a "NEW" era of order, stability, prosperity, growth etc. Nothing could have been further from the truth. It only takes a brief look through our charts to see that the productivity hyperbole was nearly a complete fabrication. Sure, new technology enables more efficient process and operation, however, the banking system and the tremendous debt and interest obligations of the "NEW" era quickly absorbed and re-purposed productive capital and energy into the wasteful and tangential elements that rewarded fools and penalized producers. Ultimately, producers figure out the trick to getting their slice and realize that they are better off trading and playing the game than doing something productive.

Fed Monster Hooved & Clawed

Derivatives, risks have increased for many reasons. Primarily stresses on real liquidity and real collateral. However, also because the markets have grown...now receded. Much derivative risk can not be quantified because it is NOT exchange traded performance bonded. With the FED's roughshod through the house of mark-to-maturity, mark-to-excuse-du-jour accounting - these risks are covered up behind the back room trap door. The one thing that is certain, like the Greece debt debacle is now twice the size it was just 4 years ago when every financial TV journalist indoctrinated the world with how irresponsible the Greeks were and how they would never be granted any credit with the large Central Banks if they defaulted...the Derivatives problems will likely be MUCH bigger next time. Why? Similar to Greece, AIG, Bear, Lehman the Central Banks rewarded imbeciles and have sought every technique known to man to avoid deleveraging...even if it means having to make up numbers to loan Greece 340,000,000,000 when it's clear they had just effectively defaulted on their previous obligations. Call me stupid, but Greece is not at fault here. The bankers ramming sovereign debt issued by insolvent nations to yields of 2% and below with a "take no prisoners" approach are responsible for Greek's inability to repay. Who does Greece think it is anyway - Ukraine?

From a rational perspective, central planning revolves around the concept of data dependence and disciplined application of structure and rules. What Kind of structure and disciplined application of data is it that both grants a state in full default - Ukraine - funding, and simultaneously, a state that is in paralysis but far more manageable situation - Greece - no funding? What kind of data can possibly support these types of contradictions? Most likely none. This leaves a perfect entry for discretion and data engineering to adapt the situation to a desired outcome with no discipline whatsoever. Perhaps, discipline is evident in no other form than the ticking boxes that indicate data was used in the analysis process?  If this is any example, then are central planners acting as glorified discretionary managers regardless of data or mandate? The implications are clear, for the charts presented earlier, no self-respecting data analyst would entertain the protocols that have been undertaken. However, a discretionary process supported by constantly revised data and mechanics fits the bill very well indeed. Could this be the reason that central planner decision making is so persistently rhyming with thinking that are so highly irrational and biased?

If we look at derivatives and say that we know 50% of what is going on. OTC derivatives stand at $650 trillion dollars; this creates a variable in our 50% scenario of $325 Trillion. Considering that OTC represents only a partial representation of outstanding derivatives risk, using only this 50% of reported positions as a basis is a reasonable hypothetical. A few capital calls, accidents, counterparty failures, settlement or shadow derivatives issues later and a small problem might become unmanageable risk of 12.5% of $325 Trillion - or over $40 Trillion - easily higher. These are gargantuan numbers, and there is NO plan B.

Given that the FED has proven that they have a mathematics deficiency. Could this deficiency be a side effect of having a dopamine laced “Control-P” key? Regardless, of this debilitating condition, all the issues presently are more untenable than they were in 2007. Yet the FED is sanguine and "la sai fare" of the risk of achieving negative equity of under -2% on its own equity. So, it is continuing seeks to find ways to expand leverage at just about any cost.

The quality of life and stress levels for 98% of people are high because 98% lines up very well with the little blue sliver on our charts called “the population." The population has 98% percent risk while the 2% has 98% potential as can clearly be seen in these data presented here. How can quality of life for Greeks or Americans get better when linear extrapolators who are practically, philosophically and mathematically challenged like Mario Draghi, Ben Bernanke, Janet Yellen, Alan Greenspan, Haruhiko Kuroda, Christine Lagarde are in charge? Debt servitude has only one result, no matter how much dopamine is added to the Control-P key.

DECEPTIVE DATA

The significance of the chart below is that it shows the dramatic distortions being spouted from the mouths of Central Bankers versus the facts in the real world. This chart demonstrates the dramatic amount of debasement and credit that has been irresponsibly pushed as the solution to growth problems, yet has produced little REAL growth over 120 years.

The FED knows this. However, they seem to accept that engineering numbers to suit their current mood or agenda without much of a quandary. Real Earnings Growth (a product the FED does not market) is following the trajectory of the US population growth over the last 145 years. Debt and modern financial weaponry employed for money amplification have grown in the real terms by many orders of magnitude more than earnings. Is it any coincidence then that it is those very products marketed by Central Bankers to the world? Clearly, it makes no sense to see S&P500 earnings and sales so out of kilter numbers reflected in GDP or CPI/PPI. There is simply no plausible defense to be offered by people whose math skills enable them to create the dichotomy between Nominal and Real performance as represented here that would convince a reasonably sensible person as to how 2 + 1 = 4 and the GDP numbers are perfect.

So, in closing, the Monster has still not got a face, but it is being revealed. The only way to avoid its wrath would be for Central Banks and governments to get back to sound practices with regard doing their jobs and maintaining sound data, analysis, and currency. This would require tough choices and a keyboard with more than simply a “Control” button and a “P” button that is so profoundly used and evident in our charts.

As our recent example, IMF will willingly lend to a country in complete and current default - Ukraine thereby prolonging its agony and impoverishing any potential its future economy may have had. At the same time, IMF/ECB wish to appear prudent with an impetuous Greece, who suffered a similar fate as Ukraine a few years ago. Ironically, IMF and ECB are marketing debt - its all they have to sell…how long will it take them to figure out some scheme to further leverage the > 98% and empower the < 2%?

Sadly these are not choices that the Central Bankers will make easily, or willingly. Many will likely require judicial consequences in their various lands to alter practices. This monster looms large…it has not shown its true face but the mirror is shattering and in every shard will be a reflection of the beast - a beast that looks rather unlike the sanguine figures of central bank leaders.

One thing is certain, appearance of this creature will be anything but pretty.

Imaginary Numbers - Not a Pretty Picture

Imaginary Numbers - Can You Afford to Believe Them?

 

Addendum

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