You really can’t make this stuff up:

• EVANS: FED NEEDS TO BE CLEAR RATES WILL BE LOW FOR LONG TIME (ok)
• EVANS SAYS ‘WE NEED TO LET THE MARKET WORK’ (umm, well…)
• EVANS SAYS FED WANTS TO SEE LOWER LONG-TERM INTEREST RATES (but… you just said)
  
• EVANS:HIGHER LONG-TERM RATES FOR RIGHT REASON IN ‘OUR’ INTEREST (wait, what?)

Did Charlie blow a fuse? Because he just said that the Fed will hold rates low, wants long-term rates low, but also wants to let the markets work, and wants inflation to raise long-term rates… Forward-guidance just lost another few points of credibility.

Some questions here:

1. Who is “our“?
2. If higher rates are in our interest, then why is the Fed holding rates low and “wanting see long-term rates low”?
3. If we need to let the market work then why is the Fed still buying well over 100% of MBS issuance and virtually all TSY long duration issuance as well as supporting equity valuations?

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Whether or not institutional investors, read large speculators, decided to invest alongside Putin in the one trade that is most critical to the future prosperity and positive cash flow balance of Russia, namely keeping the price of Crude high, and rising, is unknown, however, as the following chart the net position in crude oil futures as of the week of March 4, just hit an all time high of $44.0 billion up from $42.4 billion the week prior, surpassing all prior peaks, and certainly any set during the summer of 2008 when oil was threatening to make a run on $150, and was set to hit $200 if one believes Goldman (which nobody does).

Needless to say, any de-escalation in the Crimea – which has certainly been the key catalyst for the full court press to bet on rising crude prices in recent weeks – will have a substantial knock on effect of forcing open call positions to close, and in the process lower the price of crude further beyond just fundamentals, assuming those still exist.

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Does the Federal Reserve have another rabbit to pull out of the hat?

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Several weeks back, we noted that the “smart money” was bearish on the markets, and that higher equity prices would see even more selling extremes amongst corporate insiders. As we look at the data this week, this is exactly what has happened as the “smart money” indicator is at its most extreme degree of selling since November, 2010. See figure 1 below.

Figure 1. “Smart Money”/ weekly

But as we can see in the figure, the “smart money” was wrong. Over the next 13 weeks, the SP500 gained an additional 13%. So what went wrong? As it turns out, November, 2010 coincides with the implementation of the Fed’s QE2 bond purchase program.

Now let’s fast forward to December, 2012. See figure 2. Once again, the “smart money” was selling to an extreme degree. The US government was facing the fiscal cliff. This was “resolved” as Congress kicked the can down the road in response to a mini – market swoon. While the market welcomed that news positively, which was a foregone conclusion that the “crisis” would be resolved, it really was the Fed’s announcement that it was going all in for as long as possible that really ignited the SP500 for a 30% gain in 2013. The “smart money” was wrong, again.

Figure 2. “Smart Money”/ weekly

So is the “smart money” really that bad? Looking at figure 3, we have highlighted the extremes in selling by the “smart money” since November, 2010. Despite the two misses as outlined above (and these were big misses), the “smart money” indicator has done a decent job at identifying intermediate term tops. The common denominator as to why the “smart money” indicator has failed is quantitative easing or perceived market intervention (i.e., jawboning) by the Federal Reserve. So this begs the question: Does the Federal Reserve have the ability to pull another rabbit out of the hat?

Figure 3. “Smart Money”/ weekly

 

The Fed remains in taper mode, yet market participants still believe that the Fed will do whatever it takes to maintain asset prices. This market dynamic — i.e., that the Fed has my back — has yet to be tested. I suspect it will be tested sometime soon, but until it is, investors will continue to believe in the magical powers of the Fed and the mystical powers of QE. A test of the notion that “the Fed has my back” can only come after a market sell off. After a market sell off, the Fed will act or market participants will look to the Fed to act, and it is the success or failure of that bounce that will determine the course of this bull market. In the absence of another asset purchasing program (i.e., QE5), I don’t believe the market will power higher. To go higher while the “smart money” was bearish essentially required the implementation of new QE programs, and let’s not forget that each successive QE program was bigger and “better” than the last. Once again: can the Fed pull that kind of rabbit out of the hat? I don’t believe so.

Despite the new all time highs in the SP500, it has been my contention for the past 4 weeks that we are in a NEUTRAL market environment. A neutral market environment implies that the markets will be ruled by overbought and oversold conditions. Four weeks ago we had a sell signal, and although the market is at new highs, our sell signal was not followed by a buy signal. What would constitute a buy signal? If investors had turned extremely bearish on equities following January’s sell off, then we can say that this is a meaningful bottom that should lead to higher prices. Buyers short circuited January’s sell off repeating a pattern that has been in place since 2012 where dips have been shallow as investors have anticipated Federal Reserve intervention, which seemed to be timed to limit investors’ angst because the markets had pulled back almost 5%. Oh my gosh! In any case and as the data shows, a market that fails to periodically clear itself of the weak hands (i.e., those investors late to the rally) is a weak market, and with 1 buy signal in 2013 alone (when historically over 23 years of data there have been 2.5 per year), this market is vulnerable.

By our measures, the upside should remain limited.

 

The Sentimeter

Figure 4 is our composite sentiment indicator. This is the data behind the “Sentimeter”. This is our most comprehensive equity market sentiment indicator, and it is constructed from 10 different variables that assess investor sentiment and behavior. It utilizes opinion data (i.e., Investors Intelligence) as well as asset data and money flows (i.e., Rydex and insider buying). The indicator goes back to 2004.  This composite sentiment indicator moved to its most extreme position 10 weeks ago, and prior extremes since the 2009 are noted with the pink vertical bars. The March, 2010, February, 2011, and February, 2012 signals were spot on — warning of a market top. The November, 2010 and December, 2012 signals were failures in the sense that prices continued significantly higher. The current reading is neutral.

Figure 4. The Sentimeter

Dumb Money/ Smart Money

The “Dumb Money” indicator (see figure 5) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. The indicator shows that investors are NEUTRAL.

Figure 5. The “Dumb Money”

Figure 6 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Market-wide insider sentiment has moved into Strong Sell Bias territory. There was a record number of Weekly Net Cluster Sales this past week and an Industry Sell Inflection generated for the Entire Market, S&P 500 and multiple sectors, but it’s important to recognize that there is a seasonal element to some of the selling due to the timing of annual restricted stock awards and vesting events. Presently, the Utilities, Materials, Industrial Goods and Healthcare sectors are displaying the strongest sell bias, followed by Technology and Consumer Discretionary. We note that our market-wide Industry Sell Inflection event has generated a total of seven other times since the March 2009 market bottom, most recently in November 2013, with the market posting gains in the six-month period that followed five times. Given the strong market backdrop and seasonal nature to some of the selling, the activity is not out-of-line with our expectations. That said, some caution is warranted as insider selling volume is clearly elevated. “

Figure 6. InsiderScore “Entire Market” value/ weekly

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A State of Mind

Being Sovereign within Your Inner Space

The Sovereignty Series

By

Cognitive Dissonance

 

 

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The first installment of "The Sovereignty Series – You Can't Make Me" may be found here.

 

As I begin to openly discuss the concept of personal sovereignty I am discovering, as I often do with terms and concepts preloaded with divergent meaning and political overtones, that there are plenty of opinions but not much clear thinking, about personal sovereignty. Please note the bold emphasis placed squarely on the word ‘personal’.

There are those who claim there is no such thing as ‘personal’ sovereignty, that the proper term should be personal empowerment. And it is clear that most widely accepted definitions of ‘sovereignty’ would agree with that premise because they often refer to ‘government’ or ‘an independent state’ in conjunction with ‘sovereignty’. Here are some examples of online dictionary definitions that tend to agree with this ‘belief’.

The American Heritage Dictionary defines sov·er·eign·ty as………

1. Supremacy of authority or rule as exercised by a sovereign or sovereign state.

2. Royal rank, authority, or power.

3. Complete independence and self-government.

4. A territory existing as an independent state.

Random House chimes in with….

1. the quality or state of being sovereign.

2. the status, dominion, power, or authority of a sovereign; royalty.

3. supreme and independent power or authority in a state.

4. rightful status, independence, or prerogative.

5. a sovereign state, community, or political unit.

I could go on, but it is plain to see the general ‘consensus’ is that ‘sovereignty’ is the near exclusive domain of kings, dictators, governmental ‘states’ and political entities who claim independence and self rule. Of course, by this definition, if ‘sovereignty’ is not recognized or affirmed by others, particularly much larger and more powerful ‘others’, then sovereignty even on the state level ain’t worth a hill of beans.

Thus sovereignty is defined and codified in International Law, the rules by which those who are admitted to the Big Boys Club play nice with each other (at least as ‘nice’ as psychopaths can) in pretty much the same manner different organized crime ‘families’ have a code of conduct by which they attempt to coexist while ruling their respective corners of the universe.

 

 

Then there is the ‘Personal Sovereignty’ movement (for lack of a better term) that purports to anyone who will listen that the US is not a country, but in fact a corporation, and we citizens are simply individually numbered taxpaying cogs (semi ‘free’ indentured servants/slaves other say) mentally, physically and emotionally entangled and encumbered by Admiralty Law, everyday ‘law’ entirely contrary to old English common law, licensing, taxation in a thousand forms both hidden and in plain view and, perhaps most frighteningly, unaccountable administrative bureaucrats.

Actually I am not unsympathetic to the ‘Personal Sovereignty’ efforts in the least. There is much that I agree with when it comes to this line of reasoning. After all, ‘rules’ and ‘law’ exist simply to condition the mind so that the body may follow. They are a control mechanism that is disguised as reasonable, even beneficial, to those who are being controlled. My quibble with this movement is in the declaration and execution of personal sovereignty well before the individual mindset has been fully formed and embodied.

One thing seems clear to me. The ‘belief’ in what constitutes sovereignty is skewed towards those who presently hold power and away from those who supposedly empower the powerful. While it might seem contrary for the powerful (aka the powers that be) to enable and support others who presently hold power since they might just be rivals one day, this supposition only holds water if we believe the interests of the powerful aren’t aligned.

Because sovereignty on a ‘national’ or ‘country’ scale only works if other sovereign nations recognize each others’ sovereignty, it’s actually a giant case of “you scratch my back and I’ll scratch yours”. A little more to the right please.

My question is simple enough. If power, legitimacy, the ‘right’ to rule, whatever it is called and however it is justified, all flows from the people to the top as it is claimed in modern sovereignty theory, supposedly via the ‘democratic’ process of ‘free’ elections, thus the ‘sovereigns’ declaring themselves a representative of the people, or in the case of despots, abject terror that your head will be removed if you don’t support the ‘sovereign’, then what ‘power’ exactly is actually creating the claimed sovereignty?

Is it my implied consent, which is supposedly captured by the act of my ‘voting’? What if I don’t vote or I voted for the other guy? Might it be my tax dollars, which I wouldn’t actually pay if I didn’t agree with my leadership? Most likely not since my taxes are collected at the point of an implied gun with no choice on my part required. How about my adoration supplied on bent knee, which is compelled of me at the end of a despot’s gun? What exactly of mine and yours is actually being transferred to support the sovereign, to legitimize its use of power in my name?

 

 

This is where it all gets a little fuzzy in the more detailed articles, explanations and dissertations about ‘sovereign’ and ‘sovereignty’ that I’ve perused online. It almost seems like black magic is employed, where spells are cast by witching cabals that are designed to corral the very essence of our inner energy, and then redirects it towards those special entities entitled to rule the roost and wear the crown.

OK, enough sarcasm from me. But the last paragraph is not as farfetched as it may seem or sound. We are all susceptible to, and influenced by, ritualistic behavior of all sorts, so to rule out ‘black magic’ in any way, shape or form might be just as silly as it would be for others to even consider it. Considering all the influences exerted upon ‘us’ humans, including subliminal programming, propaganda, advertising, the money meme, nationalism, herd behavior and so on, it is not as farfetched as it may seem to at least consider if we can just get past our preconceived notions and prejudices.

I bring that up simply to press home a point. The general consensus among those who claim sovereignty, the popular belief among those who are ruled, and certainly widely disseminated definitions and descriptions all point to sovereignty being predominately a physical attribute held by a political entity that may or may not be derived from those who live within the boundaries of that political entity or ‘state’.

In my first installment of “The Sovereignty Series – You Can’t Make Me!” I discussed how one of the ways ‘we’, ultimately meaning our personal sovereignty, are hijacked is through our language, and that we enable this hijacking by self victimization via the words, phrases and altered meanings of our language. We only have ourselves to blame for playing their game on their field by their rules.

In that article I left a comment that stated plainly and frankly my view regarding personal sovereignty and where it all begins. I said, “Personal sovereignty is a ‘State’ of Mind long before it is a state of being.” Too often we think of personal defense via weapons, financial flexibility and independence by way of diversified asset stashes and physical precious metals or even physical isolation in the form of a self sufficient homestead tens, even hundreds, of miles from ‘civilization’ as required ingredients that ‘create’ or endow personal sovereignty.

There is no doubt that any and all of those attributes will go a long way towards our ability to secure our physical being. And just like the political ‘state’ whose sovereignty isn’t recognized by more powerful ‘others’, if you or I are denied our physical/financial freedom it is extremely difficult to assert our physical personal sovereignty with any semblance of credibility. Thus I will not argue that it isn’t highly desirable to acquire the tools that enable our physical/financial freedom and flexibility.

 

 

But our “State of Mind” makes all the difference regardless of our personal war chest, isolation, financial assets or lack thereof. If our mind and spirit are still shackled by the ‘slave’ state of mind, the day to day practice of personal sovereignty is for all intents and purposes completely foreign to us and entirely beyond our grasp.

While I will dig deeper into the various “State of Mind” attributes of a individual sovereign in later chapters of “The Sovereignty Series”, of paramount importance to creating this mindset is to begin taking personal responsibility for all our thoughts, actions and interactions regardless of whether we feel we are ‘in control’ of the underlying circumstances or not. 

If we are to declare that we are sovereign, then ultimately the ‘buck’ starts and stops here. Being sovereign implies that we answer to no one, though it is obvious that one person surround by one thousand hostiles is severely constrained. But true personal sovereignty is constrained only of the physical being, while the “State of Mind” can only be constrained by us.

While Mahatma Gandhi and Nelson Mandela (to name just two) were physically incarcerated for years, decades in Mandela’s case, these individuals practiced personal sovereignty by continuing to think and ‘be’ sovereign, both in mind and spirit. Based upon their public writings they accepted full responsibility for their ‘constrained’ situation, and worked tirelessly while in prison to build upon and expand their efforts to help free the minds of others they had encouraged to be sovereign.  

While ‘sovereignty’ is often conflated with a political entity within physical boundaries, oftentimes because such a ‘sovereign’ has a greater ability to exercise physical cohesion and mount defensive positions, personal sovereignty, while not affording each of us an equal opportunity to exercise physical security, offers us much greater prospect of implementing the personally sovereign “State of Mind”. 

 

03-10-2014

Cognitive Dissonance

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Mere days ahead of Crimea’s referendum to join Russia (or not) and following reports of shots fired between Russian and Ukrainian forces, the Ukraine Defense Ministry reports (via Facebook):

• *UKRAINE LIEUTENANT COLONEL DEFECTS TO RUSSIAN FORCES: MINISTRY
• *UKRAINE OFFICER IN CHARGE OF CRIMEA UNIT DEFECTS: UKR MINISTRY
• *OFFICER CONVINCES ‘SEVERAL’ SOLDIERS TO DEFECT: DEF MINISTRY

It would appear Crimea is annexing itself as this comes just one week after the head of Ukraine’s Navy defected.

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European sovereign bond spreads have not batted an eyelid during the recent Russia-Ukraine crisis… and why should they, Draghi will do “whatever it takes.” Even HY credit in Europe is holding up – despite an ugly squeeze wider on Friday (chatter that positioning in very long credit). But with Europe’s VIX above 20, the broad European stock index is now below pre-Putin levels. What is perhaps most stunning is that while investors have piled out of German, Swiss, and French stocks in the last few days, they have backed-up-the-truck in “new normal” safe-haven Portugal. The reason proferred by some – Portugal is further from Ukraine (and less dependent on Russia’s gas) – which of course is the critical swing factor for an economy that remains crushed aside from trade with Germany.

 

Stocks are back below Putin levels…

 

As investors have flushed their core German stock holdings and bid Portugal (and Italy) to the moon…

 

Which just exacerbates the remarkable divergence among European stocks this year…

 

We are sure somewhere this all makes sense…It would appear the ‘safe-haven’ seekers have forgotten that if Germany comes under pressure from Russian sanction retaliation then Europe is in trouble… but hey, why worry, just buy the worst…

Charts: Bloomberg

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