Dead Animal Spirits With Your Monetary Union? ~ The Risk Averse Alert

Friday, March 16, 2012

Dead Animal Spirits With Your Monetary Union?

If you didn't catch my tweet about Christopher Whalen's interview on RT's "Capital Account," you should check it out. We are on the same page per an approaching banking system convulsion...

What about Whalen's suggestion the Fed will have to raise interest rates long before 2014? I'm in the camp believing the Fed follows the market's lead, rather than the other way around. While both now are bankrupt, shark attacks of increasing ferociousness and consequence are to be expected with upward ratcheting of interest rates reflecting waning confidence to show for it. This week's JPM Fed slight confirms this view, both per the Fed's animation solely by the market as well as its fate playing some lesser role in a massively imbalanced balancing act.

Still, leading up to a rising rate eventuality remains the likelihood of one last gasp carrying Treasury bonds (as well as spot gold) higher, this coinciding with the stock market's upcoming retest of March '09 lows. This outlook, no doubt, probably shocks most people. Yet the only thing "shocking" here is March '09 lows, as well as much lower, have remained fixed in the cross hairs for a couple years now, while the probability of such a setback has become all the more technically substantiated. Among evidence exposing the market's underlying weakness continues to be the utter absence of animal spirits, such as NASDAQ reveals...

$NAAD cumulative

Having recently presented NASDAQ's cumulative advance-decline line whose fading peaks from 2010 top belie the NASDAQ Composite's continued move higher these past two years, tune your eyes now to today's divergence versus early-February. NASDAQ's advance not only is stalling, but given fading upside participation these past two years, appears a train wreck waiting to happen.

Again, were animal spirits ruled by hyperinflationary happiness, then NASDAQ's cumulative advance-decline line would be rising. Instead, this measure appears to be continuing its decade-and-running death spiral. Precisely the sort of thing one might anticipate were NASDAQ's collapse back to 300 thought both possible, as well as potentially imminent.

Seeing NASDAQ's cumulative advance-decline line constrained at its falling 200-day moving average takes the eye back to early-July 2011, when a similar circumstance developed. What followed was not pretty.

Next, consider the advance-decline line's momentum surge into early-February (bottom panel) and its subsequent fade. Now look back to early 2010, prior to May's flash crash. The advance-decline line's momentum similarly exploded to the upper end of its range of the past few years, before fading in the lead up to the flash crash. Back then, though, NASDAQ's advance-decline line was confirming the NASDAQ Composite's new, post-March '09 peak set in April 2010. Not so now. Not by a long shot. A major disparity made all the more alarming in contrast to the lead up to May 6, 2010's flash crash thus suggests something far worse could be afoot.

Maybe for some days and weeks more the market might remain fairly levitated. Then again, maybe the drive for war will sooner bring a defining moment. No doubt, manufactured villains are being provoked to do something stupid. Whether they do or not might not matter, as in the manufacturing it is plain assigned villains probably stand to be blamed should something extraordinary happen, as appears increasingly likely. The euro-zone's accelerating insolvency reveals the hour is late for those who created the nightmare whose continuance evidently demands obeisance to acts of destruction of ever greater intensity and effect. Consider war most elementarily, then, a means of breaking resistance to austerity and sacrifice, that every last ounce of humanity be milked to prop up the clear-cut cultural insanity making a dead Ponzi scheme's removal from life support more fearsome than world war.

Fast Money
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