Monday, August 10, 2009

'We're Not Dead Yet' Mania

(The Cooper Report at Minyanville is a great daily read. -AM)

By Jeff Cooper
August 10, 2009
Cooper's Market Report

Mania (from the Greek “to rage, to be furious) is a condition characterized by extremely elevated mood alternating with episodes of major depression. Mania in an individual magnifies hope and desperation. Mania in a crowd is reinforced. The mind of a crowd can merge to form a way of thinking. Individual enthusiasm in a crowd is increased as a result.

The mass mind of the market is subject to contagion and control. Fear breeds fear; greed breeds greed; momentum begets momentum. An object once in motion will tend to stay in motion. The question that cannot be ignored is whether purposeful propaganda or a real change in the facts has set the object of mass psychology in motion.

The more market participants around us who are buying in response to the way the news is shaped, the more believable the story becomes, the more realistic a rally phase appears (and vice versa). It becomes difficult to distance ourselves from the beliefs of the crowd. The more prominence a story receives by the media, the more attracted market participants are to what may be a mass psychological trap. We tend to attract ourselves to things and people that may be the wrong decision in order to dispel a sense of uncertainty: any attachment, right or wrong, feels better than uncertainty and the unknown.

Volume hasn’t contracted like this since the summer of 1989. The fall of that year marked a swift selloff. When stocks explode higher on dwindling volume and suspect fundamentals, the risk of a collapse rises.

Market observer, Tyler Durden did the math and figures that the recent 50% explosion in the S&P had nothing to do with economic ‘recovery’, but was more of Fed shenanigans. Durden noticed that the money that’s been streaming into stocks hasn’t correspondingly depleted the money markets and states:

“Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts! Where, may we ask, did the balance of $2.3 trillion in purchasing power come from? Why the Federal Reserve of course, which directly and indirectly subsidized U.S. banks (and foreign ones through liquidity swaps) for roughly that amount. Apparently these banks promptly went on a buying spree to raise the all important equity market, so that the U.S. consumer whose net equity was almost negative on March 31st, could have some semblance of confidence back and would go ahead and max out his credit card. Alas, as one can see in the money multiplier and velocity of money metrics, U.S. consumers couldn’t care less about leveraging themselves any more.”

Not this time. Been there done that in 2003. While Ben refuses to be the ‘Fed chief who will preside over the next Great Depression, and main-lines green shoots into the market while the consumer has either gone cold turkey or has collapsed veins.

Conclusion: Along with the jaws of declining volume versus sharply rising prices, CBOE put/call shows the highest level of bullishness on a down day in 2 ½ years. Sentiment readings reflect the highest level of bulls since the October 2007 peak.

No comments: