US Stock Market Whistles Past the Graveyard

Zombie economists create US 20116 recession

It was a summer fit for the start of the Epocalypse followed by a fall where every event leans into Halloween. Summer began with a total solar eclipse that cast a long shadow across the nation from sea to shining sea, and fall began with hurricanes, mass bloodshed and fire. And through it all, the stock market barely blinked.


I watched a total solar eclipse for the first time. I had seen a 98% eclipse once before, but the difference made by the final 2% that I saw this time was literally all the difference between night and day. I discovered by experience why the ancients saw this spectacle as an omen portending the demise of a king or end of a dynasty. Evening triumphed over the earth in the middle of morning, but it was an eery, otherworldly, preternatural kind of evening, for the far horizon glowed almost white in a circle all around my world as if it was sunset everywhere. The sky grew darker toward the center where the stars were pooled in midnight blue. The birds stopped singing, and the crickets in the fields around me began to hum. Then the sun, which had been slowly dimming, transfigured in an instant into a pitch-black hole in the sky with long streamers of silver fire coming out of it — a change so sudden and a hole so large that it startled me. It was both horrific and beautiful, and I could see where it would have easily looked to the ancients like a portal to Hades.

I didn’t really expect the summer to live up to all the meanings that have been loaded into an eclipse, but this one did. I expected the summer to be fairly normal but with increasingly evident economic fractures and an increase in strife — politically and physically — but this summer exceeded those expectations in other ways. First, North Korea detonated a hydrogen bomb and used that display to overtly threaten to destroy US cities if the US does anything its tin-hat dictator finds overly aggressive — “anything” being a rather vague term to cover the conditions that might trigger a nuclear holocaust. To that the US president replied with something about raining fire and fury upon the DPRK such as the world has never seen.

Becoming particularly reckless, North Korea volleyed back with what could have been considered an act of war by flying its first intercontinental ballistic missiles directly over its arch enemy, Japan. (The fact that the missiles weren’t shot down by Japan or the US is probably due to inability, rather than patience. After all, how could anyone really know whether the missiles were armed with nuclear warheads or whether fuel would be cut off prematurely, suddenly changing the trajectory downward to Japan? So, for either Japan or the US to say they didn’t shoot down the missile because they knew this was not an act of war but just a threat and a test borders on ludicrous when entire cities are at risk if that calculus is wrong.) The president threatened back with total annihilation of North Korea, but then provided us with a surreal calm by smiling as he said that all of this is just the “calm before the storm” as we shall soon all see.

As the Korean Missile Crisis was developing, the Pacific Northwest and California caught on fire, shrouding entire states in smoke for the entire remaining summer during which the sun and moon were oft’ times blood red and barely seen — reminiscent of the summer’s eclipse — and the stars oft’ did not shine at night. Even soggy Seattle broke its record of 52 consecutive days without rain as ash from across the state dusted the city.

Then, just as the smoke from the summer fires started to settle, two back-to-back catastrophic earthquakes ripped open wounds in the United States’ neighbor to the south. Not to leave the US free of castrophe as the fires abated, nature pounded the country’s southern and eastern flanks with three massive hurricanes followed by a lesser encore last week from Nate, the fourth and paler horseman of this hurricane holocaust. The first three recked huge economic damage, mass exodus in the millions and emotional upheaval. People are still fleeing Puerto Rico, many for good. And hurricane season is not yet over, prompting one to wonder what further wickedness may still this way come.

In all, not bad for the summer of our raging discontent during which Republicans failed at all their promises, and social outrage continued to spread across the land. And then came fall with an equally fiery start. As if nature and tin-pot depots had not done enough, the nation experienced the most deadly lone-gunman massacre in its history. (At least, the gunman acted alone so far as we know at this point.)

Even as national mourning over that horror continues, a California firestorm blew up out of nowhere this weekend, catching local residents by total surprise. Already 1,500 homes, businesses and other structures in multiple areas of northern California have been consumed with ten lives lost and many others injured. Forests and vineyards and housing developments scattered across eight counties have been destroyed in flames.


Late Sunday night, Ken Moholt-Siebert noticed the smell of the smoke from his Santa Rosa vineyard just off Highway 101. It was not until midnight that he spotted the flames: a small red glow growing a couple of ridges to the east, off Fountaingrove Parkway. He ran up the hill on his property to turn on a water pump to protect the ranch his family has been raising sheep and growing grapes on for four generations. Before the pump could get the water fully flowing, a small ember from the Tubbs fire landed nearby. With the wind picking up, the ember sparked a spot fire about 50 feet in diameter. Then it was 100 feet in diameter. “There was no wind, then there would be a rush of wind and it would stop. Then there would be another gust from a different direction,” Moholt-Siebert, 51, said. “The flames wrapped around us.” He ran for cover. “I was just being pelted with all this smoke and embers,” he said. “It was just really fast.” (LA Times)


While the fires (more than fourteen known so far with numerous other hot spots detected) are just beginning — a literal firestorm driven by seventy-mile-per-hour gusts of wind — they already rival the most savage conflagrations in the state’s history. Governor Brown has been quick to declare a state of emergency, and drought-stricken areas that are choking in smoke and writhing in flames are now in exodus just as rain-soaked hurricane regions of the US were only weeks before. A large northern swath of Santa Rosa is under evacuation orders as are many smaller communities. Even hospitals are being evacuated, and many evacuation centers have already reached full capacity. With nature being so unrelenting toward the US, one wonders what winter storms will bring.


The market tilted and wobbled and then settled back into its repose


It seems like every week since the eclipse has brought with it a new catastrophe in or around the US. Some people wrung their hands throughout the hellish summer and into fall’s freakish followup as they listened to others preach and postulate or prophesy (depending on your persuasion in how you look at such things) that all of this was sent by a higher authority than the president.

Nevertheless, through all of this, stocks have bobbed merrily along as if nothing is happening around them. And that is what I find most freakish of all! Even so, it is not surprising so much as it is a deeper revelation of how completely rigged the market is by central banks.

In fact, the market was so unmoved by all of this that Zero Hedge noted this week that “CNN’s frequently noted Fear and Greed index closed last week at a level of 95, indicating of near widespread euphoria”:


Nothing to fear here.

In what may have been the most irrational comment in years, I even read one commentator recently who said the blow-off top for the market cannot be imminent because so far we have seen no signs of irrational exuberance! That comment, in itself, is the surely the zenith of blind irrationality and would cause the gauge above to look just like it does if it were measuring irrationality, instead of market greed. I think the market and many of its commentators have reached peak irrationality.

Nope. No irrational exuberance at all, he said. The market is just calmly climbing higher than ever before as the world around it erupts into chaos in what seems to have been an endless parade or catastrophic bad news from summer to present. In that hostile environment, volatility is the lowest it’s ever been for the longest it’s ever been low, and the VIX is being shorted (a bet against volatility) like never before as if the hope of such calm is endless.

In the light of such boundless hope of endless calm, let us meditate on President Trump’s words that “this is just the calm before the storm.” Surely the president knows what he is planning, even if we don’t, and we shall soon see. (Words to which the stock market still did not even flicker.)

Fortunately, some well-known analysts are able to see how exuberant and irrational this market is:


I can’t tell you for sure what is driving the stock market exuberance but exuberant it is. Sentiment measures I check regularly are mostly at wildly bullish levels. Puts are cheap and everyone is short the VIX even as it scrapes multi-decade lows. The CNN Greed/Fear index is at 93 with 100 as greedy as it gets. Investor’s Intelligence, Consensus and Market Vane all show a plethora of bulls and near complete lack of bears. If you are bullish here you sure can’t claim to be a contrarian…. Investors urgent desire to buy one of the most expensive markets in history is hard to understand and requires contortions worthy of a circus performer to justify. Earnings have been climbing of late but like a lot of things, just back to levels of a few years ago (2014 for S&P 500 earnings). Stock prices on the other hand are much higher now than they were then, a multiple expansion based on…nothing that I can tell…. Even some of the staunch bears appear to be throwing in the towel, now looking for a “final” melt-up to put a top on this strangest of bull markets. (NewsMax)


Perhaps we shall know very soon.

In the meantime, my next article will look at some summer fractures in the market that show the market’s calm may be about to break.


  1. Ping from A Cumm:

    With infinite dollars, euro, yen, pound, and yuan being created, no currency will lose value with respect to the others. With no further currency risk, these large national economies can then turn their currencies into wealth creating machines that can be employed to prop up global markets of all sorts forever…into infinity. There will be no relief valve to turn this monster around since the money can’t flee to Mars. So no market will ever go down as there is no other place to go. This game can and will continue indefinitely. We have seen this process play out and accelerate ever since the Greenspan Fed first opened the door to endless liquidity in 1987. It has become the Central Banks final policy tool when all other means fail.

    Money velocity and the ensuing price inflation is the only logical outcome to this, as it will surely happen. Then the emperor’s clothes will be visible for all to see. When it does is only a question of sooner or later. Price inflation has in the past proved to be a lazy beast, but when aroused it will be sudden and relentless and will pervade all factors of the real economy, the ones that count..commodities and labour. Look out for yourselves and plan accordingly.

    I suspect the bitcoin market is functioning as a pseudo relief valve. I expect it will be a valuable indicator as to when this whole scenario plays out.

    • Ping from Knave_Dave:

      “these large national economies can then turn their currencies into wealth creating machines that can be employed to prop up global markets of all sorts forever…into infinity…. So no market will ever go down as there is no other place to go.”

      Really? Then what happened here:

      “We have seen this process play out and accelerate ever since the Greenspan Fed first opened the door to endless liquidity in 1987.”

      The stock market went down hard in the dot-com crash after ’87, and then the housing market went down even harder in the Great Recession crash, and then the stock market crashed right alongside of it. Seems to me it has been more like crashing into infinity … and endlessly repeating cascaded of bigger and bigger crashes. The next crash of marketS will be the biggest still. It will be the Everything Crash. I don’t know which bubble will pop first but I’m fairly sure that the pop of any one of the current bubbles will jolt all the other bubbles enough to pop them, too.

      • Ping from A Cumm:

        “I don’t see how those two statements can be reconciled. The stock market went down hard in the dot-com crash after “endless liquidity in ’87,” and then the housing market went down even harder in the Great Recession crash, and the stock market crashed right alongside of it.”

        I’m not saying markets have never been spooked. Yes, they have. Moral hazard was not as prevalent at the beginning. Some market participants never quite believed the Central Banks would go that far. So I would agree on that point, since 1987 markets have not always gone up in a straight line.

        But the important point is this. After 2000 and 2007-2008, they have always returned to previous levels and rose further, once market participants realised the extent of the liquidity involved and determination of the Central Banks to mitigate further declines. Moral hazard then set in and at present it has almost become institutionalised. Markets now are completely disregarding economic fundamentals, and are approaching linear growth patterns with very minor corrections.

        And I’m not saying there will be no further corrections but I suspect any major correction, if it occurs will be briefer than the last one so long as current Central Bank policies remain unchanged.

        • Ping from Knave_Dave:

          Oh, those completely global collapses that left the world reeling for years and depleted retirement accounts were just “spooks.” O.K.

          Gee, I hate to see what a real market crash looks like.

          Since ANY time, markets have always returned. The stock market returned after the Great Depression, too. There will always be a significant number of corporations that survive any crash, just as numerous species of animals survived the Jurassic extinction event. If they hadn’t, there would be no animal life on earth.

          The survivors eventually recover their stock values and grow beyond those values. The economy does, too, and that will always happen even with no Fed program.

          Yet, each crash is an extinction event for many companies. It’s not even meaningful to talk of a market crash if it has to mean that the market never recovers or never succeeds again on an upward trend beyond where it was when it crashed. All historic crashes have ended with the market returning and rising above its past high, even before the Fed existed.

          We are in agreement about moral hazard being institutionalized. That’s a good way of putting it. And we’re in agreement about economic fundamentals being completely disregarded. But this market will crash (again) just as it did in ’29 and as it has several times in the last few decades. And each crash in recent years has been deeper with longer-lasting consequences than the one preceding it; so, I suspect the next one will be deeper still with even longer-lasting consequences.

          • Ping from A Cumm:

            Fine. Let me try this thought experiment with you.

            If the stock market and bond or real estate markets crash to some level, let’s say 50%, and the Central Banks start another QE and their goal is to employ as much stimulus as needed to return the markets to previous levels, how in the world can market participants prevent this from happening and keep selling when facing $trillions of stimulus. Remember there is no limit. Each stimulus will have to be larger than the preceding one. Bond yields could theoretically be driven to large -90% negative yearly yields, the Dow could rise to 100x it’s current value and average homes would sell for tens of $millions. If they kept selling till the Central Banks owned the entire stock, bond and real estate markets,where would that money eventually go?

            You are implying that market participants will correctly anticipate that the stimulus will suddenly stop and resume selling all the while Central Banks come to their senses and return to sound monetary policies. How can this be?

            I will also add that in the past, monetary policies were tied to the gold standard which limited Central Banks ability to intervene. Since Nixon took the world off the Bretton Woods “Gold standard”, markets have been on a tear with no significant corrections that lasted longer than a few years. Quite different from the decades long correction that followed the 1929 Crash.

            • Ping from Knave_Dave:

              I anticipate central banks will either do exactly that OR will come up with some entirely new game. (The latter ultimately becoming the new reality even if they do try QE4++)The reason I think they will have to come up with something new in order to try to reinflate the market is that a repeat of the same scheme after stocks have crashed is going to have bizarre effects on the overall economy (more bizarre than what we’ve seen) because everyone will know as historic fact that the last scheme was not sustainable — that as soon as the CBs started actually unwinding and not just talking about it (where we still are today), the market went down.

              As you say, if the banks start pumping in massive cash, who is going to turn down the free money? And those people they will have to park their money somewhere, but that QE will happen in a new environment where I presume most people would be smart enough to know that banks must now either continue their money-printing game forever or crash everything they’ve appeared to rebuild. Just as you say, people will all now know that it has to be stimulus FOREVER or crash as soon as stimulus stops. They will, therefore, start to finally postulate how bizarre the new endless rounds of QE are going to become, exactly as you have.

              The illusion that has so easily beguiled many won’t be so easy or convincing in the next round(s). That should create some truly bizarre fear rhythms in the market or the general economy that make the new game very unstable (or unwieldy at best). That will likely lead to the scenario of grotesquely distorted markets that you describe.

              I fully agree with you that central banks are NOT going to return to sound monetary policies; but I think they actually do believe in their recovery efforts and so do most average Joe’s on the street and so do a lot of investors. Other investors know it is rigged, but they are willing to climb the rigging for as long as it is in place and then hope to jump off when it is removed. Because CB’s believe in their recovery, they will unwind as they have said, and they will be inclined to let the market fall, thinking it will stop; but it won’t without their intervention. So, it will fall precipitously before they step back in.

              What CBs don’t have total control over is what happens if the fall gains momentum and becomes a panic. At that point they will, of course, try to step in. They may not find it so easy to stop that slide and convince the multitude who believed in them that more QE will do the job. Money will still follow the new QE (if that is their program), but it will be a much more messed up financial world than the one we see now if the CBs do this.

              I think they will find that mess so ungainly that they quickly put forward a different kind of plan — something even more global and more centrally controllable. The argument will be that they HAVE to do this in order to regain control of the situation “for the ordinary person’s own good … in order to provide a stabilized economy for all.” People will suck this swill up in desperation as it beats the disaster they now face. That will, of course, involve moving to a cashless system so that financial anarchists (users of cash) cannot refuse to participate in the CB-controlled economy.

              Those are my best guesses based on the trends I see. What I am sure of is that the unwind will be a huge mess and that CBs will do all they can to regain control. The ride is going to get weirder, not better. Th present game will expire, and there WILL be a new game in town.

  2. Ping from Adam Pokladnik:

    Looking at the VIX, the past week is very interesting action. Creeping up to 11+ for no apparent reason or correlation to the rising market. Are market makers getting nervous and driving up implied volatility on SPX options every so slightly?

    Very nice article!!!

    • Ping from Knave_Dave:

      Thanks, Adam. I’ve been detecting a slow rise in nervousness among normally very bullish voices, so it could be that VIX is creeping as the slow rise starts to gain influence. Don’t know, but I’m working on an article about the creeping shift toward bearish concerns. Those concerns among permabears or those like myself who are more inclined to forecast the market’s demise but who are not permabears wouldn’t mean much, but a shift in voices that have long been permabulls could mean a major market shift is coming. It’s worth exploring in thought.

  3. Ping from Gary73:

    The mood is so bullish that even with the S&P500 now at all time price/sales high, it is hard to even imagine the market falling. And neophytes who didn’t live through 2000-02 or 2008-09 assume that any fall will be a max 15% correction. According to historical valuation models, the market is at least 60% overpriced and the S&P will likely be lower in 10 years than it is today.

    • Ping from Knave_Dave:

      I know. I feel the same way. It’s tempting to jump in even as I write an article about the signs that it could be topping out. It’s tempting because so long as reserve banks keep creating money anywhere in the world, some of that money is going to want to go into US stocks, and it’s tempting, as you say, because the bullishness that chooses ignore how precarious the market is looks strong enough to stay bullish in the face of almost any bad news.

      At the same time, it seems foolhardy to have your retirement invested in something that you know is overpriced and that is based on pure speculation, that is narrowly bid up on a few “Old Faithful” stocks that everyone is certain will remain a train ride to the top of and endlessly high mountain, and that is fueled by central bank money that is now being withdrawn in the US and that COULD be withdrawn soon in other nations.

      You cannot invest in it based on the idea that it is good economic sense, as most of the higher “earnings” that people are using to claim present evaluations are justified are actually “earnings per share,” where it is not the earnings that have gone up but the number of shares that divvy up those earnings that has gone down due to stock buybacks.

      So, you know on the one hand 1) it’s a really stupid market; but on the other hand 2) stupidity now knows no bounds so the thing could keep going up for a long time.

      I, too, have estimated the fall when it comes is likely to be, about a 60% drop. It could be worse, but that is what I see as a likely ballpark figure. It could be worse simply because downward momentum when it does fall could easily carry it well past discovery of real valuation minus all Fed money printing.

      • Ping from Gary73:

        There were a few theories in 2000 for why the market would not fall, or couldn’t fall for a year or two. But the market seldom respects consensus theories, and it feels like there is a consensus that this market can’t possibly crash until late 2018. What I’m unsure of is whether in typical bear fashion there will be a dead cat bounce before the real carnage, or if the preponderance of ETFs might concentrate pain in the front end of the bear before people can get out.

        • Ping from Knave_Dave:

          Well, that’s just it: the ETFs that dominate the market and the robotraders that dominate ETF trades and the central banks that dominate all by creating massive amounts of cash given to the biggest market speculators (banks, most which at one time couldn’t speculate at all) … all mean this market is so much different in such massive ways from any preceding market, that there is no way of knowing how long it can go up or how it will go down.

          Even major players, such as Jamie Dimon, have said we’ve never seen anything remotely like the central banks’ unwinding of QE that begins in the US this month; so we don’t really know what will transpire just from that. If the big banksters are willing to admit that we cannot know what will happen, how can anyone? And the unwinding of QE is only one major component of those involved.

          As you mention, the ETFs are another major component. Again, we have all kinds of funds that are derived in turn from derivatives in bonds. Then we have not just the robot, but the fact that their self-programming algorithms leave in the algo programmers blind as to how the algos have reprogrammed themselves (because the programmers cannot decipher the reprogramming faster than it is happening).

          (See my article on some of that here: )

          It all looks like a California-scale tinder box to me.

  4. Ping from Huibert Van Veen:

    You have clearly and succinctly outlined a series of events that no one would dare include in the plot of a disaster flick, but yet they are all too real. Methinks Someone is trying to get our attention before…?

  5. Ping from jakartaman:

    Great article – You have a writing style that borders on poetic.
    The first paragraph is a great example.
    Thanks for a good read

  6. Ping from Chris P:

    I think I hear Nero tuning his violin. Just like after Rome burned the Christians became good sport.

    We had a country founded on God and his principals but we have fallen down to and immoral greedy country that would make Sodom and Gomorrah blush. If we would repent God would heal our wounds.

    Great article Dave if you would tweek it with a prophetic slant you could have the coming Armageddon Blog.

    • Ping from GonzoTheBurner:

      Repent? No, No… it is well beyond that. You will have to survive first, endure the hardships our ancestors knew all to well, keep close to the Truth, and then if you should falter or your faith be overshadowed with doubt, then you MAY be able to repent. There is light at the end of the tunnel, but you must brave the tunnel first, God will not teleport you from the beginning to the end. Time to earn or burn. Many will call out, not all will be saved.

      • Ping from Chris P:

        Gonzo my writing skills may not be the best but my grasp of the truth is sharp. Romans 10;9-11 If you declare with your mouth, “Jesus is Lord,” and believe in your heart that God raised Him from the dead, you will be saved. For it is with your heart that you believe and are justified, and it is with your mouth that you profess your faith and are saved. As scripture says, “Anyone who believes in Him will never be put to shame.”

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