This grind, or melt-up, is so discouraging.

I recall about three years ago it did the same thing in Jan&Feb. I remember thinking "how long can this go on?"
And it continued and continued.

It doesn't matter if people like Jim Rogers say, "interest rates will go so high you won't believe if I told you." And then when asked how the US govt will fund its' debt if rates go to 6 percent, will not it go bankrupt? "What makes you think that countries cannot go bankrupt? Indeed that is what has happened so often before in history." "I hope you are worried, very worried. This will end very badly. A lot of people will disappear."

A lot of people will disappear? Mass starvation?

Today I read an article how lost-at-sea experienced, well-known fund managers, some with 30 years experience, are. They must buy or be dammed, or, not buy and be dammed. Yet that is no solace.

There is my reality - sitting in a snowbank (metaphorically) alone. At times like these Gann's words haunt me: "the market can remain solvent longer than you can remain solvent."

I recall when Fed chairman (Alan Greenspan) ... called the markets "irrational exuberance" - yet they roared on for months more before the tech bubble burst.

Today I read that on Oct 16, 2016 Trump called out Yellen for keeping rates low for "far too long" for political reasons to help the Obama administration. Well it is the truth (though perhaps to help her Goldspan friends) but so what? Who listens to the truth when the pigs are snorting at the trough? The pigs? They are at the trough? Who cares about the elderly who have no retirement income and must decide between electricity or rent? Yellen? - I laugh in your general direction.

As profiled previously, one of the biggest legends in the hedge fund world, Elliott Management's Paul Singer has cautioned about the risk of “deep underlying complacency” in the face of U.S. stocks that continue to reach record highs.

Another iconic name, Seth Klarman of the Baupost Group, best known for his sermons on value investing, advised that “the cynical exploitation of fake news is a threat against which we must all remain vigilant.”

Basso Capital Management’s Howard Fischer, a 30-year hedge-fund veteran, summed up the investing world as a “stew of uncertainties.” His take on Mr. Trump’s first few weeks: “Dizzying, startling and amazing.” In an interview, he added another adjective: “Disorienting.”

Quoted by the WSJ, Fischer summarized how most traders feel these days: “I have to divorce how I personally feel from the way I trade and invest,” he said. “You can call it somewhat of an internal conflict.” He would have add "just BTFD" if there were any dips to buy.

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“You see all time new highs day after day, a trajectory with very low volatility, valuation metrics that scare you. You’re terrified when you’re in and terrified when you’re out,” said David Kotok, chief investment officer at Cumberland Advisors, in Sarasota, Fla. He held 20% or more cash in some accounts in recent weeks, much of which he subsequently invested.


"Terrified", "Hostile" Hedge Fund Managers Find Themselves Unable To Trade In Trump's World | Zero Hedge

4. Chinese Debt: The Next Financial Crisis

The outstanding loans held by China has topped $28 trillion. That total equals nearly the entire commercial banking systems in both the U.S and Japan combined.

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Beginning in September 2016, the Bank for International Settlements (one of the most influential banking organizations in the world), released for the first time data on the credit-to-GDP ratio gaps since 1961.

The information revealed that China reached an astronomical total of 30.1 in this ratio gap. Typically anything over a figure of 10 offers room for concern and the Chinese economy has tripled that.

That puts the major Asian giant at the highest ratio to date, and above all other major economies evaluated by the governing institution.

The 30.1 ratio gap is higher than the numbers seen during the Asian boom in 1997 and the subprime mortgage bubble experienced just prior to the Lehman Brothers crisis of 2008.

All of this mounts the story for a Chinese debt bubble that continues to inflate.

Former Reagan White House insider and bestselling author David Stockman noted even at the beginning of 2016 that, “The fact is, no economy can undergo the fantastic eruption of credit that has occurred in China during the last two decades without eventually coming face to face with a day of reckoning.”

Stockman did not skip a beat saying that, “Massive borrowing to pay the interest is everywhere and always a sign that the the end is near. The crack-up phase of China’s insane borrowing and building boom is surely at hand.”

source:
https://dailyreckoning.com/four-signs-us-china-relations-destined-conflict/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+dailyreckoning+%28The+Daily+Reckoning%29

Somebody needs a bong hit...bigly.

Speaking of complacency, last week for the first time in ages the VIX call 30 strike, which is where the semi-smart money draws the line in the sand, was not at the top of the volume rankings.

So the pension funds risk models say that there's no further need to hedge?

In our Love Panic model, we try to identify distress and euphoria in an attempt to predict forward market returns. In order to successfully predict the market we have chosen parameters with good predictive capabilities during different market cycles but also those that make qualitative sense. Investment should be dispassionate but not automatic. Some investors solve this problem by hiring a mechanic (or quant) to build a machine to invest on their behalf. This indicator is not for them. Instead, this indicator highlights when market sentiment is either overly depressed or excessively optimistic. This helps one at least adjust for ones mood. So we suggest that when the market has reached a level of distress, it’s a good time to buy. Meanwhile, when investors are euphoric,we advocate a sell. As a result we have developed a contrarian indicator model. When our signal is in panic (negative), it indicates a buy. While when the signal reads positive it’s a sell signal. In our Love Panic model, we try to identify distress and euphoria in an attempt to predict forward market returns. In order to successfully predict the market we have chosen parameters with good predictive capabilities during different market cycles but also those that make qualitative sense.

When in 'love' mode, the average drop in stocks has been 12% in the next six months. The biggest drivers of this "love" have been investor confidence, CoT positioning, short-interest, relative trading volumes, and sectoral outperformance with fund-flows shifting away from "love" suggesting the short-term top is in. The index itself peaked last week at the highest level of "love" in two years

BNP Risk Indicator Flashes "Love" Warning Signal For US Stocks | Zero Hedge

table of % declines in S&P
When A Black Swan Isn't A Black Swan | Seeking Alpha

a key point of the morgan stanley article is that a bond rise is needed to cushion a fall in equities in a bond equity portfolio.

Simply put, the massively overcrowded hedge fund herding into US equities has created a crisis situation. With liquidity levels at record lows, the market will be unable to smoothly absorb any concerted selling pressure from large money managers.

“Their ability to sell in the marketplace is really going to depend on their peers who are trying to sell at the same time,” Stan Altshuller, chief research officer at the analytics firm, said by phone. “It becomes the prisoner’s dilemma.”

Finally, we note that the last bear market started in October 2007, just four months after liquidity appeared to be drained out from hedge funds.

'Cash On The Sidelines' Crashes Near Record Lows | Zero Hedge)

Stocks Suffer Longest Losing Streak Since The Election As Crude Crashes | Zero Hedge

The S&P 500 index, closing today at 2,373, hovers near its all-time high. Total market capitalization of the 500 companies in the index exceeds $20 trillion, or 106% of US GDP. In the three-plus years since the end of January 2014, the index has soared 33%.

And yet, over these three-plus years, even with financial engineering driven to the utmost state of perfection, including $1.7 trillion in share buybacks and despite “ex-bad-items” accounting schemes that are giving even the SEC goosebumps – despite all these efforts, the crucial and beautifully doctored “adjusted” earnings-per-share, perhaps the single most manipulated metric out there, has gone nowhere.

“Adjusted” earnings per share are back where they’d been at the end of January 2014. It’s a sad sign when not even financial engineering can conjure up the appearance of earnings growth.

Companies report earnings in two ways:

All companies report as required under GAAP (our slightly inconvenient Generally Accepted Accounting Principles). These earnings are often a loss or way too small and shrinking, instead of growing, and hence not very palatable.
So most companies also report pro-forma, ex-bad-items, “adjusted” earnings, based on the companies’ own notions of what matters. Analysts and the media hype that metric. This is just a method of reporting the same results in a more glamorous manner.

Then there’s financial engineering. Companies borrowed heavily over the past few years and used those funds to purchase their own shares. This hollowed out equity and left companies with piles of debt. Over the past three years, companies blew $1.7 trillion on share buybacks. This money was not invested in productive activities that would have expanded the company and the economy, and generated cash flow to service this debt. All it did was reduce the number of shares outstanding. This has the effect of increasing earnings per share (EPS) though the company didn’t actually make more money.

Add this system of share buybacks to the system of “adjusting” earnings per share via reporting schemes, and the result should be a miracle of soaring “adjusted” EPS. But no.

For the trailing 12-month period, “adjusted” earnings per share in aggregate for the S&P 500 companies was $109, as of March 16, according to global data provider FactSet, just a hair above where it had been on January 31, 2014:

But over the same period, the S&P 500 index has soared 33%. What gives?

I previously dissected the lack of growth in total adjusted earnings – not earnings per share, but total earnings for the S&P 500 companies. Since this is not a per-share metric, it excludes the effects of financial engineering, such as share buybacks. It showed that total earnings on a 12-month trailing basis in Q4 2016 were stuck at 2011 levels, though the S&P 500 index had soared 87%.

So financial engineering – share buybacks to reduce the number of shares outstanding – works, kind of: It made the results look less terrible. But even these expert financial engineering methods, at a cost of $1.7 trillion, couldn’t doll up results enough to show any kind of earnings growth over the past three years.

Yet stocks have soared despite these miserable growth fundamentals. So what gives in this no-earnings-growth environment?

Turns out the only thing that has soared is the price-earnings multiple. Over the three-plus years, it expanded by 47% from a P/E ratio of 18.15 on January 1, 2014, to P/E ratio of 26.64 today:

This combination of flat earnings and soaring stock prices, and thus expanding P/E ratios, is not uncommon. It comes in cycles: periods of multiple expansion are followed by periods of multiple compression. The current cycle of year-over-year multiple expansion has lasted for 57 months, the longest on record. The prior three record cycles – which ended in 1987, 2000, and 2009 – turned into periods of multiple compression associated with blistering crashes. Read… This is Worse than Before the Last Three Crashes ( This is Worse than Before the Last Three Crashes | Wolf Street)

source:
The One Chart That Your Portfolio Manager Does Not Want You To See | Zero Hedge