Where is Everyone?
Most people are woefully underfunded for their retirement. Surveys tell us that most people are rushing into their late 60's with under $50K to their name. Add in an economic collapse, an out of control Fed, lying regulators, Bernie Madoff, and so on and we sit here asking ourselves: “Where has the stock trading volume gone?” We are trading at 46% less volume now, than we did in 2007. Today, 70% of the trading is ‘high frequency trading’ - accomplished by machines trading back and forth to one another in nano-seconds. If you discount those - the true volume levels are less than 20% of what we had in 2007! So where did everyone go?
The answer is a lot easier than the rationale. Every day for the past 4 years CNBC has talked about all the cash on the sidelines, and they are absolutely correct. Approximately $8 Trillion is parked in some form of make believe "security". America's combined demand deposits, checkable deposits, savings deposits, and time deposits have hit an all time high. Why is this – because people are tired of the lies, flash crashes, fake accounting, insider trading, screwy earnings, FASB mis-regulations, FED manipulation and finally Wall Street loosing their money! And this is why the game for Obama and The Ben Bernanke, Geithner and the entire EU is so very important. They have no choice but to try and get this market "up", and lure folks back into the market. Yes, they want it up so that they can point to it and say: "Look how great the economy is!" But they also need it up, to try to beg folks to come back to it because currently the only thing keeping our market liquid is high frequency trading. And without a ‘liquid market’ companies can’t live or hire! This is why you can have the slowest volume day in a year, and yet gain 180 points. This is why you're up 200 one day, down 190 the next. For all intents and purposes, the market is "broken". The Ben Bernanke is trying to entice people back by giving primary dealers money every day, so they can buy AAPL (and the likes) and keep the market alive. He hopes that if they rig it higher, that people's greed will take over. They'll worry they are missing the train and want to hop on.
Unfortunately the over 60 year olds are thinking: "Screw this, one more bad market crash and I'm eating dog food for retirement". The over 50’s are saying: “You want me to come out of bonds, cash and money markets, to invest in insolvent bank stocks?" We’re caught in a period that has the potential to be many times worse than the Great Depression. Consider this: in 1930 the entire population of the US was 122 million people – currently we have 47 million on food stamps. In 1930, Europe was doing well – currently Europe is a disintegrating disaster.
Unfortunately for The Ben Bernanke, I don't think the masses are coming back to the market any time soon. They'd rather be comfortable with the return OF their money, than any return ON their money. They see all the ills in living color and they wonder how on earth can the market be going up, when everything looks so dim? Then they think about it and they remember 2007 and the market crashing to 6600. Oh – by the way – if everyone did manage to come back into the market, and that wave of $8 Trillion rushed back into equities, the resultant wave of inflation would probably run somewhere in the 25% range, and ultimately end up destroying the economy and the market. So maybe it's best if everyone just stays away!
We exist in a period that will be awfully frightening for the next few years. Not only:
- are baby boomers retiring,
- we’re having a nasty election year,
- a massive tax bomb is going to land on us soon,
- there is no real volume in the markets,
- debts are piling higher and higher,
- Spain is just one announcement away from implosion,
- we’re going to continue to see dramatic volatility;
- therefore, this market is NOT for the faint of heart!
Notice, I did not mention earnings. I did not mention them, because lately they’re an excuse to explain things more than they're a reason for doing anything. For example: Google’s estimated over 90 days ago – that it would post $8.14 B in revenue for this quarter. Now Google is basically a pay per click advertising company and is really at the mercy of how many Internet searches the public does. This week they posted earnings and guess where the revenues came in: $8.14 billion. Magic aye?
Earnings are becoming humorous. We are seeing one-time charges applied to energy, payroll, and taxes. Yet the tradebots are programmed to read and react to all the news. Tradebots today are programmed to look for certain word patterns in a press release, and based on the probability of that word string being positive or negative trade it, or fade it.
So, given we have chop – you can only deal with it one of two ways: day trade or sit on your hands. In the robo trading world we live in now, once a clearly established trend is over, (and the last trend ended in mid March) trying to hold things can get you killed.
Right now the DOW and S&P are under their 50-day moving averages. That is something that hasn't happened since November. If they don't get significantly over these averages and soon, the chances for more "correction" are very strong indeed.
In the first quarter of 2012 the NASDAQ gained 18%, while the DOW and S&P gained 13%. These are great gains for an entire YEAR, yet we got them in 4 months; therefore my finger is currently firmly planted next to the "hide in cash" button. It won't take much for me to make the move and let all that money sit in a money market doing nothing.
As the rest of this earnings season shapes up, we're sure to see big up days and big down days. However, on a technical level, I see more reason to believe the market will fall, more than I see a reason for it to climb back to the recent high at 13,300. Now having said that - more QE is coming. When QE is announced you're going to want to be very LONG as we could gain 500 points in a couple days. But since we don't know when they will announce it, the market is free to fade, bounce, fall, bounce – so please be careful out there.
I sold the DIA puts last week for a tidy profit – that was just a matter of timing – and I’m sitting on very little other than my old stand-buys of Gold and Silver:
- HD in at 50 (currently = 50.96) – stop at 50.40
- AIG in at 30.22 (currently = 32.31) – stop at 32
- GLD (ETF for Gold) – in at 158.28, (currently 160.6) – no stop, AND
- SLV (ETF for Silver) – in at 28.3 (currently 30.60) – no stop.
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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