Another Dead Cat Bounce - And They’ve Already Buried The Cat

That didn’t take long. We’ve just had another short-covering rip from the 1870 Bullard Bottom on the S&P 500 and it’s already petered out. Not even another one of the St. Louis Fed President’s bouncing billiard balls could keep the machines slamming the buy key.

And that’s why there is a monumental market storm brewing dead ahead. Yes, James Bullard is a complete joke who gives zig-zagging a whole new meaning. After yesterday’s about face from rate increase hawk to dove, I’d even be inclined to designate him as a “monetary whirling dervish”. His policy pronouncements fit the urban dictionary’s definition perfectly:

(n.) A person whose behavior resembles a rapid, spinning object. These actions are often spastic fidgeting and incessant babbling. The actions of the whirling dervish are irritating and annoying, often exhausting other people in the immediate vicinity.

You can’t disagree with that, but the issue isn’t Bullard; its the entire central bank policy regime that is now racing towards a fiery dead-end. Bullard is just idiomatic—–the least reluctant of what will soon be a desperately flailing gaggle of Fed heads trying to explain that recession has returned, but that they are out of dry powder without a clue on what to do next.

So it won’t be long before we get the big breakout to the downside. The stock market has been churning and cycling in no-man’s land between 1870 and 2130 on the S&P 500 for 700 days now. There have been upwards of 35 rally attempts and all of them have failed, including this most recent machine driven three-day spasm.

 

^SPX data by YCharts

It is a sheer understatement to say that the market’s generals are in full retreat and that the internals are looking ever more precarious. As to the latter, fully 60% of the S&P 500 members are down 20% or more and are thereby already wrestling hard with the bear.

Likewise, the FANGs haven’t been able to keep it up, either. After last year’s classic market top—-during which they gained upwards of $500 billion of market cap versus an equal decline for the other 496 companies in the S&P index——they closed down today by $150 billion from year-end levels. Even the generals—-who shed $20 billion of market cap today alone—– are out of firepower.

What is wanted now is the proverbial catalyst—–the take cover alarm that inevitably arouses Wall Street from its bullish slumber. Needless to say, it won’t be found in the technicals or even the earnings season results.

After all, we have just had another down quarter, and based on honest GAAP earnings that you can’t go to jail for reporting to the SEC, the LTM net income per share for the S&P 500 appears to be coming in at about $90. That’s down 15% from the $106 per share cyclical peak posted for the LTM ended in September 2014.

But technicals and earnings do not faze the casino because there is always another take on the stock charts; and reported earnings aren’t even noticed. It’s all about next year’s ex-items hockey stick, and that’s always 10-15% higher than the present.

In fact, for the completed year of 2015 the street consensus for ex-items earnings started out at $137 per share back in March 2014 and appears to be coming in at just $106. But then, what’s a 23% slippage factor when investors have not yet demanded a recall of the sell side hockey sticks.

In fact, the street 12-month consensus for 2016 now stands at $124/share (already down from $135 last spring); and $141 per share for 2017. Presumably, all of the economic headwinds and hiccups will have dissipated by then——-so what’s not to like about a two-year forward multiple of 13.6X?

The water’s warm, jump right in!

Then again, ponder this. The global economy is now visibly faltering under its incredible $225 trillion deposit of debt. The Red Ponzi has clearly entered the crack-up phase of its massive credit boom, and you don’t need Beijing’s medicated numbers to know the truth.

Global trade has started out the year in a pure disaster mode, and one way or another it all links back to China’s collapsing construction site and vastly over-built export machine. Last night Japan reported that imports had plunged by a stunning 13% from last year—–notwithstanding the BOJ’s unstinting efforts to destroy the yen and goose the fading export machine of Japan Inc.

But what is significant is that Japan’s exports to China were down 18%. At the same time, China’s own exports fell by nearly 11% from last January, while the export figure for India was down nearly 14%.

Indeed, there is no better bellwether of the global economy than Korea Inc, yet it reported that sales to foreign customers had come in at negative 18.5%. Likewise, not only were export’s from Asia’s second most important trading hub, Singapore, down 10% from last January, but shipments to China were down by a staggering 25%.

Let’s see. Which central bank is going to revive what is clearly a faltering EM world economy that is staggering under massive, unprecedented debts, and also an incredible surplus of everything?

Not the Peoples Printing press of China, which is desperately trying to stem a tidal wave of fleeing capital. They can for a time pretend that they are supporting the Yuan’s external value while injecting massive gobs of overnight cash into the domestic banking system, but that’s a hard and fast monetary contradiction.

Sooner or latter, and likely very soon, the red suzerains of Beijing will loose control of their exchange rate and face the mother of all capital outflows; or be forced into a domestic credit tightening that will bring down the entire $30 trillion mountain of debt. Either way, there is no avoiding a hard landing—–nay, a thundering crash—–in China, and with it a seismic shock to the phony global economy that has been erected on the back of the Red Ponzi over the last two decades.

Among other things, pick any German exporter to China and short it until the Kuhe komm nach hause (cows come home). That is to say, the unfolding breakdown in China will bring Japan and Europe to its knees as their high end machinery, technology and luxury goods export volumes continue to shrink

Needless to say, the NIRP twins are not remotely equipped to rollback the tide of global deflation and the resulting recession in trade and depression in CapEx investment.  Draghi and Kuroda have succeeded only in generating a veritable catastrophe in their home banking systems—-a fact that even the casino punters have noticed by taking their bank share down by 25% and 36%, respectively.