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Dumb Money Spread Hits 5 Year Extreme

  • Written by Syndicated Publisher No Comments Comments
    December 12, 2010

    One of the sad side-effects of taking away investment risk, as Ben Bernanke has done with his “global put” doctrine, is that the old maxim of the market staying irrational far longer than anyone can possible imagine, can now be exponented to some irrational infinite number (to throw some wacky number theory into the equation). Whether Bernanke can also succeed in defying nature and mathematics in broad terms remains to be seen: we have yet to see a system that can diverge from equilibrium in perpetuity without some very unfortunate unanticipated side-effects somewhere. Yet with the bulk of day-trading systems now primed to do nothing but chase momentum, this divergence could lead to unseen previously deviations. We are confident that while printing a reserve currency (whose reserve status is rapidly diminishing) is one prerogative that Ben has, changing the laws of thermodynamics is one field where Bernanke will fail. Nonetheless, in its attempt to destroy all bears, only to be followed by the annihilation of all bulls (as the TBTFs pocket all the margins, and capital gains) the market continues to be nothing less than a casino primed with far greater house odds than even the worst slot machines in Atlatnic City. And just like in AC, accrued profits are not real, until taken. And if taken one second too late, they merely become deferred losses. That said, we would like to present some very factual representations to just what extreme level the market has been overbought in this latest year end push to make hedge fund managers richer (who are the only ones who get to be paid at year end without booking profits, of course assuming they beat the S&P, which means about 33% of them). Courtesy of www.sentimentrader.com we can observe just how irrational the market has become… As to how much longer it can sustain this, feel free to address your questions to the Chairman.

    First, we present the confidence of smart and dumb money. Never before has it been as self-gratifying for “dumb money” advocates (i.e., those who do nothing but “trade the tape”) to exude a sense of complacent all-knowingness. After all, they will always be able to sell just ahead of the wipe out…

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    Charting A Ridiculously Extreme Market, In Which The Dumb Money Is The Most Confident It Has Been In 5 Years | zero hedge.