The volatility index is equivalent to 2008-2009 crash situation. What does it means?

As my article on, the reversal is back, still have high hittings till now, many will still have doubt about the technical rebound last week. Let's explore again the short term volatility. 

You have probably heard this stock market truism. What everyone knows has no value. I don't know how many will agree on this, but let's see the several components.

If you base on your decision on the same context and conclusion as everyone else it's difficult to develop much of an edge. Unless it is completely manipulated,.the market generally doesn't reward what everyone knows, ie. the consensus is long. 

What everyone knows often includes trends and targets. One viewed the market as a mechanism taking as much money from the consensus as possible. Taking as few traders as possible along on bullish runs higher and punishing as many traders as possible on bearish declines.

What does everyone not know that might have value? Is there some contrarian values in what everyone knows? 

Everyone knows the American market and Japanese market is levitating higher as money is created and pushed via currency fluctuations into stocks. What nobody knows is the eventual consequences of all this manipulation. In less manipulation market, we would see and expect the consensus to eventually be punished. But in central planning manipulation markets, the feedback is that the foundation of open markets is being suppressed. 

Feedback is another way of saying the information from the real world is allowed to enter a transparent exchange. We know that the exchange is no longer transparent, what with dark pools and high frequency trading machines. We also know signals from the real economy are not the dominant market movers.

What we know but cannot say out loud, is the US policy makers is manipulating the market higher. But don't fight the FED?  Because they have lost their ability to manipulate the economy. The political and financial elites would prefer to extend their neofeudal dominance by expanding the traditional foundations of debt based prosperity to increase household income so households can spend more and service more debts.

With household incomes for the 90% in structural decline, they have failed. Reasons?  They don't know or dare not disclose. 

The only control is to lever pushes the stocks higher. Publicly the Top Notch has justified goosing the stock market and other assets higher as the only way available to trigger the wealth effects.

Feeling wealthier, people goes out and buys a bunch of junk they doesn't need boosting demands and banks profits. As for the fact the income is declining or the other way round?  This you have to answer honestly.

Feeling wealthier, as your assets are posted,  you will follow the herd into riskier bets and going deeper into more debts. The 90% of most have no meaningful exposure to the stock market-- well don't you feel  things are picking up when you see those " Dow hits new high" headlines. Of course you do.

That's the propaganda value goosing the market higher. When this casual between risk and consequences has been severed, we called it moral hazard. When banks keep their gambling profits and taxpayers cover their losses, this is moral hazard writ large.

"Go ahead and sink your wealth and income into risky stock and housing because we have your back, we will never let the stock and housing goes down again" That's the only effective way will promote to all participants. 

Do we know if this campaign of extending moral hazard into every market is sustainable in the long term? The answer is very obvious. So keep in mind the size of the market the FED is manipulating. $85 billion into the stock market. (15 trillions ) and the housing market (17.5 trillions) its also manages the purchases of all futures markets via proxies in billion of dollars. Not hundreds of billion.

So they are leveraging a relatively modest amount of money to control and manipulate the very large market. Because of the percentage of trade volume daily is not large. How if the volume becomes larger?

Should the herd that actually owns most of the stocks ( the pension funds, mutual funds, insurance funds and etc.) get spooked and began to book their profits the 85 billion will be revealed too small to stem the tide.

Now that it's beginning to end, what is next? Another greater en masse assets purchasing greater than before or face the spectacular financial disaster made by the team of shameful US political policy makers. 

The key of their success in the last five years are trust and believe. But the whole game really rests on the participants trust and believe based on the information made available to them. If the information from the real market is suppressed and limited to them, then the decisions made by the participants will necessarily misinformed ie.wrong.

What happens when a bet that can't lose, in fact lose. Trust is definitely lost.

Moral hazards does not lead into positive outcomes. It's easy to project the past into the future. But what observers seem to ask is, what happens to the believe system that supports the stock market when trust and credibility by central planning manipulation that failed?

What is truly interesting is the failure of narrow elite dominated nation, how cities dominated by narrow elites fail, how state dominated by narrow elites fail, and indeed any organization that serves the interest of a few of the expense of the many fails for the same reasons.

If feedback from the real world is suppressed? What will you do?

The only choice for participants who has lost faith in the central planning's promise of permanently higher markets will have to be to abandon the market entirely.

Will you? Or else.

Do you believe the central planning will have to increase their massive intervention, on time? Or abandoned it? 

Till then.
 

P/s: the only option now is stick to the corporations that knows how to maneuver the volatility. Maybe?