October 20, 2016

Technically, the move in the stock market that began in March 2009, when the stock market bottomed after the 2008 financial market de facto collapse, should not be termed a “bull market” because it required several trillions of Central Bank and Government intervention to move the stock market. Definitionally the stock market is no longer a “market” – rather it’s an intervention.

Having said that, with the entire financial world – especially Wall Street analysts and financial media boobs – focused on the S&P 500 and the Dow, the NYSE Composite, which covers every stock traded on the NYSE, has begun what is likely a bear market that started from its record high of 11,254 on May 21, 2015:

As the graph above illustrates, the NYSE Composite index – every stock that trades on NYSE – is down close to 6% since May 2015. The NYSE Comp is more representative of the stock and more reflective of the deteriorating conditions in the economy than are the SPX and Dow, which are used as propaganda tools by the financial market and political elitists.

In fact, as has been demonstrated in several places in the alternative media, as it turns out just a handful of the largest cap stocks are keeping the SPX and Dow in what appears to be a “bull market.” This graph below sourced from Zerohedge shows the performance of the SPX with and without the infamous “FANG” stocks (FB, AMZN, NFLX, GOOG):

As you can see if you strip out the FANG stocks from the calculation of the SPX index, the index is flat going back to the beginning of 2015. Yet, the SPX hit an all-time high in August 2015. Qu’est-ce que c’est? As explained in the ZH article: The FANGS “have gained $570 billion of market cap or nearly 80% during the previous 19 months” [Jan 2015 – Aug 2016]…”if you subtract the FANGs from the S&P 500 market cap total, there had been virtually no gain in value at all.”

I wrote to my Short Seller Journal subscribers this past weekend:

NYA began diverging from the SPX and the Dow back then. It points to broad overall weakness in the stock market relative to the biggest stocks by market cap. This pattern in the broader stock market is also more reflective of the economic reality of a deteriorating economy. Small and mid-sized companies are experiencing deteriorating fundamentals which is translating into deteriorating market caps. SSJ for October 16, 2016

The point here is that economic reality is diverging from the propaganda infused message that the Fed, Wall Street and politicians want us to buy into. The housing market illustrates this perfectly. I have been detailing in my blog the methodology by which the Government manipulates the new home sales statistics. This morning it was reported that housing starts for September plunged 9% from August. Of course the media puts its propaganda spin on this. For instance, Bloomberg attributes the drop to multifamily starts. But multifamily starts is the metric that gave the housing starts report any “legs” to begin with. Marketwatch references a “durable recovery.” But does this look like a durable recovery?

New single family home sales – despite the trillions of dollars infused into the housing market by the Federal Reserve and Government – never got any higher than where they were in 2008 after the housing bubble popped and sales had already dropped by 66%. Before that, the last time single family home sales were at Marketwatch’s “durable recovery” level was in 1995!

And in truth the methodology used by the Government to present new home sales (Seasonally adjusted annualized rate based on highly questionable Census Bureau data collecting) grossly overstates the true level of new home sales at any given time. The same can be said for the NAR’s existing home sales. Like everything else in our system, the housing market activity is primarily a product of the propaganda and not real economic activity.

The point here is that underlying economy is far weaker than the propaganda coming from the elitists would have us believe. They can stimulate fraud and deception all they want but ultimately they can not force a shrinking middle class with rapidly shrinking disposable income from spending money.

More important, you can make money from this insight because most stocks in the stock market have been going lower since mid-2015. This pattern in the broader stock market is also more reflective of the economic reality of a deteriorating economy. Small and mid-sized companies are experiencing deteriorating fundamentals which is translating into deteriorating deteriorating market caps (from the latest Short Sellers Journal)

Every week I provide proprietary insight into the economy and markets in the Short Seller’s Journal. I also highlight at least two or three short-sell ideas. Most of these ideas have been working now since early August (late Fed to late July was rough). As an example, in the September 18th issue I presented Credit Acceptance Corp, a subprime auto loan finance company with a balance sheet that is a ticking time bomb, with the stock at $198.60. It’s trading today at $183 – down 7.8% in less than 4 weeks – despite a largely flat SPX in that timeframe. CACC will eventually be cut in half from here, at least.

SSJ is a monthly subscription that is published weekly. I also provide some ideas for using puts if you are not comfortable shorting stocks and I also disclose when I participate in the ideas in my own account. You can cancel at any time – there is no minimum commitment. You can access more information on the subscription here: Short Seller’s Journal.

Here’s another example of the insight and analysis provided in the SSJ:

Another interesting report out last was China’s exports for September, which were down 10% year over year in September vs. -3.3 expected. The US and Europe are China’s largest export markets. If China’s overall exports dropped 10%, it’s mathematically probable that US and EU imports from China were down more than 10% in September. It also implies and reinforces the thesis that US consumer spending is contracting (of course, if this drop in exports from China translates into a narrowed trade deficit for the US, that will be spun as a positive by the financial media!)