Juggling Dynamite

David Walker, Founder and CEO of the Comeback America Initiative and the former Comptroller General of the United States, is appalled by the lack of leadership and cooperation in Washington.

“We are here because of failure of the president, a failure of the Senate and a failure of the House to reach a reasoned and reasonable to avoid the sequester,” he says. “It is a global embarrassment.”

He says it’s time for Americans to come together and insist that our elected leaders start to actually lead, instead of intentionally putting us into crisis after crisis. “We the people have a responsibility to put pressure on our elected officials whether they be democrats, republicans or independents to do a deal and if they don’t do a deal, to throw them out,” he says.

And if Congress cannot make a deal, Walker is among a growing contingent who believe lawmakers should not be allowed to go on break. “No deal. No break,” he demands

. Here is a direct link to the video interview.

During secular bear periods, markets tend to revisit prior cycle highs and then retest prior cycle lows several times over 15-20 years. With the Dow at its third cycle peak, now once more near its 2000 and 2007 highs, we are about to see whether this secular bear is ending early after just 13 years, or about to enter the next cyclical bear market. Does the economy feel lucky?

Mark Hulbert, The Hulbert Financial Digest, explains what historically happens when the market hits new highs. Here is a direct link.

One thing seems clear: if the US economy is supposed to break out into a new secular boom phase from here, the 2/3rds that is dependent on consumer spending is not likely to be much help. This morning we learned that not only did the US consumer have the biggest income drop in more than 20 years in January, but the personal savings rate has now plunged back to the anemic levels seen in 2007. This is the opposite of progress. Historically, secular bears end when debt levels have been worked down and savings rates have been built up. This chart is not going in the right direction.


Chart source: www.zerohedge.com

One of the red flags about the durability and stability of the stock rally since 2010 has been a down trend in volume in each successive up leg and a surge in volume only on down days. People remember the flash crash of May 2010 when the Dow dropped a 1000 points in one day, but few realize there have been a series of mini-crashes in various markets ever since. Markets which are thinly participated are inherently less robust and are more susceptible to high volatility. Our own technical work has highlighted this as a major capital risk repeatedly. Volume has always been a key indicator of market belief and for decades price has always followed volume. This is an inconvenient truth for those who wish to entice greater fools into markets at all times, and so many have taken the position that in our brave new world, volume no longer matters.

Today High Frequency Trading (HFT) is a major driving force in what has become the circus of public markets, now accounting for some 70-80% of volume traded in a given day. Most of these trades are not even completed as they are entered and then cancelled in milliseconds. Truthfully HFT volumes express a false or at best speculative interest more than any expression of “investment” interest. And most importantly, HFT that has unduly effected prices to the upside over the past few years, can also unduly effect prices to the downside as algos extrapolate and magnify selling volumes once bear markets get underway. Thankfully there are still a couple of us who have not drunk the “crazy” Koo-laid.

CNBC’s Rick Santelli explains why it’s important to take a look at a temporary reversal in a stock’s price, along with exchange volume and open interest. Here is a direct link.