SP and Nasdaq 100 Futures

Here is where the equity markets stand.

Remember that tomorrow is options expiry for February.

As an aside, the bear raid on gold that occurred in conjunction with a non-announcement from the IMF about their previously announced gold sale did not stick, with prices snapping back today to the paint at which the raid hit, first the miners, and then the metals, largely in the thin after hours trade.

Next week is an option expiry in the metals futures markets, and the US is planning on auctioning an enormous amount of Treasuries, so we would not be complacement at this point.

Still, it was gratifying to see that Dennis Gartman bought back the gold position he sold before the rally. He sold at the bottom, let's see if he can do better and not jinx us for a short term top.

Risk? What Risk? We Don't See No Stinkin' Risk..

"It is the absolute right of the state to supervise the formation of public opinion." Paul Joseph Goebbels

As measured by the VIX, the volatility index, the perception of risk in US markets has declined significantly in the last twelve months from over 50 to current readings around 20.



As a response to this changed perception, mutual funds are once again fully invested, with levels of cash reserves at record lows. In other words, the 'other people's money' crowd are all in.



There is an interesting distribution top forming in the US equity markets. This rally has been driven by liquidity delivered from the Fed and the Treasury primarily to the Wall Street banks, who are deriving an extraordinary amount of their income from trading for their own books, at least based on published results.

Much of the rally in US stocks has occurred on thin volumes and in the overnight trading sessions. Definitely not a vote of confidence, and a sign of potential price manipulation in fact.

Is this a 'set up' to separate the public from even more of their own money, using their own money? Perhaps.

The government is frantic to restore confidence in the US markets, and the toxic asset rich banks are more than capable of using that sincere interest to unload their mispriced paper on the greater fools again.

The perception of risk is a powerful tool in shaping the response of markets, and as an instrument of foreign and domestic government policy actions. It is nothing new, as indicated by the quote from Joseph Goebbels, but it is rising to new levels of sophistication and acceptance in nations with at least a nominal commitment to freedom of choice and transparency of governance.

"There is a social theory called reflexivity which refers to the circular relationship between cause and effect. A reflexive relationship is bidirectional where both the cause and the effect affect one another in a situation that renders both functions causes and effects.

The principle of reflexivity was first introduced by the sociologist William Thomas as the Thomas theorem, but more importantly it was later popularized and applied to the financial markets by George Soros. Soros restated the social theory of reflexivity eloquently and simply, as follows:

markets influence events they anticipate – George Soros

This theorem has become a basic tenant of modern central banking. The idea is that manipulation of the psychology of market participants affects the markets themselves. Therefore, if you artificially suppress the price of gold, you reduce inflationary expectations and reduce inflation itself…so the theory goes."

Why Do the World's Central Banks Manipulate the Price of Gold?

For now we must watch the key levels of resistance around 1115 in the SP. A trading range is most probable but there is a potential distribution top forming with a down side objective around 870 on the SP 500.

It does bear watching, closely, keeping in mind that this is an option expiration week, and the traders expect the market to misrepresent its price discovery, as the result of conscious manipulation.

SP Futures and Options Expiration

It's that time of month again, when the option players are gamed by the broker dealers and the hedge funds.

Volumes are light, and the market is range bound.

It needs to break out decisively from the area of resistance, otherwise the formation of a distribution top starts to look compelling.

Why the 'Trickle Down' Approach Is Not Working in the US

The approach taken by the last two administrations to the financial crisis has been to pack liquidity into the big Wall Street banks, certainly not the regional and local banks, without serious reform.

The notion is that by 'saving the banks' they will be able to support the real economy with loans to spur economic activity. It is the same mindset that provides for huge tax cuts to the top end of the income chain, the very group that benefited from the latest bubble. Its a variant of the 'trickle down' theory popularized by the Republicans under Reagan.

The banks prefer to take the Fed and Treasury money and guarantees at near zero percent cost, and loan it back to the public (after all it is their money) in revolving credit (credit cards) at 18%. It's a sweet setup, provided by the Fed and the Congress. Long term loans and leases? Why bother.

If they want risk, they shove the speculative markets around and make side bets on the failure of companies and now, even nations. Failures, we should add, that are intimately tied into various frauds marketed by the banks themselves.

This is the fatal policy error at the heart of the failure of the Obama Administration and the Fed to intervene effectively in the collapse caused by the Fed's heavy handed manipulation over the past fifteen years.

In fact, one could easily make the case that their intervention does much more harm than good, placing additional debt burdens that are strangling the productive economy, serving only to support and perpetuate a distorted and outsized financial sector concentrated in a few elite corporations that are heavy contributors to the Washington politicians of both parties.

It's trickling down all right. But not in the form of productive allocation of capital.