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Knowing What Everybody Knows


Contrary opinion is a funny thing. You don't want to be contrary for the sake of it. You don't want to be a cynic for the sake of it.

And everybody knows that you're in trouble
Everybody knows what you've been through
From the bloody cross on top of Calvary
To the beach of Malibu
Everybody knows it's coming apart
Take one last look at this sacred heart
Before it blows
And everybody knows

--Leonard Cohen

"I like a good cigar, but I take it out occasionally."
--Groucho Marx on his show, You Bet Your Life. His response to a beautiful contestant when she is asked "how is it you have seven children?" She replies "Well I like …"

Everybody knows the markets around the world are riding a wave of liquidity. Everybody knows that almost all asset classes are awash with liquidity and continue to levitate higher. The question: Is what everybody knows worth knowing? The short answer is for a time yes, but ultimately I think no. History has proven that.

All you have to do is look at a chart of Terra Nitrogen (TNH) to understand how well fertilized the notion of momentum has become embedded in the market place: Investors are forcing their way into stocks. It's ten pounds in a five pound bag; and investors can't wait to hold the bag apparently.

But where's the urgency? Where's the fire? I suspect we will find out when someone shouts "fire" in this show.

Again the question: is what everybody knows worth knowing? Contrary opinion is a funny thing. You don't want to be contrary for the sake of it. You don't want to be a cynic for the sake of it. Rather, you want to see a real universality of opinion as timing such extremes in emotions, timing the exhaustion of juggernauts is a difficult task.

Groucho said "I don't want to be a member of any club that wants me as a member." The Groucho Syndrome is infectious, but you can't bet against the bandwagon mentality willy-nilly because the crowd mentality can persist for some time. Sometimes you want to be part of the club. We remember the market truth that the most money is made in the quickest time during the end run – both up and down.

Such was the case during the waterfall low into the end of July 2002. The range that month in the S&P was 218.75 points. Ditto the climax run into the March 2000 high when the range on the S&P was 206.25 points that month. As above, so below. There is an underlying symmetry in markets that is undeniable. There does seem to be an order within this inchoate structure.

Since the March 14th shakeout low of 1364, the S&P is up over 247 points in seven weeks.

Interestingly the blow-off into the March 2000 top saw a key reversal on the seventh week.

The Waterfall decline into July 2002 saw a key reversal on the eighth week.

The advance up into the February 22nd top this year was a seven week run. Last week marked the seventh week up on the Weekly Swing Chart from the mid-March low.

Everybody knows this sea of liquidity has been a price tsunami flushing out any and all concerns. These include last week's comments from the New York Fed about high risk from hedge funds' leverage as well as comments from the Central Bank of China about a bubble mentality.

Everybody knows the real estate bubble burst. It's interesting that the liquidity argument didn't cushion that asset class. No one knows what the handwriting was on the wall at the top of the real estate market; no one knows what the catalyst in that asset class was that caused the peak. But, everyone knows that can't happen to equities, can it?

Everybody knows that momentum is dominating and will continue to do so until it doesn't and that it won't be a pretty picture when it ends. But no one knows what the catalyst will be. What if, as in the real estate market, there is no culprit to sound the alarm? What if the liquidity river can run downstream as well as upstream?
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