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Five Things: The Horror of $134 Billion


What does $134 billion look like?; the 944 S&P 500 battleground; the socionomics of pandemics and much more.

1) The Horror of $134 Billion

"[T]he educated classes, an ill-dressed, underfed, overdunk group of squatters with minds so highly developed that they were excused from good manners, tastes so refined in one direction that they were excused for having none in any other, emotions so cultivated that the only aberration was normality, all afloat here on sodden pools of depravity calculated only to manifest the pricelessness of what they were throwing away... a group of people all mentally and physically the wrong size."
- William Gaddis, "The Recognitions"

Unlike me, just now, as I was retyping it, Gaddis didn't have economists or political & religious fanatics in mind when he wrote that vicious harangue. Or maybe he did. It's a long book, on par with Joyce's "Ulysses" and a Pynchon novel in both scope and size, so who can really be sure? The point is that this is pretty close to where we find ourselves today, where the only aberrations are normality, drifting on sodden pools of depravity, calculated for the sole purpose of exhibiting the pricelessness of all we're throwing away.

You won't find that explicitly spelled out in the pages of The Wall Street Journal or in the Financial Times or on Bloomberg, but only because the numbers speak for themselves even as the words around them are calibrated for a finish in high-gloss. It's a dirty job, but someone has to do it. And like all dirty jobs, the last thing the people footing the bill want to see is evidence that some type of work has been performed here. It's why most kitchens are separate from dining rooms. And why acts of Business tend to happen behind locked doors, or at night.

It's always shocking to see Business conducted out in the open, but it's especially awkward when you just happen to stumble into it. Which is apparently what happened in Italy this week when two Japanese citizens carrying $134 billion in undeclared U.S. bonds were detained while trying to enter Switzerland.

The opportunities to view $134 billion dollars are exceedingly rare. Most of us will never in our lifetimes see more than $10,000 or $15,000 up close. And so I've been transfixed all morning by a photo that ran on the news service Adnkronos.

That's it. The horror of $134 billion dollars is that it fits inside a suitcase.

Of course, the smart money bet is that the bonds are counterfeit. Only a fool would take the other side of that line. Which, if you think about it, is all the more horrifying; the fully cast simulacra of $134 billion dollars.... the awful third order of the precession of the image where the reproduction displaces the original.

"[T]he greatest artist that there ever was... Jim the Penman, he drew every bill by hand, for twenty years he was a success. And what happens? Some dumb grocery clerk smudges one of them with a wet hand. When he was tried, you know what the defense was? He was an artist. Any of his work was worth more as a work of art than what the government was shoving."
- William Gaddis, "The Recognitions"

2) 944.43

This has been THE S&P 500 battleground over the past 9 consecutive sessions.

944.43 is the TD Absolute Retracement level from the March 6 low. See chart below.


What we have been watching for is a qualified break of that level to signal the SPX is ready to put that in the rear-view mirror and attempt to scale to a new level above 1000. Yesterday's higher close following a prior down close "pre-qualified" that level as a potential breakout, but in order to meet all the requirements we needed for today's open to be above yesterday's close. That not be the case, so the battleground level remains.

Meanwhile, note that yesterday's high, 956.23, finally met the TD Propulsion Up Exhaustion level at 954.12 (shown in light blue on the chart above).

All of this increases the probability that the significance of 944.43 remains valid as a ceiling, and that the churn is closer to wearing out buyers than eliminating sellers.

3) The Socionomics of Pandemics

The main tenet of Socionomics is that social mood drives social action, not the other way around. This view upends traditional causality and how events are presented in the media. For example, it would be a natural assumption by most people that pandemics, such as the rapid spread of the H1N1 "swine flu" virus, would cause people to become more negative and fearful. The reality, however, may be that negative social mood trends make people more susceptible to pandemics.

This thesis was recently outlined in a new publication from the Socionomics Institute, called "The Socionomist."

"Socionomics posits that the trends in social mood - widely-shared feelings including those of optimism and pessimism - unfold in a hierarchical pattern of similarly-shaped waves that are visible in charts of stock prices, our most sensitive meter of social mood. Major epidemics occur near lows in social mood - often near significant, fearful bottoms in stock prices - and can persist well into the subsequent uptrend."

The silver lining here, if there is one, is that the potential peak of the spread of the H1N1 pandemic, which the CDC believes may occur later this year and early next during the typical flu season, will likely coincide with a significant low in stocks, if we have not already seen it.

Take a look at the charts below compared side-by-side. The first chart, from Realty Trac, shows aheat map of incidence of foreclosure. The second one shows incidence of H1N1 spread via MSNBC.


4) Running to Stand Still

Speaking of Socionomics, the timing alone of this ongoing New York Times series, "Happy Days - The pursuit of what matters in troubled times," speaks for itself. But take a look at a recent piece called, "The Joy of Less."

The entire piece is worth a read, but this paragraph really sums up the deepening shift in attitudes toward consumption and happiness and the desire for quietude:

"If you're the kind of person who prefers freedom to security, who feels more comfortable in a small room than a large one and who finds that happiness comes from matching your wants to your needs, then running to stand still isn't where your joy lies."

5) News & Weirdness

Citigroup Investment Pays Taxpayers Triple Return of Standard & Poor's 500 - Bloomberg
The good news: Looks like we've "reaped" (Bloomberg's word) a return of 7.5% on the $45 billion used to rescue Citigroup (C), more than three times what we would have made on the S&P 500.
The bad news: We re-invested it in U.S. Treasury bearer bonds through a couple of Japanese dudes in Italy (see number one, above).

Consumer Confidence Hits 9-Month High - NYT
Thus, the counter-trend rally in social mood hits a peak.

Strain on Workers Rise - USA Today
People who still have jobs are faring worse than at any time since the Great Depression, a USA Today analysis finds.

Rise of the Recessionistas
- Christian Science Monitor
"Fashion meets frugality as self-confidence, pragmatism drive labels to broad market."

Lilly Sold Zyprexa Drug for Dementia Knowing It Didn't Help - Bloomberg
Eli Lilly Co. (LLY) urged doctors to prescribe Zyprexa for elderly patients with dementia, an unapproved use for the antipsychotic, even though the drugmaker had evidence the medicine didn't work for such patients, Bloomberg reports. Clearly, they must have assumed the patients wouldn't be able to report that the drug didn't work because, you know, they had dementia.

Harvard Psychiatrist Explains Zombie Neurobiology - io9
"Schlozman suggests that mirror neurons also help explain the popularity of the zombie genre among the living. While watching these movies, "we like the permission to look at these things that look human - but aren't human - and have utter and complete permission to blow their heads off.""
No positions in stocks mentioned.

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