This week, we saw an exciting signal change in the LAMPP, as our short-term indicator finally crossed over to red territory. I'll have details on that for you below.
But first, there's something we need to discuss…
I've been watching a big football-related problem on TV this weekend – but not the one you might think.
If you consume a lot of mainstream financial media, you've probably heard dozens of analysts talking about a magical place where trillions and trillions of dollars are stored just waiting to get into the stock market.
I'm talking about the "sidelines."
I'm sure you've heard it. A talking head on CNBC or FOX Business says something like, "There are trillions of dollars on the sidelines, just waiting to jump into the markets."
But here's the thing…
The "sidelines" are just as much a fiction as Oz or Narnia or Westeros. They don't exist. They're a fabrication. Yet there's no shortage of "experts" pointing to this financial fantasy land and positing that trillions of dollars will suddenly flood the financial markets.
The market is not a football field, and this is not a game, with players on the sideline just waiting to enter the game whenever the coach decides. The CNBC crew and its guest analysts act like they're calling play by play with live color analysis. They just love colorful code words that make them look insightful.
But that's not how the markets work. And any financial analyst worth his or her salt knows this. CNBC's play callers and color analysts, however, are in the financial infomercial business. They're not reporting financial news. They represent the marketers of securities trying to snag your investment dollars. Their job is to move you in the direction that their clients, the advertisers and program guests, want you to move.
Of course, in the last eight years, we have seen trillions of dollars appear from nowhere to inflate stock prices to the stratosphere. But it didn't "come in off the sidelines" like some heroic quarterback jogging into the huddle to save the day.
The Fed printed it. It came from the Fed's quantitative easing program.
So this money didn't come from the "sidelines." It came literally out of nowhere.
Here's Where This Financial "Fantasy Land" Came From
When it comes to the worldwide pool of liquidity, there are no "sidelines." This is not a football game. The money is in the banking system, and it circulates constantly through market transactions, the purchase and sale of securities.
Think about your own account. When you buy a stock, you pay a seller. Money goes from your account to the seller's account. The seller is not on the "sidelines" and neither are you. You had the money yesterday, they have it today. Most of the time, the guy on the other side of your trade is a dealer whose time horizon is a lot shorter than years, maybe only days or minutes, or milliseconds.
So somebody else will be holding that money in short order. And so on.
Financial analysts talk about the "sidelines" as though there are just millions of players waiting to enter the game adding their cash to the market. It does not work that way.
There are no sidelines. There's one massive pool of money. It exists all the time, and it circulates constantly. The stock market is just a point of transaction, a series of transactions. Money does not exist in the market. It exists in the banking system, all the time.
So why do so many analysts talk about the sidelines?
I'm no psychologist but, like you, I have been observing human behavior in the media and the markets for a long time. Most of us don't pay much attention to the repetitive processes that take place in human interaction. But it's part of my job to notice and to try and understand what's going on. Doing that better informs my analysis and my understanding of the markets.
Financial journalists and Wall Street media talking heads are, like most humans, guilty of groupthink and herd behavior. It may be difficult to ascertain how a silly idea takes root, but once it does, it becomes the currency of pseudo-reality.
Urgent: An $80 billion cover up? Feds use obscure loophole to threaten retirees… Read more…
The idea germinates somewhere. Perhaps it comes from the lips of a clever and influential economist, or Fed chair, or media analyst. Other talking heads hear it and think, "Yeah, that sounds good." Then what I call the Washington-Wall Street media echo chamber takes over.
Let's face it. CNBC's total daytime audience is tiny. Its average audience at any one time is no more than 200,000 people. But the performers who appear on its programming all know that other influential market players and spokesmen are listening. They want to sound smart, and they want to remain in step with their peers. The vast majority of them, other than the few "nutcase" permabears who are occasionally trotted out for ridicule, repeat these groundless myths so much that they simply become thought of as fact.
Take for example the idea that a 20% decline is an official bear market. Think about that for a minute. You will hear them say that about almost any instrument in creation, regardless of its normal volatility or normal range of movement. For example, the Dow Jones Industrial Average has very low volatility. It rarely moves 20%. The Nasdaq, on the other hand, is more volatile. Twenty percent moves are more common.
And what about commodities? How many times since the oil bear market started in 2014 has CNBC said that oil was in another bear market? It's the same bear market folks. It's not a new bull market when oil or any other commodity rises 20%, and then a new bear market when it falls 20%. That happens two or three times a year.
But you will hear this nonsense repeated over and over and over. And they even use the word "official" bear market. Official by what? What governing body has anointed 20% with some kind of official status?
No, it's just groupthink, herd behavior, the media echo chamber at work.
How the "Sidelines" Can Hurt Your Bottom Line If You're Not Careful
About the Author
Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.