Gee, We’re All On One Side Of The Boat Now — Long The S&P 500, NASDAQ, Dow, Eurozone Stocks, The Nikkei….

by Charles Hugh-Smith

It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water.

Gee, we’re all on one side of the boat now–long the S&P 500, NASDAQ, Dow, Eurozone stocks, the Nikkei, not to mention rental housing, junk bonds, bat quano, ‘roo belly futures and the quatloo–basically every “risk-on” trade on the planet–is that a problem?

The conventional (and convenient) answer is “nah–stocks can only rise from here.”So what if market bears have fallen to 15% or less? So what if 85% of investors are on the same side of the boat? You’d be nuts to leave the winning side, the trend-is-your-friend side, the “don’t fight the Fed” side, the side with all the “smart money.”

It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water. With the sea remarkably calm (i.e. no waves of turbulence or volatility), the fact that the boat is overloaded doesn’t seem dangerous.

But once the sea rises even a bit and water starts lapping over the gunwale, the “guaranteed safety” of the bullish trade might start looking questionable.

When the boat takes on water quicker than anyone believes possible and capsizes, it will be “every punter for himself.” But few longside punters are wearing lifejackets.

This is all Investing 101: be wary of extremes of euphoria and confidence and being on the same side of the trade as everyone else. Yet everyone continues adding to their long positions without adding portfolio protection (puts, etc.):

Three indicators suggest this move will reverse shortly, either in a “healthy correction” or a reversal of trend–which one cannot be determined until the downturn is underway.

The rapid rise of the market has traced out a bearish rising wedge. This pattern usually leads to some sort of correction. The MACD histogram is divergent, dropping to the neutral line as the SPX has soared ever higher. Lastly, price has pulled away from both the 50-day and 200-day Moving Averages, suggesting the rubber band is remarkably stretched.

Round-number attractors are close at hand. The SPX at 1798 is two measly points from the round-number attractor of 1800, and the Dow at 15,961 is a coin-toss away from its round-number attractor of 16,000. This level will invite great cheering (“new all time high,” never mind adjusting for inflation) and also present an opportunity for the imbalanced boat to capsize.

Even more astonishing, the crowd is also betting on volatility declining from extreme lows. Look at the put and call options on the VXX, a security that tracks the short-term volatility of the VIX: at the money December calls (bets volatility will rise by December 20) number 311 while puts (bets volatility will decline some time between now and December 20) number 11,265.

Hey, you 311 bears! Join us 11,265 longs on the guaranteed winning side of the boat! Uh, thank you for the kind offer, but no thanks. Though the uncrowded side is uncomfortably above the water at this point, with 11,265 fattened Bulls on the side close to the waterline, the few on this side are less likely to be trampled when physics trumps psychology.

Hey all you PhDs in Behavioral Economics: perhaps you could investigate the “how many angels can dance on the head of a pin?” nature of this psychological conundrum: the market can only do what few expect of it, so if everyone is looking for bubbles, there can’t be any bubbles. But what else do you call a market that rises 10+% in a mere 6 weeks?

In other words, if people are looking at the market and realizing it is dangerously close to capsizing, then it can’t capsize because the market can only capsize if nobody expects it. The absurdity of this argument is revealed by turning it around: if Bulls confidently expect the market to keep rising, then how can it rise when everybody expects it to rise?

The answer to the question “how many angels can dance on the head of a pin?” is the same as the answer to the question, “How many Bulls can crowd on one side of the trade without capsizing the boat if there are 311 Bears on the other side?” The absurdly concise answer is 11,265–at least for now.

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Gee, We’re All On One Side Of The Boat Now — Long The S&P 500, NASDAQ, Dow, Eurozone Stocks, The Nikkei….

Economy and boat people key issues in Australian poll

Tony Abbott (left) and Kevin Rudd are due to face off in election scheduled for September 7

• Australians will go to the polls on September 7


• Border protection and the economy set to be key issues


• Both parties likely to agree on education and national broadband policy


• The media to play a strong role in what has proved to be a fickle electorate

(CNN) — Australians go to the polls in less than five weeks to vote in elections that will decide on policies as diverse as how the country polices its borders, how it manages its greenhouse emissions and how it plans to roll out a national scheme to connect every part of the vast continent to the Internet.

Just weeks after ousting rival Julia Gillard, Prime Minister Kevin Rudd on the weekend called a national election for September 7, rallying the Australian Labor Party faithful to stand behind the party’s policies on education and the economy.

“We’ve got one hell of a fight on our hands,” Rudd said in an email to supporters.

“I have a positive vision about the country we can be. In this election I’ll be talking with Australians across the county about better schools for our kids, investing so we can create good jobs, and about how the NBN (national broadband network) can help keep our economy strong.”

So what’s at stake:

1.The asylum-seeker issue

No area of policy is likely to be more contested, however, than border protection.

Australia debates asylum policy

An emotive issue that for decades has been fodder for Australia’s strident brand of talk-back radio show hosts, known colloquially as ‘shock-jocks’, both the opposition Liberal-National Coalition under Tony Abbott and Rudd have policies that would effectively curtail the influx of ‘boat people’ to Australia.

According to Australia’s Department of Immigration, this year 218 boats carrying 15,182 passengers were listed as irregular maritime arrivals as of July, 2013 — most of them refugees from Iraq, Iran, Sri Lanka, Afghanistan and Bangladesh seeking asylum.

Rudd has put forward the Papua New Guinea plan to deal with the influx, a $ A1.1 billion scheme that would settle asylum seekers outside Australia permanently. Abbott, meanwhile, says he will turn the problem over to Australia’s military which would be under orders to tow asylum-seeker boats to Indonesia.

Indonesia, however, has remained opposed to the opposition’s scheme.

Why Australia’s PNG asylum plan won’t work

2.Tax and spending

Both parties, meanwhile, plan to axe the country’s controversial carbon tax on greenhouse emissions. Uncertainty over the issue was credited with unseating Rudd’s first government and both parties have adopted fresh policies.

We’ve got one hell of a fight on our hands
Kevin Rudd

Under Rudd, the government would move one year early to an emissions trading scheme while the Liberal Party plans to scrap carbon trading altogether in favor of a voluntary emissions reduction scheme it has called ‘direct action.’

On the broader economic front, the government is likely to point to Australia’s stellar economic figures which this year pegged growth at 2.5%, a jobless rate of 5.7%, inflation at just 2.4% and interest rates also at a low 2.75%.

While Australia has seen a sustained boom, largely thanks to the sale of commodities to a resource-hungry China, the government has racked up a deficit of $ A30 billion and Abbott — a fiscal conservative – is certain to target government-spending in the lead-up to the election.

How the Australian political rivals view China

3.The Internet

The National Broadband Network (NBN), a contentious $ 40 billion program to connect more than 90 per cent of Australia’s premises with super fast fiber optic cables, would be scaled back under a Liberal-National Coalition government, which favors the use of existing, but slower, copper cable networks fed by fiber optic cables to the node.

The NBN has proved highly popular in regions where the network has already been rolled out and some analysts say a perceived reversal of the policy could damage the Coalition’s chances at the polls.

With little differentiating the parties substantively on policy, the role of the media in the lead-up to the elections will be crucial to the fortunes of both parties. Already the right-leaning Daily Telegraph newspaper — Sydney’s largest-selling tabloid — has called on readers to vote for the Coalition running the headline: “Kick This Mob Out”.

“The mass media no longer sees the explanations of policies and ideas as a central part of its charter,” analyst Shaun Carney of Monash University told The Conversation website. “As it finds itself having to chase eyeballs in order to keep its financial head above water, it becomes more sensational, more attracted to portraying conflict and dealing with what public figures say rather than what they believe or do.

“The parties go along with this model by ramping up the hyperbole.”

CNN.com Recently Published/Updated

Economy and boat people key issues in Australian poll

3 Dead, Scores Believed Missing From Australia-Bound Migrant Boat

SYDNEY, Australia — At least three people have died and scores were still believed missing Wednesday after a boat packed with migrants sank overnight off Indonesia, in the latest maritime tragedy for asylum seekers from the Middle East and Asia trying to reach Australia by sea.

An official from the Indonesian search-and-rescue authority, Basarnas, said his agency was still trying to gather accurate information about the fate of the people from the boat, which was reported to have capsized overnight Tuesday in heavy seas west of the main Indonesian island of Java, dumping at least 160 people into the frigid water.

Didi Hamzar, the spokesman, said that although 157 people had been rescued, the search was still continuing and that an unknown number of people remained unaccounted for.

“We hope to get more information about how many people were actually on board,” Mr. Didi said in an interview.

The incident is one of the first major tests of a tough new policy announced last week by Prime Minister Kevin Rudd of Australia aimed at discouraging the thousands of asylum seekers who set out every year in often unsafe, crowded vessels for Christmas Island, a remote territory in the Indian Ocean that is Australia’s closest point to Indonesia. Australia has struggled for more than a decade to deter the asylum seekers from trying the dangerous journey.

Under the policy announced Friday by Mr. Rudd, all asylum seekers arriving in Australia by boat are to be sent to refugee-processing centers in Papua New Guinea. If they are found to be entitled to refugee status under the United Nations convention on refugees, they will be resettled in Papua New Guinea, but they forfeit any right to seek asylum in Australia. The issue of asylum seekers is among the most contentious in Australian politics, and Mr. Rudd is facing a tough road to re-election in a national vote to be held within weeks.

Mr. Rudd said that the latest tragedy validated his new policy, which has come under increasing fire on humanitarian grounds in Australia. He argued that the new system was the best way to stop asylum seekers from risking their lives at sea.

“This underlines the need for policy changes in Australia on asylum seekers policy to send a very clear message to people smugglers to stop sending people by boat to Australia,” he told reporters during a campaign stop in Melbourne on Wednesday.

But a damning report aired on Tuesday night by Australian broadcaster SBS about abuse at the Australian-run detention center on Manus Island in Papua New Guinea has greatly increased pressure on the prime minister to defend the policy. A former employee at the detention center, who resigned in April, detailed to SBS’s Dateline program what he described as the rape and torture of detainees at the facility.

“I’ve never seen human beings so destitute, so helpless and so hopeless before,” Rod St George, a former employee of the security contractor G4S, told SBS. “In Australia, the facility couldn’t even serve as a dog kennel. The owners would be jailed.”

A decade ago, under Prime Minister John Howard, asylum seekers were transported to nearby island nations for a lengthy processing intended to remove the incentive for claiming asylum on Australia’s shores. Mr. Rudd abandoned the policy when he became prime minister for the first time in 2007, which led to an explosion in the number of arrivals.

In 2012, Prime Minister Julia Gillard opened new offshore detention centers in Nauru and on Manus Island in Papua New Guinea, but they lacked the capacity to handle the deluge of arrivals and did little to discourage them.

Joe Cochrane contributed reporting from Jakarta, Indonesia.

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3 Dead, Scores Believed Missing From Australia-Bound Migrant Boat