Reaching another, perhaps final peak in optimism.

I don't know when the herd will decide to panic.  I don't know the day or the hour but it will likely be when people least expect it.  Market optimism, or said differently, complacency is at all time highs.  It has caused everyone and their brother to borrow money to get in on the Ponzi at a time when they should be heading for the door.  The latest and perhaps greatest bear to get killed was Dennis Gartman who went into a big mea culpa for being bearish or not bullish enough while stocks have climbed and climbed despite the fact that he knows it is all a big unsustainable debt Ponzi.  The market has now given the impression that fundamentals no longer matter when in fact they always have and always will.  It's just the meddling by government which has given the impression that the laws of economics no longer apply.  It is akin to the 1929-32 Pompous Prognostications that I have posted to these pages several times.  We have reached a magical peak, a plateau of permanent prosperity for anyone gambling in the markets.  So go ahead and leverage up all you want because there is no downside now that the federal reserve is controlling things. 

That is the new thinking.  Of course, it is not new thinking.  It is the same old herd-think that is part of every boom and bust that ever was.  It is the same thing thing that all of the pilots of the Blue Angels flying team are thinking just before they all auger into the ground in a fiery ball.  There is nothing new under the sun, folks, nothing is new except the history that you don't know.  This has played out so many times before.  People begin to believe in something for nothing and for a time they seem to receive it.  But then when they go to collect it, that something turns out to be the nothing that it really was all along.  This is the nature of any Ponzi scheme and no it's not going to be different this time.

Those who are early in calling it, like me, get the eye roll.  But I would rather know this early and be looking for it in real time then to not understand it and say "I never saw it coming" when it finally does hit because there will be no time to get out one the collapse begins.  It is guaranteed to end badly.

One of the signs of the overoptimism is the lack of insurance against leveraged bets to the long side: the so called VIX fear indicator.  Today I want to highlight the chart of the SVXY ETF which tracks the inverse of the daily moves short term VIX futures.  So, as VIX (AKA fear) goes down, SVXY goes up.  Manias often increase 10x before the herd decides to abandon them.  Note how this was ~$8 in late 2011 and is now nearly $80 while tracing out the 5th of 5 and also skyrocketing up in an exponential fashion to the top of its channel.  Notice the triangle at the start of the chart segment between 4 and 5.  All of these technical indicators are screaming "Get the fuck out" at the top of their lungs.  Take this in conjunction with loss of confidence in the ruling elite both in Europe and in the US and you have the makings of a major, major market collapse.

So when will it happen?  Clearly, when it is least expected.  What will be the catalyst?  Clearly, something will happen that will seem minor but then for unexplained reasons it will spiral out of control.  People will blame that one thing but it will not be the real cause.  The real cause has been building for decades and has been rising exponentially for several years: a credit pumped system will always at some point reach an end point whereby the banks can't lend and the borrowers stop wanting to borrow.  It would not surprise me to see what I call the race horse syndrome take place.  That is where you have a high strung race horse and there are all kinds of distractions to him all the time: loud taking, perhaps yelling, the pop of starter's guns going off, etc.  But the horse always seems to handle it.  But then for some unknown reason, the horse get a minor fly bite or bee sting in the ass and then just loses it.   People blame the insect bite but the horse has been fine under worse circumstances before.  So it is not rally the bee sting per se but rather the accumulation over time.  The last straw on the camel is another analogy but in that case the camel just lays down.  I expect in this case the race horse will go crazy wild with kicking and running and slamming about to the point where it becomes a great danger to property, anyone standing near it and even itself.
 
Of course, it could also be something more mundane such as another collapse in housing data coming in June.  Bad weather will not be able to be blamed again.   Keep in mind what Greenspan taught us: there can be no recovery without participation from the housing market.  This is because housing is one of the biggest asset classes  that is almost elusively paid for with debt and when people stop taking on debt, the debt Ponzi begins to unwind.  The Ponzi needs ever increasing prices and it needs people to take on ever increasing amounts of debt to buy things. 

Trees don't grow to the sky folks.  If you or your loved ones live in a place where an average home costs north of $250K then you should strongly consider getting out right now because when this credit collapse is over there will be another huge glut of foreclosures on the market that will kill housing prices (and the banks who stupidly loaned the money to buy them).  You think the financial crisis of 2007-2009 is over just because the federal reserve threw everything it had at the problem and everything that all global governments had?  Think again.  All they did was rack up more debt and that was never the final answer to an insolvency problem.  In other words, you cannot forever avoid bankruptcy simply by taking on more debt and that is the only thing that has happened since 2009.