Something doesn't add up...

Ok, so back on April 11 when the markets were amid a mini-sell off, I claimed that it might be the start of a pullback and possible correction to 1800 on the S&P 500. Needless to say, I was wrong. SPX closed at a fresh all time high last week!

So should I just pack it up, throw all my cash into equities and ride the bull higher? Something doesn't seem right here...

Let's start with GDP for the 1st quarter of 2014. Equities rallied into the start of 2014 because of new hope that the "recovery" was finally gaining steam. 10 year treasuries were at 3% and moving higher. Then, Russia had the whole thing with Ukraine and the Midwest saw one of the worst winters on record, and certainly the worst I've ever weathered. (pun intended) I live in Ohio, so I can relate (albeit I was in the hospital for the worst of it). Because of this, supposedly, GDP for the 1st quarter 2014 was (eventually revised down to) -1%. A contraction. Oh don't worry, it was the weather!

If you read my earlier post about the potential for a new crisis, you know what GDP is constructed of. Many economists and the Fed blamed the contraction on weak consumer spending due to the awful weather this past Winter. Consider this: the bad Winter affected predominately the Midwest, a third of the country. Sure it snowed in Atlanta and all that and it certainly was a bad Winter. Now consider this: many of the same economists and market professionals have been claiming that a paradigm shift is happening in consumer retail. More consumers are shopping online rather than at brick-and-mortar outlets. If the weather is horrendous, than even those consumers who prefer brick-and-mortar outlets would have a greater incentive to shop online, no? Don't forget, it was only "middle class" retail outlets that saw a decline in sales. Most high end luxury retailers had great quarters! Yeah, car sales suffered badly, and you can't really buy a car on the internet. But the Winter is also the weakest time of year for car buying anyway.

So, it was only the bad weather that caused a full percentage point contraction. No big deal, right? Onward with the return to full employment! The jobs numbers have been on trend so far this year: about +200k a month. But, what are the jobs being created? Low paying part time jobs, thanks to Obamacare (a topic for later discussion). The labor force participation rate is at 30 or 40 year lows. Hours worked have been steadily declining, along with average hourly earnings. Point is, the jobs being added aren't all that great and certainly won't fuel economic expansion.

The economy is apparently recovering, so why aren't interest rates rising? They've fallen since the start of 2014! And even with mortgage rates back down to where they were a year ago, the housing recovery is ending before it really ever began.

The whole thing stinks. The S&P 500 has now rallied to ever loftier highs thanks to corporate stock buy backs, erratic acquisitions, and a flurry of  LBO's. All the bears seem to have collectively said, "Fuck it."

And that's clear from where the VIX is currently at. The VIX is kind of complicated so think of it as a fear-gauge: it has an inverse relationship with the SPX.

The VIX is at its lowest levels since 2004. You mean to tell me that all is well and there is nothing bad on the horizon? Psh!

Trade this: 60-90 DTE put spreads on SPY, maybe a call spread on VIX. Bulls better Run for Cover! Take it away, Marcus!