Why the Dow 28,000 could mark that the "blowoff top" bears have predicted

Last month, the Federal Reserve began snapping up short-term government debt to the tune of $ 60 billion a month in response to the repo mess that sent a chill through Wall Street back in September.

While it may sound like another round of quantitative relief, Fed leader Jerome Powell wanted to make it clear: It is not. "By no means is this the question," he said.

Charles Hugh Smith, the author of the blog "Of Two Minds", does not buy it. In a recent post, he told of a riddle that Abraham Lincoln apparently once said: "If I were to call a sheep tail a leg, how many legs would it have?" – Five! ̵[ads1]1; "No, only four; because I called the tail a leg, it wouldn't do that. "

Smith used this chart to make a point:

" Calling QE non-QE makes it no different than QE, "Smith wrote. "The Fed's level of panic is remarkable, and it is the absurd transparency of the ridiculous attempt to hide the panic."

And with that panic, Smith believes that the recent pop to new stock market highlights may finally mark the elusive blowoff peak.

"The financial media loudly declares that the current stock blowoff peak is not a blowoff peak," he said. "The delicious irony here is that the denials are reliable markers for blowoff peaks: the higher the denials, the greater the chance that this is actually the blowoff peak many intellectuals have been waiting for a long time, but always in the future." [19659002] Smith pointed out that the media denied it in the fourth quarter of 1999, and did so again in the housing market in 2006. Even well before the understanders did not clearly expect the market's turnaround in 1929 to become what it did.

It's like that with blowoff tops, they're much easier to see later.

However, Smith believes he could very well see one right now, and for the most part he bases his opinion on the false impression that the Federal Reserve's "omnipotence and omniscience" will hold this beef market together.

Which brings us back to the diagram above.

"If everything is just fresh in the World Bank and the US economy, why the sudden incorporation of $ 300 billion into financial cocaine in the collapse of the financial system?" Smith asked. “Can $ 300 billion, or $ 600 billion, or even a trillion dollars continue to provide an increasingly risky, $ 330 trillion global bubble in overvalued assets? Just as a question of scale, the answer is 'not likely.' "

The Dow

DJIA, + 0.80%

ended last week at an altitude, closing over 28,000 for the first time ever. Nasdaq

COMP, + 0.73%

and S&P

SPX, + 0.77%

also went well together. We'll see how long these levels last, considering prospects that look a little weak on Monday's trading session.

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