Hindenburg Omen: The Fed, Too, Will Crash and Burn

All the liquidity in the world cannot stop the downward spiral in a long neglected physical economy.

I sought him, but I could not find him; I called him, but he gave me no answer.
—Song of Solomon

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This is one moment worth heeding a mechanical signal whose forecasting accuracy is only 25%.




The makings for an explosive combination producing profound disparities such as the Hindenburg Omen reveals are found in an environment where financial fantasy meets physical reality. Providing a flood of liquidity in hope confidence might be restored is the tried and true trick of the trade over the past twenty years. Yet this gimmick has been extended well beyond the point where some significant portion of the game's captive audience is willing to play along. And so, a grossly inadequate physical economic capacity lies exposed.

The Hindenburg Omen reveals this dynamic, where a flood of liquidity being put to work (largely landing in highly correlated trades, such as the bond market these days) is proving inadequate for the task of reversing the physical economy's collapse, which condition is the natural result of decades of neglect.

Inasmuch as the riskiest financial assets of all — common stocks — are at risk of a great fall, so too is the Federal Reserve.

—Tom Chechatka