With A Grain Of Salt


LESS THAN STURDY - So it looks like the market could be rolling over a bit. Of course, when I say a bit, I mean a bit. The question is - Will this materialize into a larger and more significant reversal? At this point, it is far too difficult to determine. Stocks have been locked in an intense uptrend since 2008 and we have seen a microcosmic rally since mid-October. I would have thought the reversal in the market would have happened in late 2013, early 2014, so clearly my timing has been off with this one. But at the same time, as much as it is a fact that my timing was off, I believe strongly it is also a fact that the foundations of this market rally have been less than sturdy. We have rallied and rallied some more, and then rallied again, and again, on the back of ongoing ultra accommodative central bank policy.

DOESN'T TAKE A GENIUS - And why have stocks rallied? There is nowhere else to put money to work. The global economy is in such bad shape that we are forced to invest in risky assets. And this is the strategy that is supposed to rescue us from the depths of crisis. But it doesn't take a genius to see the backwards nature of this strategy. It doesn't take a grown adult to realize the irony. The idea of getting out of crisis by incentivizing risk investment is more radical than conservative by any stretch. And yet, this is the path that was chosen. We are on this path and have been on it for many years now. It feels like just yesterday, but 2008 is just about 7 years ago! Almost a decade!

15-20% - Make no mistake, the fact that we are still sitting in a historically low interest rate environment, should be a red flag the global economy is far from out of the woods and risk assets are far from stable at current levels. Now back to the timing. I really can't say. In my experience, markets have pushed into year end in the direction of the prevailing trend. So on this merit, we could very well still see (much like the end of 2013) a rally in stocks and correlated assets into December end. The SPX500 could very well take out that much sought after 2100 barrier. But from there, I would be on the lookout for that capitulation. Portfolio managers would have met their year end targets and with little else to support the market, there could all of a sudden be little in the way of any support until we have seen a 15-20% correction. The whole thing may sound a little crazy right now, but I don't think it is.

Trends have a funny way of pushing into year end. So be careful. Via @joelkruger

DOLLAR IS KING - As far as currencies are concerned, the US Dollar should remain in the driver's seat. The net result of this QE policy the Fed initiated and has now exported, will be a massive US Dollar appreciation, with yield differentials only continuing to widen in the US Dollar's favor as the Fed inevitably and almost certainly becomes the first major central bank to start tightening. So while we could be seeing signs of topping in the early week, I am not convinced this will actually be the top. I am bearish and hold onto my short equity exposure. But I don't have any expectation that the top will come in just yet. Worst case - If I am wrong and we do get a top now, then I am right! Win, win.


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