That Thing No One Thinks Will Ever Go Up


STILL IN HIDING - No one thinks it's coming any time soon and this is probably the biggest reason we haven't seen any capitulation in risk markets to this point, nearly a decade after the financial markets crisis. At a time when one might have thought it to be running rampant given the unprecedented monetary policy accommodation of the past several years, it has gone the other way and is virtually non existent. So what is this thing I'm talking about? Why inflation of course. All of this money printed out of thin air and pumped into the system to stimulate growth and yet no inflation?

THE SOURCE - What's going on? What's going on is that all of the money printed by central banks has been used to bolster the balance sheets of these banks rather than to inject liquidity directly into the real economy.  And so we get a scenario where stimulus is offered without the impact of inflation. Of course, the danger with this is that it creates an environment like the one we've seen where on the surface, everything looks great and stocks continue to rise at a reckless pace. No inflation - means - no interest rate hikes - means - continued free money and attractive equity market valuations. 

ALL HELL -  But it's all a big illusion and one that may very well continue on for some time. Still, the bigger they are, the harder they fall and this strategy of suppressing inflation by way of directing stimulus onto the balance sheet has finally come to an end. As the Fed starts to unwind the balance sheet, which should be over the next year, we will see the beginnings of all hell breaking loose. The question of course will be if it was all worth it? The Fed stepped in to protect against a massive bubble back in 2008 only to create another one in the form of an out of control stock market. 

Ever wonder why inflation is so low? Here's one good reason. Via @joelkruger

THE CHARTS - If we look at the technicals, they are screaming out for a correction! Take a look at the weekly and monthly charts on the major US equity indices. They are all well overbought and desperate for some form of an adjustment lower. Even if you are bullish this market and still see stocks much higher and even if you are so bullish that you see stocks at the start to a bull run (as ridiculous as this sounds), surely you wouldn't be too excited about buying at current levels. From all my experience in markets, when you start seeing readings like these, there is a catalyst around the corner that will spark a major reversal. Let's see. 


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