The market looks like it’s topping out.
We have a clear megaphone pattern in the S&P 500. We could always stage a final blow off top, but we’re at or near the top already. The next leg down should take us to the low 1800s. If things really begin to accelerate, we could easily go below 1700:
There is certainly no shortage of potential catalysts for this.
1) Mario Draghi’s “bazooka” in Europe is looking more and more like a water pistol. There may in fact be something of a mutiny going on at the ECB as more and more national central bank heads grow tired of Draghi’s secrecy and policies.
2) Japan’s economy is an absolute disaster. More importantly, the Japanese Bond market is heading towards an implosion. Risk is so mispriced by the Bank of Japan’s policies (QE efforts greater than 24% of Japan’s GDP) that even a general move to market rates could blow up the whole mess.
3) Based on un-massaged data, China is growing at HALF of the official rate. Given than half of all future global GDP growth is expected to come from China, this doesn’t bode well for the world.
4) The US Dollar is rallying hard. We’re already at a four-year high. With the global dollar carry trade somewhere over $3 trillion, this has the potential to blow up a massive amount of investments (see the current commodity meltdown).
The financial world focuses far too much on stocks. The stock market, despite being at record highs (meaning record market capitalizations) remains one of the smallest, and least sophisticated markets on the planet.
Consider that stocks, even at current lofty levels, have a global market capitalization of slightly over $60 trillion.
In contrast, the global bond market is well over $100 trillion.
And the global currency market trades OVER $5.3 trillion per day.
It is currencies, not stocks, where the most significant moves occur. The currency markets are the largest, most liquid markets in the world. They are always first to move when things change.
And the US Dollar is moving up RAPIDLY. Will this blow up the financial system as it did in 2008? We’ll soon find out.
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Phoenix Capital Research