Yogi Berra, one of the keenest observers of the human condition, is said to have once remarked "It is tough to make predictions, especially about the future." And so it is.
Currently, with Central Banks fully engaged in monetary interventions on an unprecedented global scale, there is seemingly nothing that can stop the current advance. Of course, it is that very "thought process" that has been a hallmark of exuberant markets in the past.
The central bank high is euphoric, the crash and burn equally epic. Be careful what monkey you invite to latch onto your back...
Mohamed El-Erian's comments this week caused a stir among the status quo-huggers, as they were clearly a valuation call on the financial markets suggesting that currently having capital invested was likely to yield substantially lower or negative return in the future. This is an extremely important concept in understanding the "real value of cash." Not unlike the rhetoric of the late 1990’s or mid-2000’s, there is no shortage of rationalizations for why such currently extraordinary valuations are reasonable and justifiable. The fact remains firmly in place, stocks are expensive. Of course, since Wall Street does not make fees on investors holding cash, maybe there is another reason they are so adamant that you remain invested all the time.
Hint: Take a look at the latest COT reports!
Meet ForexChile, the largest purveyor of leveraged contracts for difference in Chile and the subject of a scathing Bloomberg report which outlines how unsuspecting retail investors end up 100X leveraged on derivatives they sometimes do not understand.
Simple near-term outlook.
When the dollar falls, we are told it is logical. The empire is crashing and burning. When the dollar rises, the markets, we are told are manipulated. Well, the dollar is back, and the technical correction ended, near we told you it would.
Deny it. Engage in all kinds of mental gymnastics to dismiss it if you must, but the fact is the US dollar is rising, and not just because of negative developments abroad, but positive economic developments in the US.
A rubber band can remain stretched for some time, but it takes some force to keep it stretched. In this case, the force is the daily VIX body-slam and the resulting pop up in equities. This has worked to keep RUT and its cousins aloft for several weeks of going nowhere, but the chart suggests all the kiddies who are supremely confident that Santa will deliver more equity gains might find their complacency is not rewarded.
Just for fun, let's look at one chart and ask one question: is this stock continuing its downtrend or is it in the process of reversing?
What if global capitalism is not about to collapse? What if the sun rises next week, and the great apocolypse called for and predicted does not materialize yet, what then for the dollar?
Overview of the capital markets as if they were not managed by an evil cabal.
Did the sharp sell-off in crude oil trigger the meltdown in stocks? While there are plenty of potential reasons for the stock market to drop - stretched valuations, the slowdown in Germany, Japan and China, etc. - it is more than possible that the recent sell-off in crude oil might have served as a trigger. Crucially, as we explained in detail here and here, if the manipulation of prices of crude oil lower by the Saudis is indeed a US-friendly anti-Russian move, how much equity market pain (and thus created wealth) is America willing to take for the use of "The Oil Weapon"?