Thus, we see the “smart money” exiting the markets. We also see fewer and fewer companies participating in the market rally. Those who run these companies are more pessimistic than at any point in the last five years dating back to the nadir of the 2009 collapse. And finally we have investors as a whole displaying the most complacency about the market in history.
The markets seem to sense that all of this. In the US we’re putting in what looks like a lower high. The market appears to be forming a Head and Shoulders pattern.
The facts are now becoming abundantly clear, that the forecast we’ve maintained for well over two years has been validated: the US is in a DE-pression and both Washington and the Federal Reserve have wasted trillions of Dollars.
If you were a totally bankrupt European Government relying on the promise of additional funds from Germany to stay in power and your options were A) start cranking out better data now with the promise of future bailouts from Germany or B) having to deal with a German Chancellor who wants out of the Euro… which would you choose?
The market is rallying today on August performance gaming. The talking heads will claim this move has something to do with fundamentals, but the reality is that the move up yesterday and today consists of fund managers doing whatever they can to end this month with their holdings as high as possible. Nothing else.
The latest policy being implemented by Governments around the world consists of simply making data points up when reality doesn’t conform to their wishes.
Anyone who believes the Fed can “exit” this position is delusional. The single biggest trade for the last four years has been frontrunning the Fed’s asset purchases. When the Fed reverses course and begins selling assets, everyone will dump Treasuries in anticipation.
This isn’t just any trendline. This is THE trendline. Take it out and the 10 year will likely be yielding 5-6% in no time… which by the way is where it was for most of the ‘90s and very early ‘00s.
Asia has become the most important issue for the markets today. The Central Bankers’ dream of endless QE has become a nightmare for Japan while China’s “growth miracle” is rapidly falling to pieces.
Traders and investors do not respond to sea changes instantly. The smart ones take note and begin adjusting their portfolios and hedging their bets. This doesn’t result in massive market moves as these investors are sophisticated enough to move out of old positions and into new ones without drawing too much attention
