The Fed has manufactured a parabolic move in the stock market…which is much more aggressive (and thus even more unsustainable) than witnessed at either the 2000 or 2007 stock market tops. Parabolas always collapse – there are never any exceptions – so when the pin finds this bubble it’s going to take down not only our stock market, but unleash a destructive force on the global economy.
So says Toby Connor (goldscents.blogspot.ca) in edited excerpts from his original article* entitled ANOTHER BUBBLE LOOKING FOR A PIN.
[The following is presented by Lorimer Wilson, editor of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Connor goes on to say in further edited excerpts:
…The steeper the parabola the quicker the losses once the parabola breaks. It’s not unusual to see 3-6 months of gains evaporate in the space of days when one of these structures collapses. The path creating this unsustainable market behavior began in 2011. If the Fed had just allowed the market to correct naturally, and drop down into its 4 year cycle low in 2012, we would probably now be on a sustainable path into another secular bull market.
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Unfortunately, however, the Fed made a catastrophic mistake. Instead of allowing the market to function naturally they began operation Twist, then LTRO, then QE3 and QE4. The result, as you can see in the first chart below, is that they’ve created a huge unsustainable parabolic move in the stock market. Try as they have to prevent corrections, the longer they allow this to continue the more devastating the crash is going to be when the market breaks.
Based on the extremely stretched nature of the current intermediate cycle (week 27) I’m looking for:
- a top and the start of the collapse early next year – possibly as we begin earnings season. If one is in the market trying to catch the last few percent of this upside price movement, please understand we are not in an investor environment this late in the bull market. This is short term trading only and at the first sign the crash has begun, get out and stay out….
- the market to fall precipitously to test the previous bull market tops and erase most of last year’s gains in a matter of days or weeks…
- Yellen to panic at that point and all thoughts of tapering to vanish. As a matter of fact, I expect the Fed will increase QE, maybe drastically, to try and reflate the parabola…
- the Fed’s likely attempt to reflate and sustain the stock market to be futile, however, as the damage will already have been done. All they will accomplish is a violent echo rally common to all collapsing parabolas…and
- the more QE the Fed throws at the market, the more and faster the liquidity will leak into the commodity markets until inflation completely destroys the economy and the next recession gets underway….
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
(Please note: The articles posted on munKNEE.com deliberately present a diverse perspective on subjects discussed. Below are links, with introductory paragraphs, to a variety of related articles designed to help you become truly informed regarding both sides of the issues so that you can assess the merits of all points of view and come to your own conclusion.)
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Current macro conditions indicate that we are in a sweet spot for equity returns…that global growth is continuing and there is little or no tail risk in the immediate future. It’s time to get long equities…but I have this nagging feeling that these market conditions are too good to be true. If you look, there are a number of technical and fundamental clouds on the horizon. Read More »
There’s no fear anymore – anywhere – and I’m talking about the type of fear that overwhelms investors – and, in turn, the market. The surest indication of this can be found in the following chart. Read More »
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Bubble predictions are headline-grabbing claims that are sure to attract reader/viewership and more than a few worried individuals who will be pushed to act but, like all forecasts, these bubble warnings should be taken with a grain of salt.
Until recently, I have not used the term “stock market crash”. I do not take using this term lightly. It brings with it major repercussions. I am now breaking out this phrase because of the current state of the stock market. This stock market crash will occur within the next six months from today… The markets will fall within a combined day/few days a total of at least 20%. Bookmark this article. Read More »
The real value of the stock market is positively correlated, over time, with the amount of freight hauled by the nation’s trucks (in other words, the physical size of the economy has a lot to do with the real, inflation-adjusted value of the economy) and the latest numbers (see chart) strongly suggest that we are not in a stock market bubble. Read More »