Saturday, January 26, 2013

"LIQUIDITY BUBBLE" AND MY EXPLANATION AS TO WHERE WE ARE


Read this "LIQUIDITY BUBBLE"
 
........this guy Noland is pure genius, he cuts thru all the BS. Initially you read and think FK YEAH....all that cash.....it's going into equities, all those bonds cashed out....in to equities........to the f'ing moon Alice!!!!  but that is Dalio....Doug follows with his interpretation.

 

Before you read Doug's piece, look at this chart.
(below "secular and cyclical patterns")

 Since the 2000 and 2007 high's  I have joined those points with the lows of 2003 and 2009, this pattern is called a BEARISH BROADENING MEGAPHONE, because it looks like a megaphone.....2 touches at the top, 2 at the bottom.....IMHO there may be ONE MORE touch at the top near 1550-1,600 S&P (broad measure of price 500 of the best US companies)

Inside of that highlighted is another pattern a rising wedge, and that looks exactly like what preceded the 2000 TOP!!! THE MACD is an algorithm that displays momentum of price...the highs there have been falling for several years even as STOCK PRICES go higher...that's a divergence and CAN lead to a reversal in one or the other, usually price....it shows fewer and fewer are chasing stocks here or the focus on buying is fewer and fewer companies....

 

My point is, this is not science but observation of patterns that repeat. ANY bull ends at the extreme of exuberance and bullishness and then goes to the other extreme of fear and pessimism and back again. Cyclical patterns happen over 3-5 year periods, and they can be held within LARGER degree time frames called SECULAR and they can last 16 years or more.

 

The FED policies on interest rates and QE pulled the mkt out of tailspin, but have not fixed anything, each bubble you see is worse than the next, they never learn about unintended consequences. RISK is being mispriced because of this across a broad spectrum of things.

How it ends I am not sure, should the 10 YR note rate rise above the GDP growth rate, the game is over.

 Our economy is not functioning like it should or would rates still be at 0% 4 years after crisis was averted and so called recovery began?

Also you have the game of selling YEN and converting it onto $'s and Euros...which find its way into risky asset classes

 If money flows into equities from cash and bonds like Dalio suggests....the FALL from that top would be beyond EPIC...already after all that has been done, if it doesn;t work, what next?

2 comments:

Jack B said...

If money flows into equities from cash and bonds like Dalio suggests....the RISE would be beyond EPIC...and after calling for a major top for years doesn't work, what next?

BDI.com

Marc R said...

All one can do is ignore the words and explore the charts. I called the action in APPL recently and so far it is panning out as i suggested it might, gap filling time.
The broadening megaphone pattern is still in play, upper regions between 1550-1600 SPX...that would not suprise me, a throw over would not surprise me.
Printing money gives the impression of stability, hoarding cash by companies instead of investing and hiring may give the impression of profitability...in the near term....but current environment is NO different then the 2 previous bubble eras 2000 and 2007....as they are forming with the same medicine, just more of it and perhaps worldwide.

I'm not crying wolf, I'm warning of trouble ahead....position today? maybe not...but IMHO we are lot closer to THE TOP than THE BOTTOM.

My target for NEW BUYING? SPX 800 and below...

I'm a businessman, this is my HOBBY...I am not looking for nor wish for economic distress. ENGINEERING a recovery does not lead to long term stability and growth.

You buy stocks when rates are falling.....you sell into rising rates...rule of thumb....rates have not been falling for years...what does a 0% FED rate tell you? to keep buying?

Were you buying AAPL at $700? but maybe NFLX at $55? if you were, it should have been based on technical analysis, not much else.