You can't print your way to prosperity

"Monetary policy promised way too much back in 2012. As I’ve written repeatedly, at this stage of a most spectacular and protracted Credit cycle, monetary inflation can only make things worse. Where does it end? And not for a minute do I believe the alarming rise in geopolitical risk and instability is unrelated to years of prolonged global monetary disorder. Mismanagement of the world’s reserve currency is replete with huge consequences. Mismanagement of all the world’s major currencies is a complete fiasco. " Doug Noland of prudent bear.com

Stock markets that defy gravity with Central Bank promises of forever zero interest rates and liquidity. But this mother of all trickle down tricks has not trickled down to anyone that isn't in the top 1%. So it should come as no surprise, that wages have not grown with the expense of everything else.

Volume has dried up and now there is ample evidence that there is another group of buyers who have come in to replace those who have left. And they are the Central Banks themselves. What kind of fair market system has the central banks buying  s and p futures??

We already know our own Fed has bought near $4 trillion in us gov bonds, and we have the slowest, weakest recovery from Recession in the history of keeping those records.

With volatility near non existent, did you ever stop to wonder how " odd " that is? Even with world unrest, all seemingly is going unnoticed. Seemingly. Hedge Funds for the most part have done very poorly in this environment, because they are a " hedge" against volatility. But here we have none.

This period of immunity from declines will come to an end. The gaming accord of the central banks is said to end this year. I feel volatility will return in the not too distant future, and with it much lower stock prices.

At some point, there will be reversion to the mean, and the mean is nowhere in sight!

D

Market Oversold

The market is due for a rebound, but there has not been the type of selling that usually mark short term bottoms. The VIX has also not shown the kind of fear that would suggest a washout has occurred.
Though Fridays rebound was welcomed, I don't think this is the start of a new advance to higher highs.
Let's keep an eye on the Transports, as they have fallen faster than the Dow or SPX. Any return to new highs that doesn't bring all along would be reason for additional caution.

The same markets in  California that got overheated are at it again. Partly could be due to less inventory.
Several radio ads run all day for seminars showing you how to FLIP HOUSES!!! De ja vous?

As long as interest rates remain low, that leaves little competition for stocks . I am unsure if this will remain a backstop as FED continues to back away from the QE. Usually interest rates rise in a  bull market showing strength in the economy and demand for credit. And also re supplies the ammo needed to inject life into a flagging economy.

Not so this time.

IS IT TIME TO WORRY?

Has the long awaited correction finally come?  Is the Bull Mkt Top in?

I am not sure if there isn't one more strong  push to try to make new highs left. But I am pretty sure a correction of at least 10% has begun. August is usually not a great month for stocks historically.

As the market had made its new highs, the % of stocks following along had continue to drop. The VIX did not show any fear at the new highs, so there was plenty of complacency and there certainly was not any wall of worry to climb. No bull mkt let's all ride for free like this seems to have most of the way except at its early inception back in 2009.

My own indicators have signaled extreme caution as they have risen to new extremes, but a sell signal has not been given. Nothing is full prof, but the backdrop now has then FED backing away in its bond purchases and we are into our 5th year of zero interest rates. It is interesting the FED continues to signal this policy will continue for a long period of time even as we reach employment goals they had set out and recent GDP showed 4% robust growth. What's the worry still ?

My worry, is and has been, that continued market and interest rate manipulation will have its backlash day. And as valuations have risen to near extremes, It points to me it may be time to switch to a more defensive strategy.

I agree is does not make any sense to try and time a 10% correction! or any correction in an ongoing Bull Mkt, but when one starts to show its age, when a Bear Mkt is upon us, declines will exceed 20%.

With the FED already sitting at zero rates , I also worry when the time comes to assist the market and economy, they will be sitting there with no arrows to shoot!

D