Being a prognosticator of any type is a dangerous occupation; openly stating that events will happen with any remote assurance of certainty raise those stakes immensely. Giving dates, times and outcomes turns that "dangerous" aspect up to 11.
This is why it's far easier, and less problematic, for people to declare "The end of the world is nigh!" rather than "The end of the bull run is upon us."
You can predict and say what you want about the world ending tomorrow and people will shrug. Say (or even imply) that the "top's in" in regard to the markets? And people begin sharpening not only their tongues, but long knives, pitchforks, plowshares and more.
A perfect example of this was the impending "end of days" predicted by the self-proclaimed "numerologist" David Meade that was to transpire on September 23rd, when the celestial body known as Planet X was to pass by Earth - so close, it would basically wipe out everything. Problem? It's October, and you're reading this.
But that doesn't mean he was wrong per se, for just like most Ph.D'd economists, he just changed the date. Now it's October 21st. I guess all that "data" tracking of trajectory, speed and timing must have hit a "transitory" gravitational wave. I guess we'll all have to just wait and see if we're here in November. Who knows, maybe even "inflation" will finally show by then. Personally, I'm not cancelling my order for turkey, just saying.
It would be a fair assessment that some reading this will argue, "People in glass houses shouldn't throw stones. Just look at your own calls for impending financial mayhem." And in some regards, it's a very fair point. But that doesn't mean I (or people like myself) have been wrong for the wrong reasons. As I've argued ad nauseam, "I've been wrong for all the right reasons."
I stand by that statement more fervently today than ever before. The reason? You don't need a telescope to see what's heading directly at the "markets." E.g., "Janet X," aka Balance Sheet Normalization, begins this month. Or said differently, channeling REM, "It's the end of the world as we know it."
Here's the real heart of the issue, for all of those still clinging to the absurd notion that "stocks are fairly valued, and are poised to run further." Hint: They never have been fairly valued since Mr. "Courage To Print, and Print More" Bernanke perverted the entire process of price discovery, adulterating the capital markets, allowing the fostering and subverting of capitalism itself to the point where crony capitalism is now an accepted form of business. (Hint: See any TBTF bank for clues.)
Just 7 years ago, such a notion was seen, taught and openly defended as patently absurd. Even within the Ivory Tower'd class. Today? Central banks openly buying government debt, corporate debt and equities is now not only an accepted "tool" of monetary policy - it's encouraged, celebrated and now being taught at those same Ivory Towers. It's beyond pornographic.
On an aside, if you think the above was just a one-time "experiment" as the so-called "smart crowd" is clamoring, then answer this one point: Why did the Chair in her latest presser after the deliberations inform a questioner that the Fed stands ready to reverse its reinvestment policy should it deem this necessary? You think Wall Street isn't going to test that assertion? Hint: Bet on it.
No one would have guessed prior, let alone predicted, that they (meaning central banks) would travel such a road - and yet, here we are.
The only issue that has held off the resulting, or impending, chaos that is sure to follow this trajectory of lunacy as day follows night was just how much, and for how long, these monetary "wizards" would bear down on that "print button."
We now know - for the Fed at least - it's October. (Cue REM music, once again, here.)
Unlike the planet Nibiru (aka Planet X), there are quite a few telltale signs that are visible with even the naked eye, although most next-in-rotation fund managers act as if they don't exist.
These are what are known as charts, aka technicals. And it is here you don't have to be a rocket scientist to see, or garner, any respect to what they may imply, as in: the impending trajectory of what may happen since the "fuel source" aka QE, and its reinvestment, has now been all but extinguished. To wit:
(Chart Source: Investing.com)
The above chart contains the current daily price action of the most coveted, along with most responsible, for much of the "market's" gains since November 2016, aka FAANG, with a bonus chart representing the cross rate of the USD dollar versus the Swiss franc. Why is that chart germane? Hint: See "Swiss National Bank" holdings for clues. The pattern is the same, only inverted.
As you can see, I've highlighted these charts with a box. What that box represents is what's known in technical analysis as "a topping pattern," i.e., basically, an inflection point for either a leveling off period (aka as going sideways to nowhere) or signaling an impending retracement may be imminent. I'm siding with the latter, here's why.
What most people (especially 401(k) holders) don't understand is just how much the Fed, along with other central banks, has been responsible for the "markets" to continue ever higher, with no memorable pullback of even 5% (at one time a normal occurrence) for years. Again, repeat: years.
This was not only due to interest rates being pegged to the zero bound, allowing companies near-free carry cost to repurchase their own shares. But more important (in my opinion) to this whole mix was not just the fact that the Fed printed to begin with, but (and it's a very big "but") in conjunction with printing ever the more, reinvested any and all proceeds of that printing.
To understand this in layman's terms, think of it this way: much like one would do with a stock which yields a dividend, the common investing thesis is, you reinvest that dividend, e.g., buy more of the same stock using that payment, increasing your holding ever the more. Rinse, repeat.
Basically that's what has been transpiring in the "markets" for about the last 7 years. Now it's over, as in there will not only be no more printing (i.e., buying) along with, there will also be no more "reinvestment." And that, my friends, is the key.
What "normalization" truly means is this: all the money that the Fed allowed to be used will not only be withdrawn, but will be destroyed - as in "poof," it's gone.
What that implies is: all the money that was used to buy the stocks, along with the profits that were used to buy more, suddenly, and abruptly, vanishes, i.e., there's no money there to buy at any price. And that begins at $10 billion a pop (or month) beginning right now. It's no longer a hypothetical exercise to contemplate. The Fed has now declared it. (Think: If there's no "buyers" because they can't buy unless they sell something else, what's the market price of any stock? Truly ponder that.)
On Friday of last week, the "markets" collectively (once again) posted record highs. Some are using that as a confidence argument that stocks are just setting up to punch higher. I'm of the view that argument is more in line with a "con game."
Yes, the "markets" did reach new highs, but it should have come as no surprise. For it was right on cue for two events. 1) End of month, end of quarter window dressing. 2) It's the last chance to do so with full knowledge of the Fed's intentions and its largesse.
Planet X may be a mythological argument much like the book of Revelations, Myan predictions and others. But "Janet X" has not only appeared on the monetary horizon, but stated forcefully on camera, audio, computer screens and more, in her own words (paraphrasing), "Winter is coming."
No numerologists, economists, next-in-rotation fund managers, telescopes, rocket scientists or rose-colored glasses needed for translation.