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A uber bearish interview with David Stockman


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David Stockman is brilliant, unfortunately as stated before markets can stay irrational longer than you staying solvent. If we start seeing in Europe a move away from QE which i do doubt, then you will see a very big correction, since that is what is holding these house of cards in a upright position.  

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I don't think we will see the straw that breaks the camel's back until we look back on the carnage , that is the very definition of a black swan event.  Even then I suspect it will not be any one obvious thing, like an election result or a Fed rate rise but rather just that reality will dawn, slowly, that this particular market bubble relies on the emperors at the central banks to continue spinning the plates and that the emperors have no clothes on...

 

At some point the alternative voices like Stockman will be joined by sufficient mainstream voices to cause a tipping point.  So far this current "correction" is off the election risk and Fed rate rise risk narrative rather than the true bubble issue (at least in the mainstream).  If the election is seen as a "so what" event, which it is either way in my view, and the markets shrug off a Fed rate rise, which they did last time, OR no such rise materialises due to sufficient doubt about the data (series of low NFP prints anyone?) then the markets could easily revert to the "Central Bank Put" because the alternative is too awful for the fee earning spivs to contemplate.

 

Imagine what the technicals might look like, here is the S&P as an example:

 

If the current market Top is actually a wave 3 (pink) then the current bearish move can Drop quite far without negating a higher high set up and a turn around the Fib 38% (blue) from the Feb 2016 low (coinciding with the Fib 76% - green - from the end June 2016 low) and could also be at the descending trend line (hashed blue) which, if the market rallies back to a fresh high, would result in an expanding Triangle formation (highly bearish in this case but only after a fresh all time high).  Such a formation is rare but the Central Bank bubble would be the right kind of situation to see such an outlandish set up.

 

With everyone clamouring for a large correction I can't help feeling that this is not it and even if it is then we will see a wave 1 followed by a strong retrace rally in wave 2.  I must admit I favour that latter and deep down I hope that it is so we can get on with it but can't discount the former and don't want to get caught in a Bear trap.   Either way Santa Claus rally anyone?  NY2017 seems like a better bet to me.

 



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True Mercury. I do think this is a complete overreaction to a potential Trump Win and therefore the market is just pricing it in, but once the election is over regardless of the result, the Fed will be heavily in focus, of course any external influences may suggest otherwise. I will be looking to possibly Buy the index on the FTSE100 possibly after the election. Right now its market jitters and without doubt oil is having a heavy influence. 

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When the crowd are all on one side of the boat it either capsizes of they start to shift to the other side.  Looks like the beginnings of a shift to me rather than a capsize.  Even if The Donald wins on Tuesday/Wednesday I doubt we will see a full on capsize, although we will probably see a surge back to the downside for a while.  However commodities (other than Gold perhaps) march to the beat of a different drum so if, like me, you feel this is a potential turning point for a rally then the other noise is not bothersome to trade Oil and copper. 

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