This week ended up following through the signals I reported on Wednesday. However, it is very important to note that the ECB has taken note of what is happening in the markets and announced it may not be tapering AT ALL now.
IF THINGS ARE SO GOOD AS THEY SAY, THEN WHY DO THEY NEED TO KEEP DOING "STIMULUS". This is the one question that everyone should be asking themselves. Realize that the entire financial recovery since 2008 has been created out of TRILLIONS of dollars of stimulus (at the expense of future generations by accruing huge sums of debt)! It's already an insurmountable amount of debt if you divide it by every citizen (see US Debt Clock) for the vast majority of citizens.
These central bankers are making it clear they will continue to hyperinflate the market if necessary. I maintain that current QE levels are not enough to stop the mounting defaults but instead a WHOLE LOT MORE QE is needed be able to meet the insatiable need that the "everything bubble" has created.
There are many signs the market bubble is popping. The vast majority of folks went deep in debt due to easy credit offered by TBTF banks. Now the bill is coming due and defaults have been on the rise for several months now. Retail is really getting ugly. Despite banks reporting profits on credit cards, the defaults are mounting. Subprime auto defaults are rising. Keep in mind this is while jobs numbers are supposedly the best they have been in decades. What do you think will happen at the first blip of joblessness. Defaults will get real bad, real fast.
Credit cycles are so damn predictable, yet almost no one sees them coming. It happens like this:
- Easy credit creates defaults. We are now seeing that in subprime auto credit cards and student loans.
- Defaults expose systemic risk when they are larger than the market can support.
- Vastly larger monetary debasement is required to recapitalize TBTF banks so they can repeat the cycle.
- Banks get their money whether you pay or not. When you don't, all US citizens absorb that financial burden in the form of national debt. It is a stealth wealth transfer from all citizens into the hands of TBTF banks courtesy of the central bank. Even if you DO NOTHING, the assets you currently own are WORTH LESS because the money backing them is now more abundant (a LOT MORE) making a US dollar worth LESS.
There are ever-increasing signs that the US dollar is really under stress now. There have been a number of events over recent years to devalue the dollar abroad. The petro-dollar has value because it is the global reserve currency. That is increasingly NOT THE CASE. China recently launched the petro-yuan in direct competition with the petro-dollar (looks like China needs some FREEDOM). Iran has also dumped the petro-dollar and is working directly with Russia in exchange of oil for goods. We're seeing a lot more of these country-to-country type of agreements forming.
Speaking of agreements, it looks like TPP is back on the table with Trump. TPP was a terrible trade deal for the US and we were very relieved when Trump followed through with his campaign promise to VETO it. Not any more. Hopefully Trump will follow through with some awesome deal making and clean up this trade agreement where it doesn't actually HURT middle class Americans.
Markets are picking up technical momentum to the downside again. But as we all know by now, it all depends on what central banks do next week. This does not mean we won't have some up days but the volatility can be expected to increase again (more big 1000+ daily swings coming). The "everything bubble" is popping and is likely to require a lot more stimulus in order to stabilize and move markets higher.
Bitcoin continues to show signs of buying and may have bottomed but we maintain that we'd like to see price action back above the daily 200 period moving average with higher lows and ideally back above $10,000 before we are convinced that the selling is over.
Crazy times we live in. Congratulations to those who realize it... very few do.
Act Accordingly,
The Market Vigilante
p.s.
Do not underestimate the tenacity of the central banks or the willingness to hyper-inflate their respective currencies.
