Let the Bulls reign! Let the Bulls be our new $1000 suit and tie Santa Clause because Christmas will be Christmas for another few months, or so it appears! The Fall trading cycle is upon us and that dire market correction that so many had hoped for appears to be delayed for a few months as the Fall buying season is ready to go into full swing. We may have to delay the inevitable until early Spring of next year.
Our annual economic outlook starts much the same way as our end of year 2013 outlook, with doom and gloom. We thought our prediction of a 10-20%, or more, market correction in late winter of 14 was true but the markets fooled us, yet again, and surged to record levels in Q2 and Q3 and it appears that Q4 will act in the same manner.
Our chief economic indicators are yet again; Margin Debt, Money Velocity, the Buffett Valuation Indicator or Market Cap to GDP and Market Fair Value. The quarterly GDP numbers are so tainted with bullsh*t we will not weigh those numbers as we did before. We will rely on the numbers that are hard to manipulate.
What can we say, its at an all time high, yet again.
This indicator is the scariest as it appears that more than 70% of the market is encapsulated in debt. The margin call during the next major correction will be as deadly as Cobra venom. As the Bulls parade on Wall Street their risky assessment of an easy money FED will hold for the short term aiding to more margin debt and aiding to the eventual destruction of the FED when the big one hits. Prolonged zero percent interest rates will take the place of a tapered out QE as the catalyst for risky behavior.
OMG! If you wanted an untainted view into the inner workings of the economy here it is and yes, it is as scary as the Margin Debt.
The FED infamously commented late last month that Americans are hoarding money. This is a clear sign of FED frustration that money velocity is continuing its tumble since the great recession and is showing no signs of improving.
I wouldn't necessarily state that the common citizen is hoarding money. I would state that they have no real money to hoard! Cost of living is through the roof, no matter what the clowns on CNBC say, while wages are stagnate or declining. Couple in the fact that the common citizen is basically locked out of this free money market (hence the ever widening gap between wealthy and poor) and it makes the FED money hoarding statement appear to be a rare expression of public frustration, something the FED is not famous for.
Buffett Valuation Indicator or Market Cap to GDP:
We will post the combined chart below and what can we say? Not much, while we haven't broke any records all indications are, yet again, doom and gloom for the markets next year.
Market Fair Value:
I think we are on a roll here. Market Fair Value indicator "indicates" that stock prices are severely overpriced.
We do however see a small indication of deflating on the outer edges in 2014Q1-Q2 but I don't think this is a sign that the markets will all of the sudden re-value itself anytime soon, that sort of thing doesn't happen people.
What do you think our conclusions are? You got it, doom and gloom but one may enjoy a ride on the Bull's back for 2014Q4 and maybe 2015Q1. Then again you may get your guts stomped out by a bull stampede in the other direction.
The markets are so volatile that the catalyst for a major correction could be anything. It could be truly economic or most likely geopolitical. In any event the coming correction is going to be historical for one main reason; the insolvent FED.
Yes we said it, the insolvent FED. If any corporation, and that is in essence what the FED is, lost upward to 65% of its value in a week or so; would that corporation cease to be? Yep and it will be no different for the FED once the hammer hits the bell on a soon to come Black Friday, a black so black that the FED will be in the dark for a hundred years.
Take a look in the surge of FED holdings in highly risky mortgage backed securities in the later half of 2013 to the present day. When MBS tanks during the next corrections, and it will tank because we evidently failed to learn our lesson in 2008, the FED will lose upward to 2 Trillion dollars in one sitting, one correction. I cannot imagine how the FED recovers once the levy breaks.
So who will come to our rescue when the day arrives when FED won't be able sell a dollar for a dime? The IMF? China? Well we predicted in an earlier article entitled: "Is China following FDR's example on Gold Reserves and Pricing to achieve victory in the Great Financial War?" that it will most likely be a combination of both the IMF and China, because it appears China is making their move on ending USD supremacy.