So Where Is The Bubble?
While those who advocated stocks in various institutions are being demoted and the bond bulls yell I told you so (as Mellon famously said in the start of the 1929 Crash, Gentlemen Prefer Bonds), what is really going on in the markets cannot be seen without looking at the cross-connections. Why? Sometimes you just cannot see the trend because of the panic and noise.
Are we really witnessing a stock meltdown? What is the impact of such a move? Some yell 'buy gold' and others yell 'it’s the currency'. Sit down. Take a deep breath and think logically for one moment. Our model is still short at the weekly level and it would reenter a short position making a new low today on the Daily level and a close below 15824. A Friday closing below 16170 keeps the markets bearish despite that fact there is little retail participation. This may be labelled as the “Rich Man’s Panic of 2014″.
So what is really going on? We are seeing a panic into bonds at the institutional level. There is a race on to see who can hand government their money faster. The Dow futures prior to opening fell back below 15900. That warns that a close below 15824 could signal a continued meltdown and that warns this is a bubble in bonds. Just making new intraday lows today may be enough to press the market lower into Friday. Don’t forget, a weekly closing BELOW 15960 will warn of a possible drop into the 14000 zone where the real important support begins.
A crash in stocks sends even more money into the arms of government. This inflates their position, assuming they really do not have to ever worry about budgets because the crazy public will always buy. Yet the French auctions did not go well today. We are starting to see the subtle shifts in selectivity among government bonds. This the crack in the facade.
The bubble is in government bonds. We need a sharp correction in stocks to set the stage for the future. Doing so will send more money into bonds. The more money that concentrates in government debt, the higher the likelihood of the bloodbath 2015.75 into 2020. This will wipe out institutions from banks to pension funds like never before.
Disclosure: None.
Strangely governments have worked out a way they can eat their tails by allowing the central bank to engage in QE to absorb the unsold bonds and keep government financed until no one trusts money at all. Even so, people must have it to pay taxes etc. It seem the real threat to the US economy is the cutting down of US treasury purchases by overseas participants because even with QE the US can't internally finance its debt without forcing everyone in the US to realize the US government has spend so much there is not enough money for the free market and capitalism as we know of it.