We are now at the point in the bull market where traders think that stocks are bullet proof. Back in December I warned this was coming. I said at the time that this round of QE was going to be different. That it would have a much bigger effect on the market than the analysts were expecting. I remember at the time analysts were claiming each round of QE was having less and less effect.
I was confident that QE3 & 4 would
usher in the euphoria phase of the bull market. Actually Bernanke is
putting in place the final components to bring about the end of the
bull. Let me explain.
QE infinity has, and is generating a
runaway move in the stock market. The problem with a runaway move is
that it's artificial. Let's face it anyone with a shred of common sense
knows what's driving this move and it isn't the economy. Bernanke is
crazy if he thinks the stock market is acting normal. Well, this is the
guy that said the subprime crisis was "contained". Any artificial move
is destined to end badly, just like the artificial housing market ended
The problem with runaway moves is that
they stretch way too far above the mean in both price and time. As this
process progresses institutional traders become more and more nervous,
so the market becomes more and more shaky. Kind of like a heavy
snowfield just waiting for that last snowflake to turn it into an
And that's exactly how these runaway
moves end. At some point all of these nervous investors try to get out
the door at the same time and you get a crash or semi crash. My best
guess is that it will come in June or July. Until then the market will
probably continue to creep higher with occasional 40-50 point
That's another characteristic of runaway
moves. They set a standard correction size early in the move and all
corrections there after fall in the range. Then at some point one of
those corrections spikes through the range and months of
gains get wiped out in a matter of days, or even minutes. The flash
crash in 2010 is an excellent example of a runaway move crash.
So here's what I think is going to play out. Unknowingly, Bernanke has put in motion a runaway move that will end in some kind of
crash this summer. Depending on how long and far above the 200 day
moving average this thing stretches will determine how violent the crash
will be when the forces of regression take over. If this lasts till
summer, as I think it could, we could see a crash of 15-20%.
When that happens Bernanke is going to
freakout and crank up the printing presses even faster. 85 billion may
become 150 billion. When that happens, commodity markets are going to go
crazy just like they did in 07/08 as Bernanke tried to print away the
real estate implosion.
When commodity prices spike, economies collapse...just like they did in 2008.
All the pieces are starting to fall into
place. QE infinity is driving a runaway move in stocks that will end
like all runaway moves, with some kind of crash scenario. That will
trigger even more printing which will spike commodities next year, and
that will be the end of the economy and the beginning of the end for
this stretched and extended cyclical bull market. Look for a final top
late this year or early in 2014 and a much extended topping process as
the fundamentals slowly overwhelm Bernanke's printing press.