This Friday: Stock Markets Enter The Twilight Zone
When I made a post about this a few weeks ago, I was still questioning myself whether I was seeing something in the chart that wasn't there, like a mirage. Well, this week the markets revealed their hand and wouldn't you know it, there is a liquidity problem in the US banking system, and the Federal Reserve are handing out 24 hour loans to the big banks to the order of $53 Billion in a single shot, with a ceiling of $75 Billion if needed. Think of these as a warm-up for the big bailouts that are coming afterwards, followed by never-ending QE and hyper-inflation. It's not if, but when.
But I'm getting ahead of myself. Let's look at the Dow Jones again to see how close we are:
Well, we're getting close.
What I mean by twilight zone, is that we're moving into a point where the market is walking off a cliff and no longer has any organic support, but it won't fall until everyone looks down in horror, which means there's gonna be some some levitation tricks happening soon in the banking sector.
If I were to take a wild guess and make a prediction, I'd say the red, yellow and green lines I've draw on the chart below represent my worst case, normal, and best case scenarios for the Dow Jones and S&P500 indices.
Given just how long the stock market has been artificially propped up, It's clear that insiders have had plenty of time to exit their positions to safety, which means the uninformed retail investors are going to get slammed in the near future. I would love to say that this or that is going to happen with other markets, but the whole thing is going to unravel so fast once it starts that anyone paying attention will not be able to track every event and market surprise on their own. There's definitely going to be some hindsight bias after the fact as well, with a lot of "I told you so" videos and blogs everywhere, no matter which way this goes.
We'll see in the coming weeks and months just how this all plays out. The stock market no longer has organic price discovery, which isn't a good thing to begin with, and the way all these algorithms are trading reminds me of a lawnmower that's almost out of gas and starting to sputter. In this case money is the gas, and there is now a liquidity problem. Fancy that.
Thanks for reading. Stay safe and keep your head up.
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STOPThe point on lack of organic price discovery was also pointed out by Michael Burry from Scion Capital. Too much money are in index funds that are typically funded through passive investments. Money just kept being poured in and the investors themselves probably don't know what they are buying
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