Will Tomorrow Be The Start of The Big One?
If you follow guys like Marc Faber or The Dollar Vigilante @dollarvigilante you will probably say, YES!
If you haven't been following, the stock market is at a very important inflection point. We have come to a point where every major economic data point gets dissected and ressected until it can't be sected anymore.
The reason this has become such an issue is because the FED has decided that the stock market and the economy as a whole cannot stand on it's own two feet with a quarter of a percent rate hike (.25%).
Tomorrow the job's numbers will be released. Many are saying this is the number one indicator the Fed has been looking at. If the number is strong, something above 250k then there is a good chance there is a rate hike in September. Any number below that and it looks like the odds of a September rate hike drop to nearly zero, and rate hike expectations will move all the way to December.
Today the S&P 500 closed within 1% of the previous day's high or lows for the 35th straight time. That would be the longest stretch in forever... not really, but it feels like it. We have a market that is basically a coiled spring waiting for some kind of catalyst to launch it one way or the other.
Will that catalyst be tomorrow's job's number? Possibly.
Even more troubling for the Fed could be the GDP numbers. GDP has had its weakest recovery in almost 100 years. GDP currently is sitting at 1.1%. The Fed traditionally hikes rates into 4% GDP growth and up. So, why are we contemplating hiking rates right now?
Some might say it is so that the FED will have some ammunition when the fit hits the shan. But, is that really a good reason to hike? Will that kill what little momentum the economy might have?
To understand what rate hikes might mean for the stock market, lets take a look at how much of the recent stock market gains are strictly "easy money" related. In order to do that take a look at the chart below provided to us by Deutsche Bank:
As you can see 92% of the recent rally is from ERP (earnings risk premium), and that 92% represents about 800 points of the S&P which equates to about 40% of the total value of the entire S&P 500. So, if something unexpected were to happen that caused interest rates to spike either orchestrated by Central Banks or not, that could upset the compressed ERP coiled spring leading to a violent market crash. Any moves to undo the central banks support could result in an entire unwinding of the ERP gains, which would leave the S&P 500 800 points lower, sitting near 1400 when the dust settles.
Scary huh?!
However, Deutsche Bank isn't the only one that thinks the entire market is propped up by easy money and due for a massive correction.
Marc Faber recently stated that he thinks the market is overvalued by 50%, saying that "when you print money, something always goes up. The real economy has not been doing well. I think we can easily give back five years of capital gains, which would take the market down to around 1,100."
That represents a 50% drop from today's levels. So, we have 2 heavyweights calling for a rather substantial drop in the markets because they are being propped up by cheap money...
Will they be right... and does it start tomorrow?
Sources:
http://finance.yahoo.com/news/why-fed-being-held-hostage-000000212.html
http://www.businessinsider.com/marc-faber-says-stocks-will-crash-50-percent-2016-8
Follow: @jrcornel
@jrcornel
Markets will eventually crash if you repeat long enough
The sun will rise if you are waiting long enough
things go through circles, nobody knows how to predict shit and people remains idiots. so do your self a favour and read this.
https://steemit.com/psychology/@kyriacos/why-technical-analysis-in-trading-is-100-bullshit
Is 8 years long enough?
depends how long you have been preaching.
there is a "collapse" every day. thing is you need to know where to shift your assets. the tinfoil vigilante makes money with hyping his crap much like every other investor. yet again. the world needs fools to run.
Ha, good point!
I've only been preaching since today actually... I do think we are in the finally stages of the recent fed induced bull run. The question is does it have a blow off top before it corrects big time or does it just whimper it's way over the cliff?
even if it does @jrcornel do you really believe that they are not invested in bitcoin, gold and every other commoditie? Do you think it matters if there is a crash. you will get cheese for 50 cents more. maybe have to change jobs. that's pretty much it. the rest is just scare mongering.
something something chaos!!!
As an investor I try not to make predictions. The market will let us know. In fact the market is already letting us know.
On the chart below I have plotted the VIX - the index of volatility (the black bars) - going right back to 1991. Each bar is one month. I have drawn a red line through the current level of the VIX. It is at quite a low level - it is almost certainly below the average level. This index is the measure of how nervous the market gets. Just look at the spikes and then look to the overlaid chart - that is the S&P500 in green and red.
The market is telling us that it is not nervous - the jobs number will come out today and the market will adjust to it. Just go back 3 months and see how the market adjusted to the Brexit collapse. VIX did spike but for that month only.
Now there is work to do on the chart - SPX should probably go on a log scale.
You can play with the chart yourself here https://www.tradingview.com/x/xsO7fq8X/
The NFP report is out - below expectations 151 k vs 180 k.
Currency market throws a wobble and then goes back to what it was doing
How will the market digest this news? Knee jerk reaction is a gap up, will cooler heads realize that the number still above Yellen's 100k target and a rate hike is a lot more likely than the market is currently pricing in?
Good point, but I see it as a lagging indicator. Volatility is low until it isn't...
I trade options - implied volatility tells me how the market is feeling about future prices. The challenge is it changes very quickly - which is what I think your point is. It moves and people ask, "what was that?"
No better test than to track 12 month implied volatility on currencies. 2 years ago before the USD rally we were buying vol on USDCNH below 2%. Now it is over 6%. Option writers are telling us where the USD is going.
By the same token vol on European banks is very low - writers are telling us European banks are going nowhere. Not exactly leading anything - maybe they are right but it feels cheap to me especially once the Fed raises rates
Thanks 4 Sharing
What do you think? Is tomorrow the start of the big one or more of the status quo?
The whole system is a myth, real money or crypto currency is the future. The dollar will fall and those who protect themselves now will be positioned to make incredible profits in the wake of the chaos.
I could see how gold or crypto would work, but not both. If there is an entire system reset crypto could be the future... and if there is a worldwide economic collapse that takes us back to the stone age gold would flourish... I just fail to see how both could work simultaneously
Which is why it might make sense to own a little of each. I'm betting more on the crypto option, haven't really been paying much attention to gold up to now but I'm starting to think of adding some to my portfolio as a hedge.
Good thinking.
Does Steem have a chance to be that crypto?
It's certainly got potential, but some kinks remain to be worked out, such as the current unequal concentration of Steem Power among large account holders. But I am cautiously optimistic and slowly accumulating Steem to power up as a long term investment.
thx for heads up
You got it! My personal opinion is that the number comes in the not too hot and not too cold category which means the game continues as usual...