Tuesday, September 22, 2015

Game Over........


Game Over

The plainly observable fact remains that stock markets have not been able to sustain new highs without central bank intervention.

$DJIA

In lieu of any evidence to suggest that markets can make new highs on their own, one has to surmise that the Fed will, at some point, have to bring back QE. The trigger? Lower stock market prices. And this what it's all about at the end of the day.

Central bankers know what's up and so does Janet Yellen and hence they are staying all in and are ready to do more.

Technically markets are facing massive potential heads and shoulders patterns and broken trend lines with bearish price implications on confirmation on the one hand. The stage is now set for a retest of lows and potential break of price into October. The market has sent a clear message with its price rejection.

The message: The game is over. 

The trend has changed. And the Fed knows it. The question is: What will it do about it? Roll-over or fight? But will it matter much if it fights? Janet Yellen clearly lost the crowd this week as "accommodative" was met with a resounding SELL as confidence has been shaken.

When the Fed embarked on its mission to rescue the economy in 2009 it did so on the following premise: Save the banks by re-inflating the housing and stock markets via easy money and, as a result, companies would hire and the eventual scarcity of labor would produce wage growth with the end result that the resulting inflation would permit for a tightening cycle to normalize rates.

The problem: After 7 years and trillions of dollars in debt and balance sheet expansion there is no inflation nor is there any wage growth. And the reason for this is a structural one that central banks have been refusing to acknowledge and admit: The massive underlying shift in technology that is radically changing the global labor market. Not for the better, but for the worse.

And this shift has enormous implications for investors, the economy, society at large and the stock market. And these implications have the potential to signal Game Over for this market.

What does the Fed know that we don't?

It knows that a recession if not a depression is coming, if not already here.

Absent far more easing, what the market is signaling is that the US economy is about to slam head-on into an economic recession... or depression, one which some would add, is inevitable due to some 40 years of Fed easing starting with Greenspan's great moderation, and continuing through three sequential credit-fuelled bubbles which merely delayed the inevitable "mean reversion" moment.


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