page-loading-spinner
Home Prepare For The Bear
Preparedness
Uncategorized

Prepare For The Bear

The User's Profile charleshughsmith August 6, 2014
5
placeholder image

Executive Summary

  • The underappreciated impact of the Fed's current tapering
  • Get ready for corporate profits to start rolling over
  • Why record margin debt is such a big danger
  • The myth of de-leveraging
  • Why the data make a clear case the long Bull market is ending

If you have not yet read Is Part 1: Is This Decline The Real Deal? available free to all readers, please click here to read it first.

In Part 1, we looked extremes in valuations, sentiment, leverage and complacency, and how these make the Bull case for further advances in stock prices difficult to make without drawing this time it’s different parallels with previous asset bubble tops.

In this Part 2, we’ll look at how the fundamentals of the Bull case have been weakened or threatened, and determine whether indeed we are witnessing a key moment of direction-reversal in the markets.

The Federal Reserve’s Tapering of Quantitative Easing

Everyone who follows the financial news is aware that the Federal Reserve has tapered its unprecedented Quantitative Easing bond and mortgage buying program from $85 billion a month to $25 billion a month, and has made noises about ending the program entirely by October of this year.

Observers see two primary consequences of the end of QE:

1.  Interest rates, no longer suppressed by Fed bond and mortgage buying, will likely tick higher from historic lows.

2.  The support for stocks and other risk assets provided by QE will end, removing a key prop under stocks.

It’s clear that interest rates—shown here by a commonly used proxy for interest rates, the 10-year Treasury bond yield—have hit bottom, and while they might bounce along the bottom for some time, they don’t have much room to decline even if “risk-off” buying of Treasuries pushes the T-bill yield lower.

The rest is exclusive content for members

Curious about what being a member offers? Sign up now for a risk-free trial and get a sneak peek into the premium content, features, and perks awaiting you on the other side.

Community

Top Comment

Thank you for the correction, and I think you will very likely be right about GDP declining…
Anonymous Author by charleshughsmith
0