Tomorrow Will Be A Watershed Moment For Financial Markets

I believe the world is at the greatest financial market inflection point since 1929. One that calls for a basic truism:

You can make a profit in a rising market if you are long. And you can profit in falling market if you are short.

The $64 million question is: How can you know the market’s direction?

There are all kinds of financial advisors, market seers, chart readers and fancy investment formulas. Each purports to answer that question. But all of these assume some kind of steady state world in which the future unfolds in a grand cycle based on past history.

“Just get some good pattern recognition software” a financial TV advertisement might tell you, and “you’re all set to make a killing.”

I don’t believe that for a second. We are in uncharted waters after nearly 20 years of madcap money printing by the Fed and other central banks.

Everything has been wildly inflated — stocks, bonds, real estate — and also the entire real economy as measured by global GDP. That includes trade volumes, capital spending, commodity prices, energy and mining capacity, manufacturing investment, bulk carriers and containerships. Also, warehouse and distribution facilities, brick and mortar retail space and much, much more.

But before we get to some of the facts about this great financial deformation, let me get right to the investment thesis. The world’s central banks are finally out of dry powder. They no longer have the means to inflate the global credit and financial bubble.

That’s why I’m calling tomorrow’s FOMC meeting the most crucial inflection point since 1929.

We have reached the apogee of history’s greatest credit inflation. Now we’re hurtling into a prolonged worldwide deflation. You can already see this deflation in the plunge of oil, iron ore, copper and other commodity prices.

The Bloomberg Commodity index has fallen 70% since its 2008 peak. And it has now reverted to levels not seen since 1999 — while falling lower by the day.

For a while Wall Street trumpeted all of this as the “commodity supercycle.” They insisted that $120/barrel oil and $200 per ton iron ore were a sign of unprecedented growth and prosperity.

But that’s nonsense. It was the manifestation of an orgy of credit expansion that was unsustainable, and destined to end in a fiery crash. The one happening now.

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