When The Snowball Reverses

From watching this grand experiment in global finance, my experience and contacts show me we divide into three camps.

First, is the conventional buy and hold camp that has dominated markets for decades. Central banks’ role in financial markets is merely academic. The historical record in US stocks and bonds since US Treasury yields hit their highest levels in American history in the early ‘80s, has shown that stocks and bonds always bounce back, pushing stocks to new record highs and interest rates to lower lows. Cycles have little or no relevance in their decisions. 

The second group come from the growth of retail traders using ETFs to buy the dip. With central bankers telling the public worldwide for years they are creating hundreds of billions each quarter to buy assets, this has fueled extreme confidence in shorting the VIX and buying stock ETFs. What could go wrong, the money printers have “unlimited” powers? If markets move lower, one merely waits for the next dip to buy. I even saw a recent ad by a major brokerage firm promoting to prospective investors that because of their technology, retail investors never need worry about missing a dip!

The third group comprises individuals who are students of history, science, and human behavior. Whether they make short-term trades, hold investments for longer periods, or are heavy buyers of gold and metals, they understand that since 2009 central banks' are at the root of this historic bubble. They grasp that unwinding the role of BUYER of last resort has never been done before. Because of its size and scope, the consequences must come, unlike “the script” presented to the public. 

They constantly watch for market extremes underneath record price levels.  Many study market history. Yet their greatest concern is how this ultimately impacts the entire society, not just the individual.  

For those in the first group, there is little time to wake up from fantasyland. One must understand that our central banking “gods” cannot manipulate the perfect stock market much longer. Because of constant suppression to produce a 19-month period without even a 2.5% weekly decline in the S&P 500, when losses return and rising volatility they will return with a vengeance. While no one knows the exact day of the top, consider this example from history when looking at prices reaching an “all time high”. Clearly there are times to sell at record highs rather than buy!

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Time To Plan for The End of a Bubble?

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