Punch Line: No. We do not have structural confirmation.
Is a bear market coming? Yes it is and it may have started as of December 29th, however, as we have all learned, the central bankers are resolved to fight deflation at all costs so maybe they can push out the day of reckoning further. However, what is different this year is that the Fed ended QE in October and passed the baton to the ECB and BOJ. Last year according to JPM about $1 trillion in sovereign debt was monetized between the Fed and BOJ. This year JPM estimates about $1.3 trillion of sovereign debt will be monetized between the ECB and BOJ. Two problems with this:
1) The ECB has not officially announced QE yet. In addition both Germany and Greece are throwing their own wrenches into the works. It is a long time between now and January 22 when the ECB will let us know their decision. So we have a POMO air pocket that continues to age.
2) Is QE from a non reserve currency powerful enough to levitate the US and Global stock markets? I say no way as the rising $Dollar and crashing oil price are proof positive that QE or the threat of QE from the ECB and BOJ are not enough to re-inflate the asset markets.
Bottom Line: I Expect QE 4 from the Fed to be announced at some point in the next 6 months. How low does the market have to go? Down -10%, -20%, -25%? I expect us to take out the December lows in the near term. After that lets reassess. Nothing the central banks do from here on out should surprise us.
The only sure thing is that volatility is to be expected and embraced. Stock pickers beware! It is macro time again and lots of cash is advised unless you can trade well.
Side note: When I was at my old shop that managed trillions of dollars in 2008 and 2009 the constant chatter about fundamentals was a complete waste of time. In my morning call I listened to the Repo desk (read on liquidity) and the High Yield guys (credit market read). As things started to tighten I went to the bunkers and when they gave the all clear I bought hand over fist. We may be entering this type of period.
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