High Stakes Poker

It has become very fashionable to be bearish these days.  We have investment banks coming out and basically saying that we are screwed and that it is game over.  I have never seen investment banks turn so bearish so quickly.  The bottom line is that credit is a complete disaster and one must remember that this equity bull market has been driven by a central bank inspired credit bull market and equities have been a derivative of that paradigm.  The problem is that the piper is now due his pay.  The economies of the world don’t have the cash flow to cover the debt burden on both the corporate and the sovereign side due to horrendous mal-investment world wide.  The Event Horizon nears.

Short-term we do we go from here?  Do the Central banks go quietly into the night or do they have one more trick up their sleeve?  Will they sacrifice the bank or banks  that have the energy derivative old maid and bottom this market?  If I was the head of the Fed, I would control the speed of the decline and draw more and more shorts into the market and then unleash some type of new policy or hint of new policy and cause a massive short squeeze to give the illusion that I still have power.  Perhaps that is the set up going on now.  I am very suspicious that the VIX is only 27 and has not shown real fear yet.  This decline seems very controlled to me.  I am becoming less bearish the lower we go and once I see a spike in the VIX I will be reducing my exposure further.  I have have a feeling that the FED may be holding a pair of Aces for their last hand.  The bottom line is be cautious getting short down here.  Ultimately we are going much much lower but nothing goes down in a straight line.