Market tops always involve insanity. And today we have that in abundance.
On Wednesday the Fed surprised the world by not announcing a QE taper. Stocks and all “risk” assets exploded higher. Today, a mere 48 hours later, Fed President Bullard says the Fed should taper soon. Stocks collapse.
For the markets to react so significantly to such issues is a tell-tale sign that we are near a major top. The reliance on Fed stimulus has never been greater with even a hint of Fed policy actually having more impact that the policy itself.
Rumors, whispers and threats dominate trading. This is the sign of market mania.
The most important element is that this mania has been driven by the Fed, not some new technology (the Internet in the tech bubble), new asset growth (housing), but the Central Bank.
In the past, the Fed has been the fuel for bubbles. This time around, the Fed IS the bubble itself, with its balance sheet expansion driving ALL assets higher.
So when this bubble bursts, it will be truly catastrophic because no one can bail out the Fed. Interest rates are already at Zero. QE is already running non-stop. There will literally be nothing the Fed can do.
I cannot say the top is in today, nor can I say it will be here in a week. But THE top is forming. And it will be absolutely awful when it’s done. We’ve now had three SERIAL bubbles in the markets in the last 13 years. Each bubble’s bursting has been worse than the last. The next one will be THE biggest one yet.
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