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Hedge Funds

The Market is Set to Crash - The Timing

by trusted insight posted 1year ago 403 views

The FOMC is engaged in an aggressive monetary policy tightening regime, they are raising interest rates aggressively, and now they're going to reduce their balance sheet, which is another way of saying that they are going to take additional steps to tighten monetary policy.

The procedure removes liquidity from the Financial System, it also takes a bid away from treasury bonds, but when liquidity levels decline the willingness to assume risks in our financial market also declines.

The FOMC is actively engaged in tightening monetary policy, they are likely to continue along this path, in doing so they will remove liquidity from the Financial System, and as a result the appetite for risk will diminish, but there's more to this story.

The ECB is actively engaged in monetary stimulus, and arguably the asset flows coming into equities and the financial markets globally from the ECB when coupled with the hopes for fiscal stimulus has offset the tightening we have already seen from the FOMC, but those days are numbered and the ECB will at some point soon end its stimulus program.

When it does the global economy will start to feel the pain of monetary tightening by the FOMC more directly, but still there's more.

Specifically, the demand for assets like stocks, bonds, and real estate would be substantially lower, the bubbles that exist would not exist, and we would be in a constant risk of recession and maybe depression because, historically, when fewer and fewer new dollars are available to be invested into our economy recession and depression are natural byproducts. e.g. the Great Depression and Stagflation.

So this begs an important question, pertaining to the end of stimulus, but pronounced given the tightening of monetary policy by the FOMC.  When stimulus finally comes to an end and the EC B stops printing money and the tightening impact of monetary policy by the FOMC begins to be felt I believe that a swift RE version back to normalized demand levels as that is defined by the Investment Rate will take place and with that the appetite for risk will not only be significantly reduced as a result of monetary tightening by the FOMC, but the natural demand levels simply don't support the demand for assets that seems to exist out there today and we'll likely undershoot.

In every respect, in my opinion, the writing is on the wall and our stock market and real estate market are poised to crash.  The timing depends on the ECB.

I will continue to provide timing and evaluation details in real time to subscribers of Stock Traders Daily.