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Thursday, October 2, 2014

Market Dislocation?

For the last 2 major bull runs, the market ran about 5.5 years before a severe correction.
We are about 5.5 years in this bull run, the question is, what next?

I have been playing chess recently, and as such, I come to realize in chess, as in work, often it is all about positioning.   The global economic control, power struggle, and what is next is about what next moves benefit the USA in what seems like the right path.  More on this later.

Please look at picture below. Using history as a guide, we are in dangerous territory.
I honestly think we could have a 1-4 year parabolic run that explodes to the market of 2-5x current valuations.  The byproduct would be a full on collapse of USD in the world, relegating USA to second tier status.  The casualties of this would be severe in the world.
I am NOT saying likely, just that it is possible.  The driver of course would be full crystalization of lack of law and currency injection.  I give this a low percentage of possibility.
The 'Blame' of such an event would result in USA loss of global leader, hence, low probability, but possible.

What is more likely is for a correction to begin, we need to blame something.  Right now we are full of excuses for the picking.  We have Ebola in USA, ISIS, China, Russia, and a host of other challenges.   One thing is certain, if we have a market meltdown the result cannot be its because of the current structure, blame must be assigned elsewhere.

Ignoring paranoia talk about USD collapse or a tense market waiting to be pricked by an excuse, one thing to ask yourself.  Assuming USD and politics away, are stocks undervalued, equal value, or over valued.  To me, they are NOT undervalued.  At BEST equal value, but quite likely over valued.

Keep in mind that standard accounting in place since the great depression is STILL suspended, making valuations of financial companies truely a fantasy guess.  Without mark-to-market accounting, its pretty much 'take our word for it'.  With such loose standards, and a nice run up, I can't make a case for undervalued.

If there is a prick in the market, bonds should yet one final bull run, collapsing interest rates.  Afterwards bonds would be the last place to be, as I expect we enter the final phase of this game.
For now, cold cash, debt payoff, and investing in yourself are best.  Gold and Gold miners are pre-beaten up, but if a market correction happens tends to take all down with it.

In 2008, gold miners collapsed hard.  But when the market hit low in March 2009, they where up quite nicely.  Since miners are PRE-deflated, this time it may be a safe play.  China is a backer of gold and as I posted in previous post, aligning direct currency trading to avoid USD.  If they make a push with a crisis, I have to think gold atleast holds its own.

A mix of cash, stocks, and resources hopefully to weather what maybe a nasty turn.

Good luck!

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