|The Great Depression Was An Economic Reset|
If you are bullish and see higher markets ahead it is important to question not only where growth will come from, but also it's quality, government spending that creates massive deficits has never proven a long-term solution to creating sustainable growth. In recent months stock markets have been under a bit of stress but in reality, bears have merely taken a bit of icing off the top of the cake and have not gotten into the real heart of profits rolled up as the market surged to record highs year after year. America and countries all across the globe have postponed dealing with our real issues in what constitutes a massive failure on the part of leaders and political systems everywhere. True tax reform, real healthcare reform, real Social Security and pension reform, how to balance trade while increasing global competitiveness, as well as addressing long-term sustainability have all been subverted.
This has become a worldwide problem. With all the distortions from things like computer-driven trading, dishonest economic data, and stock buybacks it is only logical that at some point in time reality will re-enter the picture and set things right.
|The Great Reset, Has It Begun? (click to enlarge)|
The fact the numbers do not work means reality will be visiting us soon, this reset can develop in several ways and it will be interesting to watch how this unfolds as the market unravels. What will ultimately be declared the driving force behind its demise will be equally fascinating. During the bull market of the last nine years, it seemed that even bad news was good news in that markets would rally and rise indiscriminately. It often appeared that any indication things were not well was interpreted as proof the Fed and central banks across the world would soon step in to add a little fuel and give the economy a badly needed kick. When it comes to a falling market, however, the market can fall like a stone or in the case of a "realizing market" slowly grind its way downward as bone grinding action stretches on forever and a day with no respite.
|Have We Ventured Into Bubbleville?|
Often investor psychology and the behavior they display is based on recent trading patterns. In this case, many investors will react and "buy the dip". For years this reaction to each pullback has worked and garnered huge profits for many investors, but this trading strategy has the potential to cause them a fair amount of pain. Bulls trying to buy pullbacks and pick market bottoms time after time may soon find that more downside action exists. Ironically, more than once I have heard a person talk about how they plan to short this market when it tops, but the fact is they won't. It is very hard to pick a market top, but if anything they will probably assume the role of buying into a falling market and getting sucked into the vortex well before the fall has stopped.
|Chart of A Bubble Market (click to enlarge)|
Throughout history, the world has witnessed and undergone many resets. The coming adjustment will come and it will most likely be ugly and often volatile. Market crashes generally are the result of panic and so far what we have seen is more on the level of "minor concern" resulting in a chorus of cries to buy the dip. It is only after the market blows through several more key support levels and starts making what some people view as crazy new lows that panic will set in, and by that time it will be too late for many investors to escape the carnage. As stated earlier, in recent months stock markets have been under a bit of stress but in reality, bears have merely taken a bit of icing off the top of the cake so when stocks really begin to tumble expect a ferocious stampede to the exits where the carnage will be fierce.