Given all the FUD, noise, rumors, and ‘angst’ in circulation it once befalls onto yours truly to dispense with all formalities and give it to you straight and to the point: Strap yourself in and watch out below because the Fed is coming in for a hard landing. Meaning we’re not just heading into an extended economic recession but most likely a full blown (and utterly self-inflicted) deflationary depression.
On December 22nd, 1944, while holed up in the Ardennes Forest American General McAuliffe was sent an ultimatum from his German counterpart outside of the town, demanding “the honorable surrender” of the town within two hours. General McAuliffe’s reply was brief and succinct: “To the German Commander: N U T S !” And the rest of the story of course is now history.
“I’ve seen things you people wouldn’t believe… Attack ships on fire off the shoulder of Odessa. I watched broken dreams of effervescent markets glitter in the dark near the gates of the Eccles Building. All those moments will be lost in time…. like tears in rain…. Time to die…”
Okay let’s start with the BAD news first and then top it off with some GOOD news. We certainly could use more of the latter these days. First up the financial markets as a whole are royally screwed. Only exception perhaps would be energy and commodities right now (later down the line they’ll crash as well, but we’re not there yet).
If you’re feeling a wee bit overwhelmed by the non-stop doom & gloom and the depressing news that seems to be saturating the mediascape these days then you’re certainly not alone. Given the increasing chaos that inches ever closer to home it’s easy to find yourself stuck in a rut or to fall prey to a sense of hopelessness and fear of the future. My personal remedy to weather through what I call the ‘age of despair’ (you heard it here first) is very simple.
It’s been a busy time in the trading lair for (good) reasons I plan to share in the very near future. Of course the market waits for no man (or woman) and given that market sentiment has swung decisively fatalistic it’s time to look for early signs of a bounce.
It’s difficult to explain it all in layman terms, but I’ll give it my best shot. None of what follows below should be taken as chiseled in stone and it’s only my personal theory. As always do your own research, and if you come up with a better theory be sure to let me know.
After a decade plus of blue balling the bears to the max it appears that the days of reckoning may have finally arrived. Of course we here at Red Pill Quants always knew that it would happen eventually. Even as far back as 2009 when the Federal Reserve panicked and first embarked on its quest to single handedly change the laws of finance and in the process managed to enrich a small group of connected insiders as an unexpected bonus. What we of course didn’t realize back then was how long it would actually take for the bubble to burst.
If you seek to plot a way out of a particular conundrum you may have found yourself in it’s always advisable to take a step back and figure out what got you into that pickle in the first place. However if one would attempt to take stock of the sheer number of misguided and short sighted policy decisions taken over the course of the past decade across the board I fear it would probably end up filling a volume as thick as Tolstoy’s War And Peace. So the real question we may need to ask ourselves is why the heck things haven’t blown up in our faces already many years ago.
Throughout my trading career I’ve never been much of a perma-bear, mainly because I have a basic understanding of math and statistical probability in particular. In case you are unaware of a few simple realities of life allow me to share a few salient data points for your general edification: In essence throughout your average trading career only about 11% of your time is spent in downside corrections, the rest is either sideways or advancing tape.