So, if you knew someone who published this chart in October 2021 when the Nasdaq was 15,000, you’d want to ask them “what next?”
That would be me here Nasdaq: Why Stocks Could Fall 50%.
There are certain patterns that are key in markets and about the most important is the parabolic J curve or hockey stick. This represents compound growth and often the formation of a bubble. Most of us have seen it all before in Bitcoin, Dotcom, various stocks, and now in just about any asset you could mention from watches to bonds to houses; at least that was the case up to the end of last year.
When the hockey stick goes vertical it is the moment that prices rise the most, signalling a crash is just around the corner. It is tortuously hard to get the top, but when prices scream up, the top is close in time, if not in level. As they say: “trees don’t grow to the sky,” which – like all nonsense market phrases – can be translated into something useful, which in this case is prices can’t go up forever.
They have not, and now we are into the crash zone, so the question is: where is the bottom?
So here we are:
Now please don’t think I’m like the hero in my financial thrillers who absolutely knows what happens next, but I’ve had a good run calling the markets over the last 20 years, and I’ve done OK out of that.
So, what next?
It is not written but is instead in the lap of the central bank gods. If they choose runaway inflation over economic recession, they might turn this crash around. However, it seems the Federal Reserve has burnt its bridges and is prepared to do “The Volcker.” Chairman Powell basically said he was going to righteously hurt us all to get inflation down. He would have to do a U turn only days later to save the day. The call is between the below:
Nasdaq – and by projection – all US and global markets need to make the W or crash.
I think a crash is on hand.
I am out of 95% of my positions because I believe we are off the cliff, and I’m not prepared to bet on a soft landing in the bushes below.
In Britain, The Bank of England, stepped in (9/28/22) to rescue the UK Government bond market and, by extension, the whole British financial system and that is the first “crack bang” of a potential global avalanche of sovereign and corporate bond market dislocation brought about by the Federal Reserve’s QT, runoff, interest rate actions.
If the Federal Reserve doesn’t pause or reverse course and eat crow on its promise to rein in inflation, we are in for the first runaway financial crisis since 2007-2008.
It is here, it is right now. The US regulators either contrive the W of the chart above – or at least some mangled version of it – or I believe we get a full-on global crash.
I hope I’m wrong, but I’m not putting any money on a happy ending. Instead, I’m sitting this situation out until either the Fed folds or the market does.
Until the dollar is back under control, no other market is safe.
The good news is, the aftermath of a crash is a great time to load up and make great returns, but like the top, the bottom is hard to predict. The outcome is in the hands of the central bank technocrats, and they are going to have a hard time keeping the show on the road. When the bottom comes, it will be a good idea to wait a while before jumping in because with massive U.S. companies on 50 and 100 P/E, the drop could be huge and the downward momentum massive.
The key idea I return to is that bonds are the senior market, and right now that apex market is on the edge of disruption. Last time at the start of the global financial crisis, it took weeks for that malfunction to crash the stock market.
The clock is ticking.