The Top is In?

A Bear Market Has Begun

By David Hunter, CFA
for  The Casey Report

“Regular readers will recognize David as an expert … .”

(Not dated. Doesn’t matter. It’s not really timely information, … is it?)
~8/20/14 (That’s when I received it via email)

… Not only am I suggesting that a bear market is near, but that the bear market is already underway. … Major indexes are just off their highs. But beneath the surface, a lot of damage has been done. It started in the spring when the two leading momentum groups of this cycle, social media and biotechnology, sold off sharply. Both have rebounded from their spring lows, but neither has regained its highs. More recently, bank stocks broke down, as did building and construction stocks, along with housing stocks. … In addition, European stocks and junk bonds suffered important breaks. These are significant reversals. …

Certainly, the geopolitical landscape is full of potential risks (including)  the Ebola virus outbreak. … The global economy is leveraged and fragile and … any interruption of the flow of gas into Europe … much of Europe is already in or heading toward recession. Japan and China remain … dependent on export markets for growth. …

Japan’s monetary expansion is more or less on hold and that China is attempting to rein in its aggressive credit expansion … The Fed is winding down QE; … a substantial reduction in liquidity at the margin. …

We are finally seeing the Fed and Wall Street on the same page: they both agree that additional QE would be counterproductive. … Ironically, the global economy may be closer to a deflationary contraction today than at any time in the last eighty years. …

I believe the liquidation of exchange-traded funds (ETFs) will play a defining role in the bear market of 2014. … Investors (in ETFs) may decide to exit en masse (and this) would force ETF managers to sell holdings to meet the liquidations. (This could change a downturn) into a historic crash.

(For example) recent action in the high-yield bond market … due to large and concentrated outflows from high-yield bond funds (forced managers) to liquidate some of their bonds. When (managers) tried to sell, … the bonds were not as liquid as they thought, because sellers outnumbered buyers. This occurred with only a four percent decline in the junk ETFs. Imagine the impact during a sharper bear market selloff. … (So, how about SJB?)

(For some enlightening responses to this, click on the complete article and read the comments!)


About icliks

Biding my time in central ms ... yours too, if ur reading this.
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