Stock Market’s Worst Nightmare: Kool-Aid Party is Over, It’s the 1994 Scenario. The Great Dragon-King Event about to be Unleashed

The indicators are in and there will be a head-fake and then massive collapse.

Forget unpredictable Black Swan events.

A predictable Dragon-King event about to be unleashed and it could be this week.

Videos well worth your time to watch.

The adjustments in core rates markets driven by repeated Fed commentary about its QE policy led to widespread selloffs in EM assets – and as we explained yesterday, this has potential vicious circle implications for developed markets. The significance of the EM selloffs has raised concerns about whether investors could abandon the asset class and trigger ‘sudden stop’ scenarios as they prepare for a post-QE world. Barclays believes we have likely entered a ‘bumpy transition’ towards a normalization of core market interest rates, and while they agree with us that the fundamental vulnerability to an end of QE may still reside with many DMs (eg, euro area periphery), rather than EMs, the large capital inflows into EM economies makes them extremely vulnerable to a rapid outflow of external capital.

The Pandering And Politics Of The Fed’s Punch-Bowl

How to Survive a Market Crash

“At some point—in three months, three years, or maybe in the next three decades—the market will have a few unpleasant days. They’ll scare the logic (not to mention the daylights) out of individual investors.”

I wrote that in an April 1995 San Francisco Chronicle column headlined, “Save This Column and Don’t Use It Until the Market Crashes.”

It listed “13 promises you should make to avoid costly mistakes later—promises you should put in an envelope marked, ‘to be opened only in the event of a crash.'”

It’s baaaaack!

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Stocks and bonds drop at the same time.

1994 Scenario: Market’s Worst Nightmare

The Bank Of International Settlements Warns The Monetary Kool-Aid Party Is Over

When a month ago the Central Banks’ Central Bank, aka the Bank of International Settlements (or BIS) in Basel where the MIT central-planning braintrust meets every few months to decide the fate of the world, warned that the Fed-induced collateral shortage is distorting the markets, few paid attention. That the implication behind said warning was that QE can not continue at the current pace, was just as lost. A few short weeks later following the biggest plunge in markets since 2011 in the aftermath of Bernanke’s taper tantrum, some are finally willing to listen.

However, they will certainly not like what the BIS just released as a follow up, both in the form of the BIS’ 83rd Annual Report, and the speech by Jaime Caruana to commemorate said annual meeting. For the simple reason that it reads like a run of the mill Sunday morning Zero Hedge sermon, which says, almost verbatim, that the days of kicking the can via flawed monetary policy are now over, and that the time for central banks to end the monetary morphine drip has finally come.

The BIS message, as summarized by the FT, is that “central banks must head for the exit and stop trying to spur a global economic recovery… cheap and plentiful central bank money had merely bought time, warning that more bond buying would retard the global economy’s return to health by delaying adjustments to governments’ and households’ balance sheets.”

Here is a better summary of the BIS’ unprecedented U-Turn on its 5 year long monetary strategy, in its own selected words:

Asian Express: Technical Take on the Asian Markets

Most index’s above support after 350 point Dow decline!


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