Don’t worry! There is always QE4!

Disclaimer: No matter what the market has done the past few years, central banks have stood at the ready with words of more easing or downright easing. As we watch markets get in trouble again, just think back to how bad October was. That was a topping process that turned into a top that turned into ugly that turned into 2 gigantic reversal days off of words and more money printing…and then a V-shaped move up…negating the ugly that took so long to build.

We suspect that a good correction will eventually happen. But with former tenured economics professors running the show who just conjure up trillions out of thin air to fix interest rates, anything is possible. Next up, the ECB…around the 22nd of this month…will print a trillion to buy bonds…even though yields over there are already near 0%. Makes sense.

Back to the market:

As we have told you for a long long time, with major indices going to highs, it has been a very split tape as many areas have been in their own private bear market. To repeat, we would avoid:

Energy
Oil & Gas
Solar
Steel
Coal
Gold & Silver-but less so right now.
Gaming
Building/Construction
Building/Cement
Aluminum, Copper and all that stuff
Russia, Brazil and most commodity-based countries
Emerging markets
High yield bonds
Small caps vs large caps
Rails

On the other end, the semis,biotech,medical,financials,travel,transports have all been acting fine…until the past week. We are now seeing shorter-term tops in most everything, some worse than others. Most major indices have broken below their respective 50 day moving average. This is not a death knell but is something that must be watched. Remember, markets are way overdue. So far, a correction in the things that have been working while the things that were in trouble worsen.

That takes us to oil prices and currencies. We have been one to yelp about how worried we are about distortions in price and yield as central banks have stopped the 2-way trade in so many areas. Price distortions usually lead to price normalization. We just don’t know when and from what point. What has us worried is the fact that we are seeing outlier moves in so many things right now. We know lower oil prices is a good thing for the consumer but what does a 50% drop mean? We believe usually a strong dollar indicates good things…but what about the crashing currencies around the globe causing it? We believe lower rates cuts the cost of capital for all but what of negative rates we are seeing in some places? What of 10 year yields below 1% in Europe? It used to be massive debt is accounted for with higher yields. How is our debt over $18 trillion and counting but our 10 year yield sits under 2% this morning? Just pondering!