I've been out of pocket for several days and am getting over an injury, so this will be the first post in a bit and will be brief. I do hope that anyone interested in my thoughts is following me on Seeking Alpha. A number of articles there are very good quality, and the comment section doesn't allow trolls through as Blogger's usual format does, and as was the case with The Daily Capitalist, the comments on my articles are often learning experiences for me.
In any case, as we begin to move away from the crisis events of 2008 and their aftermath, a lot is similar to the ending of The Great Gatsby. In it, Fitzgerald describes himself (Nick Carraway) always being dragged back into the past. We, he suggests, are boats trying to go upstream against the current (i.e., into the future), but we are "borne back ceaselessly into the past". To wit: one financial crisis is similar to another:
My long-standing analogy, which I discussed during the semi-crisis summer of 2011 and then several times last year, is that the European mess is similar in many ways to the US mess of 2006-9 in that the insolvencies never seemed to end. Some people forget numerous small mortgage brokers going under in 2006 pursuant to the housing bubble bursting around the end of 2005. And people forget the rumblings of trouble in finance-land when the auction rate securities mess began in the fall of 2007. So the US crisis went on a good while, as is the eurozone mess. After the Cyprus banking fiasco (which continues), stress in financial markets continues to intensify as the depression in so many European countries contines.
Dr. Copper is breaking support, Treasuries and gold are well-bid, but Treasuries are better-bid than gold. These are signs of a deflationary bust..
US stock and bond markets are, meanwhile, following the script they followed during the Asian contagion, meaning they are being supported by chaos elsewhere in the globe. There's nothing like being able to buy your own bonds and have all the economic and other advantages that the US has. Thus I continue with a Fortress America investing outlook, as I introduced in the late summer or early fall in 2011.
This extends to Apple's problems in China and Europe. It includes all multinationals. Caterpillar has had problems in China, as well.
Eventually, the Asian contagion came to America. Why should this time be different? (Though we can hope.)
A possible template for US stock markets is as follows:
I can reasonably see the Russell 2000 (IWM is the major ETF) acting like the NAZ of 1998-2000 and having a blowoff top (it's toppy enough already on valuation) and peaking anywhere from last Friday (it was down today) to two years from now. But let's say it's so overvalued already (it is) that it peaks this year. In that case, I would expect the S&P 500 and the Dow 30 to peak or nearly peak some months later. This was the pattern in Y2K as the NAZ peaked in March, crashed, half-recovered, and the SPY made a double top half a year after the NAZ topped.
This environment would continue to be, as they say on the Street, "constructive" for Treasuries. I'm positioned heavily with bonds right now. It's been an amazing bond rally since Y2K and again since 2007. Can bonds three-peat?
My best answer for now is that speculators on the 30-year T-bond in the futures pits now show their longest/largest sustained net negative positioning since the first half of 2011: the best time to own zero-coupon Treasuries since the fall of 2008.
I'm watching Mr. Bond and Dr. Copper closely.