Market Crash Or Long Term Sideways Trend?

Without a doubt, no one except a few ghouls wants a crash. No one needs one either. Markets don’t listen to wants and needs; they respond to the flow of money. There has been unprecedented flows and the market has reached unprecedented levels.

We now have inflation and I maintain it is not an accident. Inflation is always a function of government policy although governments always claim “It wasn’t me, I didn’t do it.” How inflation works is, in the most part, economics 101.

Why do we have inflation?

This chart demonstrates:

Printing money made this rally. If they hadn’t filled in the hole with debased currency the death spiral would have been biblical. Now the reset comes through inflation. Actually it is not a reset, which is important to grasp, as there is no going back.

So what is the future direction?

WWIII aside:

• The market can trade sideways for two to five years, propped up by flushes of liquidity and in real terms the market will be worth 30%-50% less.
• The market can crash and grind back.

The latter would only be caused by an unexpected outcome because the central banks have their grip on the markets and for now seem quite capable of manipulating monetary levers to get the system back into balance. However, that is still a long way off with plenty of things to go wrong. A $2 trillion deficit is only a step back from the brink and will maintain an inflationary situation.

Apparently the U.S. economy is booming with a 5% increase in GDP, but if you remove inflation how is growth looking then? It’s going to be a bumpy road.

How to trade it? Buy big dips, buy deep value. And step carefully. The next couple of weeks looks kind of pivotal, was that a dead cat bounce or the beginning of a years-long sideways trade? I think we are in a supported bear market so it’s going to be very hard to make money and even harder to beat inflation.

It’s easy to forget this:

In a world where markets are not left to their own devices, this would be the natural aftermath of a stock market boom.