The money printing party makes the economic patient feel good. Morphine parties are always fun especially when the patient is in dire straits. You see, the patient is riddled with cancer so morphine just puts off the inevitable. Indeed, the sovereign debt crisis is upon us as it is widely believed that the only thing central banks can do at this point is print more money which will push rates even lower or further into negative territory. The total value of bonds with negative yields now exceeds $12 trillion as the 10-year German bund yesterday went negative for the first time in its history. Indeed, central banks including the US Federal Reserve seem to be transforming from schizophrenic to schizophrantic as the global Titanic is too large to avert the "Iceberg ahead!"
But that does not mean a crash is coming tomorrow. Quantitative easing (QE) can push the strongest markets higher for much longer than expected, and Yellen has said she is not opposed to joining the Negative Interest Rate Party (NIRP). Look how far the US stock market has come since 2009 when QE began, though the stock market, too, may be running out of steam as it meets with a crisis in confidence.
The VIX Volatility Model thrives in volatile markets
So while the world may witness further sharp setbacks as we've seen since last August which has scored several fast +15% or greater gains for the VIX Volatility Model, it does not rule out the chance of US markets moving well beyond old highs.
The System Is Broken
That said, numerous issues, too many to mention, remain. Global growth continues to suffer, the jobless rate is far greater than what is reported, pensions are under threat, governments are bankrupt, student loans totaling $1.3 trillion have been criminalized for non-payment, most families live paycheck to paycheck, and 1 out of 5 families in the US are food challenged.
Meanwhile, major US stock indices such as the Dow Industrials and S&P 500 give a false sense of security that things are not so bad. Former Fed Chair Alan Greenspan recently said in a recent interview that while Venezuela is on the verge of marshal law, the US, UK, and European countries could eventually follow suit at some point since the massive debt load is interconnected.
Greenspan went on to say that we were able to recover relatively quickly from situations such as the dot.com bubble and the stock market crash of 1987 because the toxic assets during those periods were not funded by debt, so there was very little leverage. He said that in contrast, everything today is maximally leveraged thus the structure of the economy is far more vulnerable to a collapse.
We remain vigilant
We continue to keep a close eye on our ever evolving list of key stocks at Virtue of Selfish Investing as they shine the light down these dark, twisty corridors that make up this market maze. Taking profits in context with the stock's chart and keeping stops tight has continued to work, and helps one sharpen their trading dexterity as well as keeping greed in check.
The VIX Volatility Model returns to date: https://www.virtueofselfishinvesting.com/market-timing-results/dr-k-vix-volatility-model/0
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