At the beginning of the year, we warned that the share market did not show any signs of breaking out to the upside before May, and that there was still a risk of a correction but foreign capital inflows would temper any decline. So far, that has proved to be correct. Nevertheless, we still should get that fake-out to the downside to help create the last rally for the bonds market.
What may set the stage for the bond bubble requires a flight to quality. In other words, we may see a scare in the share market that sends cash running into the bond market to create the top. We do not see a break in the market that is long-term in nature, just a break that gets the majority anticipating a change in trend.
Keep in mind that May has been a target since the start of the year for the end of this consolidation phase. We should begin to see more interesting trading patterns, and if we get a correction that sets the flight to quality in motion for the bond market to rally, then we may indeed be preparing for a Phase Transition into 2017.
Keep in mind, banks want to see cash eliminated. That will prevent bank runs, as they see it. This will mean that the ONLY place to put cash will be outside of the banks, and it is in that atmosphere that we may yet see the Phase Transition in the stock market into 2017.
This is not going to be a walk in the park. We are going to have to follow the trend and let the chips fall where they may. Clinging to old theories will only cause losses at this stage in the game.
We appear to be entering into territory, unseen for hundreds of years. This is not a Great Depression scenario; this is a lot more difficult to deal with. Equities have remained steady due to capital inflows. Domestic retail investment remains at record lows. The future will be the decoupling of stock prices from earnings because we are dealing with capital preservation. Those who constantly harp on the overpriced stock market would imply, “Buy bonds!” That is the opposite side, but rates are nothing to negativity. Of course, you will have those who will yell, “Buy gold!”, but that is still a tiny fraction of the world economy. Even equities are grossly underweight within the world economy compared to debt. That is where the BUBBLE really lies, and that is where we focus our attention. The traditional calls to sell stock are the same old reasoning that has existed in a Public Wave. This is what happens when confidence collapses in government. It is a complete new game.