The market is being ramped higher by traders who believe:
1) The US’s delay in entering Syria is bullish
2) That the PMI data out of Europe indicates all is well over there.
The primary concern with these beliefs is that they overlook at tremendous amount of problems brewing in the financial system.
1) The 10-year bond is yielding 3%. Contrary to what a Central Banker will tell you, higher interest rates are not good for stocks, particularly in an over-leveraged financial system.
2) The European Crisis is not over in any way. Things were swept under the rug for Merkel’s re-election, but Portugal, Greece, Ireland and even France are on the verge of economic implosion. And as Cyprus’s “bail-in” and Poland’s recent nationalization of pension funds indicate, the next time stuff hits the fan, citizens will be literally picking up the tab with their savings.
3) The world continues to believe China has “rebalanced its economy” when in fact China is simply pumping massive liquidity into its shadow banking system. What could go wrong with this? After all, China put an amount of liquidity equal to over 20% of its economy into the shadow banking system from 4Q12-1Q13 and GDP slowed.
The markets seem to sense that all of this. In the US we’re putting in what looks like a lower high. The market appears to be forming a Head and Shoulders pattern.
If you have not prepared for a market correction, here’s a free Special Report that outlines how to prepare your portfolio. To pick up a copy, swing by:
Phoenix Capital Research