OLD1953 wrote:All true, but we have to keep in mind that there is often (always?) a brief uptick before the end of a cycle.
As far as where the markets will go from here, my first thought would be that the leadup to a financial crisis and panic is a period of increasing disorder. The panic reaction is a time of maximum disorder from which order is then restored as the system is reconfigured into a different state. The degree of panic probably somehow correlates with the degree of disorder in the system, which seems very high at present. In order for there to be a panic, there must be an orderly state to move to. So, for example, if the dollar is stable and the rules of the game are understood, the markets can easily move to dollars to achieve an orderly state.
Once panic was brought into being with the Lehman collapse, the financial system was in the process of reconfiguring when Bernanke blocked that process by successfully turning the dollar into a junk currency (by transmitting theoretically infinite amounts of currency to favored speculators and onto corporate balance sheets). One way to allow the natural generational process to continue would be a political move to stop this process. That would probably result in a more subdued deflationary panic.
I see the financial markets as being in a state where they desperately want to restore order right now. Prices of assets are much too high - no young person on an average wage can get credit or afford to buy a typical house at today's prices. At the same time, prices of essentials are also much too high and prevent any accumulation of savings.
A second way to allow the natural generational process to continue would be a panic so severe that it overcomes the opposing force of money creation (with its associated leveraging of QE dollars to many fold their base level of issuance). This could be something like the flash crash times 5.
It seems theoretically possible that the market will see that panic won't accomplish anything because there is nothing to panic INTO that will create the needed adjustment. Still, the markets want to panic and that can be readily seen from observation. Every day that stocks get hit, gold and silver are up a lot while the dollar sinks to new lows. However, there's not enough gold and silver in the world to absorb all the selling and nobody currrently wants junk dollars because the trust in the dollar has been compromised (the rules of the game aren't understood).
China has just announced this week that all cross border transactions (goods moving in and out of China) will no longer be priced in dollars starting sometime this year. In the meantime, Bernanke babbles complete nonsense in front of Congress and gold ratchets ever higher.
If the generational processes continue to be held off, my guess would be that sometime in the next few months, it will be possible to wake up one morning and see the dollar down 10, 20 or even 30 percent in overnight (Asian) markets. The chance of this happening is much higher than it was two or three years ago and seems to be increasing. That would be sufficient to set off a panic but in that case it will probably be very long lasting and unpredictable, and there may be no way to create an orderly system out of it for decades or longer.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
