End Game In Progress

The end game that began in Japan is spreading to China, Europe and the U.S. Moves are starting to be violent in credit markets as, on the one extreme, Abe, Draghi and Carney promise infinite cheap money and bond buying while on the other  Bernanke talks “taper” and Zhou is cutting off the PBoC’s liquidity pumps to rein in credit growth.

As John Hussman’s weekly piece observes, markets have therefore attempted to reconcile these incompatible positions by assuming a deflationary (Abe, Draghi and Carney) boom (Bernanke and Zhou). But the fact is one or the other is wrong. As far as I can see, the Bernanke and Zhou boom is a mirage based on observing the economy through a financial asset bubble. In either event, we are going to find out pretty soon now, I think.

Bonds have been beaten up with a good solid dose of hate. Time to buy more, IMO, not back off.  This is a setup for a rush for the exits in equities when the “boom” reveals its evanescent nature. Earnings are coming and they are not going to be pretty (chart from zero hedge).

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