Pressure Points In The Market

I just took a look at areas of prospective bubbles in the market the other day and concluded there was nothing significant poking its head out. But I wanted to revisit that question and articulate or expand on a couple more pressure points in the market today:

1. The large decline in oil prices has crushed the energy sector which had been one of the drivers of growth in the US. There may be more risk and implications there than what the market is indicating.
2. The large decline in commodity prices, predicated on the slowdown in China, which has crushed Australia, Brazil and Canada. Australia, China, Canada and the UK have large residential real estate bubbles.
3. ECB QE and the financial repression of NIRP is leading to a recalibrating of currencies and a fight to the bottom. 
4. Japan QE and rebalancing could push Japan over the edge as the curtain is finally pulled back.
5. Geopolitical risks could escape beyond borders and proxies - Ukraine, Syria.

Short term gain for long term pain

Mr. Putin appears to have come out on top with the West in his annexation of Crimea.

I don't think so.

Russia is heading for recession. Pent-up social discontent is likely to manifest when the good times pass. He has garnered tremendous short term gain at the expense of long term relationships.

Irrespective of whether Putin is around, this one will come back to bite Russia. 

It's a set-up

Not an intentional set-up. Not a malelovent set-up. But a set-up all the same.

The set-up is this. The market is extended. But we already knew that. We have been conditioned to buy the dip (Bernanke put and everything). Everyone is happy. Stocks have gone up. There are no signs of disaster around. The economy is healing. However, there are signs of momentum sapping and sentiment changing. The coup de gras is a combination of respected commentators talking caution (Marks, Montier, Dalio, Gundlach), Fed tapering, meme that new Fed governor will be tested, geopolitical conflict & China cracking.

This is how the worm turns. And this is how it takes time for the market to digest the turn and then in turn justify the takedown. All of these things and more have been around a long time. Fear and risk are always there. But there are times when the market sits up and takes notice. I think now is one of those times. I am trying to lighten up going into mid-14, but it is hard to sell names that I think are good long term plays (even when I know they WILL take a 20%+ haircut in any takedown).