Hello traders, and merry Christmas (if you celebrate it)!
In this video from today, Chief Currency Strategist John Kicklighter talks about why 2015 could finally see a trigger that shoots the market imbalance back to more normal levels, particularly with regards to equities (S&P500). This shake-up of excessive leverage, which has hints of what happened in 1997-1998 (the Asian crisis and the collapse of the Long Term Capital Management hedge fund) and in 2008…
What is highlighted in J. Kicklighter’s video, as per my screenshots below is not only how extreme positioning in the S&P500 is matched by ever-diminishing yield (screenshot 1), but also by an increasingly lower market participation (screenshot 2):
Screenshot 1:
Screenshot 2:
The question that remains unanswered is: what will the trigger be, that will pull this house of cards down? Will it be the collapse of Russia’s currency? Will it come from China?
Whatever it will be, if the correlations drawn to 1998 and 2008 are observed, then it will be pretty violent: a waterfall effect that will pull down unanimously all equities, all carry trades (the Yen crosses), and so on…
Here is the video:
Strategy Video: A Lesson for 2015 from Past Financial Crises - YouTube
Enjoy!