Last bear standing

WHO CARES ABOUT A FED TAPER ANYWAY? - What a day this past Friday! I am simply amazed. If you would have told me the result of the monthly US employment report ahead of the release, it would have done nothing to help. The idea that a solid NFP print and drop in the unemployment rate would put pressure on the equity markets on a solidification of Fed taper prospects, is completely foreign at this point, and has gone out the window. It is rather scary in my view. Now there are no longer any bears out there, and everyone is certain the stock market will only continue higher. It seems market participants either feel this latest bout of healthy data out of the US will still do nothing to accelerate a Fed taper, or market participants just don't care about a Fed taper and believe the impact of such a move will be insignificant. So now it is all about stronger, healthier data out of the US, and perpetual free money. Personally, I continue to find deep discomfort in the fact that we have seen such a disconnect between the real economy and financial markets.

LAST BEAR STANDING - Although the real economy is recovering, this recovery has been nothing like the boom seen in the financial markets. I still contend this rally in stock markets will soon fizzle out in spectacular fashion as the move is entirely artificial and has been supported on nothing more than Fed incentive. I also believe this capitulation and liquidation is stocks will happen sooner than later and am not in the camp that has defected to the bullish side. Now everyone is talking about S&P 1850, 1900, and 2000, while the risk for a break back below even 1775 is considered to be remote. Technically, the performance in the stock market has been most unhealthy and the inability to undergo any form of a legitimate corrective retreat should be more than disconcerting. Finally this past week we got some legitimate signs that the Fed should start to reverse, with solid GDP and employment data, and yet, market participants no longer want to recognize this data should discourage additional investment in risk assets.

A LIGHT IN THE DARKNESS - Fortunately, currency markets have been telling a different story and I believe are proceeding with the necessary caution required. Look no further than the EUR/CHF cross rate, which I have highlighted many times in recent weeks. The drop to fresh multi-day lows in this market is telling a different story and shows that the currency market is more worried about the impact of a Fed taper and the implication for risk assets. While the Fed intervention is the most well known intervention out there right now, we should not forget about the SNB intervention at 1.2000 EUR/CHF. If this level is threatened over the coming days, it will likely trigger a credibility crisis for the SNB, which in turn could very realistically extend to a credibility crisis for any central bank that has chosen to use intervention as a strategy to artificially support the economy. If 1.2000 is broken, it will remind investors that no intervention can ultimately last forever, and at the end of the day, whether you push off for one year or 5 years, eventually, nature will take its normal course. The time has come for the global economy to once again stand on its own two feet. The process may be painful, but we desperately need to get back on the path to normal recovery.